Issue: December 2012 / February 2013

Multi managers are evolving to serve clients better

Nersan Naidoo, chief executive of Sanlam Multi Manager International, shares his thoughts on how clients stand to benefit from the evolution in the multi-manager environment.

Evolution is an ongoing process in the global investment landscape, and South Africa is no exception. Financial institutions must also evolve if they are to serve the needs of their clients effectively.

Over the past decade, a number of themes have played out on the global stage and the pendulum has certainly swung. Prevailing wisdom is being challenged, reconsidered and reversed. Multi managers first entered the scene in the 1980s, when it became clear that selecting managers who could consistently outperform the index was a skill in itself.

What followed was a proliferation of white-label fund of funds, the growth in popularity of absolute- return investments, and a move towards specialist mandates in a market characterised by low interest rates, low inflation and bull market returns.

But then the global financial crisis brought with it a volatile and uncertain market environment, increasing regulation, and a move back to balanced mandates as well as a sharp focus on managing costs and reducing Total Expense Ratios (TERs).

In this increasingly complex environment, it is the multi managers’ ability to create simplicity for their clients that sets them apart. While in the past multi managers could successfully offer off-the-shelf solutions, the needs of clients have changed as the market has evolved. In light of this, multi managers have also changed.

Overseas, multi managers moved into a space called fiduciary management. In South Africa, it is called “implemented consulting”. In essence, the implemented consultant now looks at creating additional value for the client by offering all the investment services across the value chain: from managing risk, to investment advice, to implementation, governance, administration and all other services along the way.

It means the multi manager has moved away from being simply a product provider to being a provider of a holistic, value-added solution. The multi manager uses its skills base and infrastructure to make life easier for the client.

Through the implemented consulting process, the multi manager partners with the client to construct one-of-a-kind solutions. They not only incorporate all the variables multi managers usually consider when constructing portfolios, but also an in-depth understanding of the risk and return objectives of the client. Because the construction of each portfolio starts with an in-depth understanding of the client’s need, each solution is unique.

The advantages of this new approach for clients are notable, particularly as the investment space continues to become more complex and challenging. It offers a fresh, simple way of doing business.

If implemented well, it can provide a real competitive advantage to their clients’ business.

This includes not only the construction of tailored portfolios, but also an increased focus on risk-management and reporting to aid clients in meeting the ever-increasing regulatory burden.

The sector is also increasingly partnering with independent financial advisors, empowering them to construct solutions that are targeted at meeting the needs of their specific client base. The days of pre-packaged products are gone. Instead, the industry has evolved into a consultative and inclusive model that offers solutions across the supply chain.

In addition, by offering solutions across the value chain, total costs are decreasing. Established companies with access to a cross-section of services are likely to take the lead in managing TERs.

To the end client, this process is largely invisible. After all, the outcome has been very beneficial: a simplified investment process that is more cost effective. For the multi manager industry, it has meant a change in responsibility for its staff, a renewed structure, and a shift away from doing business the way conventional wisdom would dictate.

However, it is clear that the evolutionary process is by no means completed. Through this process, we’re still likely to see significant change ahead.

We are evolving to serve our clients better and at lower cost. This is an extremely positive move and we are excited by these developments. It can only lead to improved outcomes our clients and consequently must also be positive for the industry.

Naidoo ...improved outcomes

About Sanlam Multi Manager International

Sanlam Multi Manager International (SMMI) designs and blends unique portfolios by identifying, selecting, and combining the best managers with the aim of optimising returns in the long run. Based on a deep understanding of our respective clients’ investment aims and fundamental insight into how they perceive risk, SMMI is able to construct portfolios that help clients achieve their investment goals.

SMMI has been a force in the local market since 2002. It offers both institutional and retail solutions that are designed to meet a variety of investment needs.

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