Viability
As mentioned before, there are more than 1,000 multi-asset portfolios domiciled in the UK. Many of these might be bespoke creations for just one high net-worth client, or so small these are not marketed or even listed within the various Investment Association sectors.
Simply being able to construct a risk-robust portfolio with a good management team round it is not enough for the purposes of longevity, which is why many advisers choose to outsource rather than have discretionary investment permissions and create their own in-house portfolios.
Ben Willis, senior investment manager for Whitechurch Securities, explains making and managing a multi-asset fund is “not straightforward”. For a start, he says, getting the assets in to make it commercially viable is “just one hard part”.
He says: “The actual setting up of a fund is not cheap – anywhere between £50,000 to £150,000 in the first year alone.
“An authorised corporate director (ACD) has to be appointed, and these usually take care of all the administration, trading and regulatory requirements.”
Once this has been agreed, Mr Willis says the next hurdle is actually marketing the fund and attracting more assets – which can be hard when there is no track record to rely on.
“In addition”, he says, “charges on small funds are much higher due to the fixed costs of an ACD. This is a catch-22 situation in this cost-conscious world, as to lower the fund costs, the fund has to attract assets, but investors won’t invest in a fund with high charges.”
He believes a fund should get to around the £50m stage to start being truly profitable for the fund managers, and the costs need to be roughly on par with the peer group.”
Other considerations
For Peter Sleep, senior investment manager for Seven Investment Management, currency hedging, tax and choosing whether to go active or passive are important considerations.
He says: “Hedging can be an expensive process but can reduce volatility arising from sterling moving around but, similarly, having some openness to holding safe-haven currencies like the US dollar, Swiss frank or Japanese yen.
"The risks and rewards of hedging or not must be considered and implemented."
Mr Sleep also advocates selecting multi-asset portfolios by type: active, passive or a blend of the two.
Moreover, he cites the age-old issue of taxation.
"A UK taxpayer will want to ensure all the funds she selects have UK tax reporting status, or she could end up paying too much to Philip Hammond," he suggests.
simoney.kyriakou@ft.com
