Exploding onto the institutional market amidst a flurry of product launches, multiasset strategies have been one of the success stories of the past five years and they are set to enjoy a prolonged period as the new darling of fund management.
“The cynic in me worries there are more managers doing [multi-asset strategies] than have the skill. Some just got lucky.”
Tim Gardner
Unlike many other approaches trumpeted as the ‘next big thing’, multi-asset strategies have lived up to initial expectations and continue to gain momentum – as well as institutional assets – as they secure their position across the market. Multi-asset strategies, otherwise known as diversified growth funds (DGFs), offer a simple premise: access to a range of asset classes that will deliver equity-like returns with limited volatility.
Originally aimed at small and medium-sized pension funds struggling to meet the governance demands invariably associated with holding a diversified portfolio, multi-asset strategies have come to penetrate all corners of the pension fund universe. F&C head of multi-asset investment Paul Niven says: “The appetite among institutional investors is high for DGFs. Multi-asset funds look to have outpaced fixed income and equity products in terms of asset growth over recent years, certainly since 2008. These strategies have been in the ascendency and continue to grow in terms of demand from institutional investors and there is no sign of that diminishing at all.”
A survey of global fund managers with more than £14trn of assets under management carried out by consultant Aon Hewitt in March this year, found DGFs to be among a handful of asset classes expected to attract institutional investors over the next 18 months. Some 7% of respondents said DGFs would gain market share, which compared with 8% anticipating growing demand for global equity, and 7% for high yield.
Aon Hewitt co-head of multi-asset research Peter Halligan says: “Investor demand for equity-like returns with lower levels of volatility also looks set to drive demand for diversified growth funds over the next year or so. Investors are looking to fund managers to balance risk more effectively with a multiasset approach to investing.”
Being flexible
Part of the multi-asset success story lies in its flexibility. While the appeal may be obvious to small and medium-sized schemes lacking the resource to create diversified and dynamically managed strategies in house, they have also gained traction among the multi-million pound local authority and corporate pension scheme behemoths.
The county council pension schemes of Richmond, Sutton, and Bromley are just some of the local authority schemes considering diversified growth funds. Meanwhile the Bexley local authority pension scheme already employs Standard Life Investments to run a DGF which it reports as performing strongly having delivered 3.4% for the final quarter 2011 against a benchmark return of 1.5%.
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