The idea that trustees will be trapped in a fund that isn’t what they thought it was is a theme that troubles John Nestor, a director at Law Debenture. Knowing exactly what is in the investment management agreement and exactly the degree of discretion any manager has to make changes to the asset allocation will stand trustees in good stead.
“We don’t want to find ourselves in cocoa futures as everyone stops drinking hot chocolate,” says Nestor. “Don’t give managers carte blanche – if they want to be in commodities, then let’s talk about what they are going to be.”
But exposure isn’t as great a worry as disposal, he adds. “You could be trapped in cocoa futures, then there’s no one looking to buy those from you. Liquidity is hugely important, so the more sophisticated the solution, the more due diligence trustees should do on the exit strategy.”
Of course, there is no single right answer, but there are plenty of wrong ones.
Goodyer suggests trustees consider alternatives as growth assets do not need to be liquid and includes property, infrastructure, debt or derivative-based strategies in that.
“Investors should do their homework before investing and scrutinise the manager skill, fees, risks and role of such strategies in the overall portfolio,” says Lustig.
Investors need all the available weapons in their arsenal to generate returns, he adds, including alpha, traditional or alternative betas and they shouldn’t rely on a single source of return. So while multi-asset has a place in a portfolio, trustees must avoid the false hope that it can solve all their investment problems.
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