How do you define multi-asset investing?Tony Finding: It’s having the flexibility to invest across a range of asset classes. As asset allocators and multi-asset investors, we can avoid an asset class if we think it’s overpriced and set-up for the risk of permanent loss. You can use it to create a range of different outcomes because you are not constrained to one particular asset class.
Daniel Peters: It’s a form of delegation. Ultimately, all trustees are looking after multi-asset portfolios and decide which asset classes they want to invest in. Looking at multi-asset funds is effectively saying that they are going to delegate some of those asset-class decisions to a fund manager.
Katherine Lynas: It also gives smaller investors access to investment opportunities that they couldn’t access by themselves.
Peter Martin: It’s a way of approaching an outcome, an investment return that you desire or meets your needs. It’s making sure that you have a diverse source of return across different asset classes and move away from looking at two types of risk and two types of exposure. People are moving away from the equity/bond percentage split. As return expectations get lower and lower for mainstream asset classes a lot of pension trustees and other investors are being forced to look for other sources of return or in areas which are less familiar. You may do that yourself or you may do it through multi-asset funds, but it’s not just investing through diversified growth funds (DGF). It’s more a philosophy. It’s how you get the return which is not as correlated to traditional markets.
Kishen Ganatra: We’ve got a feel for that. There is a significant breadth of styles and approaches within multi asset trying to tackle different objectives. The two core multi-asset strategies try to provide an almost all-in-one solution to traditional beta or an all-in-one growth portfolio. Then we have idiosyncratic multi asset which are much more about diversifying away from traditional beta and almost being a liquid alternative approaching what some would describe as more hedge fund like.
Adam Willis: That’s a key question. We could probably all agree on a sensible definition for what a multi-asset fund is. It’s a pretty uncontroversial topic. However, it’s the categorisation of different DGFs that I see trustees struggling with. On the face of it they have similar objectives but they achieve them in different ways. On some occasions there may be a selection process where three DGFs turn up. One is, perhaps, a strategic or a low turnover DGF, and easy to understand. It could be up against a DGF that employs a lot of hedge fund-like tactics including leverage and complex use of derivatives. Having them in the same-use class is difficult, because if things go wrong it’s hard from a governance point of view to understand why that’s happened.
Ganatra: When we talk to clients about selections, we need to understand the exact objective of the multi-asset strategy in terms of where it fits into the portfolio. Is it a step between fixed income and equities or is it trying to provide an alternative return stream in terms of diversifying by using more alternatives or relative value-type trades? The objectives become important when trying to work out which strategies are the most appropriate to different clients.
Martin: It’s not just DGFs. As pension funds mature it’s about producing the income source to pay the pensioners. In my previous lives I referred to multi-asset diversified income funds or multi-asset liquid products or multi-asset credit. The idea was a diversified source of returns for different sources of outcome. One could be growth and you could have LIBOR plus 5%, you could have multi-asset credits or go for an income approach which involves equities. It’s a broad church, which goes back to my point about philosophy. Look at what you’re trying to achieve and work backwards.
Peters: I see two reasons why trustees typically look at multi-asset funds: governance, specifically to access asset classes that they wouldn’t otherwise have access to, or to enable more tactical asset allocation between strategies. It’s important to understand what the key driver is because some funds will be more active in their asset allocation than others, so knowing what the purpose
of the fund is in the first place is critical.
