Multiple managers refer to the involvement of different managers in the investment strategy of a fund. This article explores the concept of multiple managers, their roles, strategies, and advantages. Whether you’re an investor or just curious about fund management, this comprehensive guide has you covered.
Understanding multiple managers
Multiple managers, often referred to as “multi-managers,” are a crucial aspect of the investment world. This approach involves the participation of various managers in the investment strategy of a fund, where the fund’s assets are divided among individual managers. The ultimate goal is to optimize returns and diversify risk.
The role of investment advisors
In the context of multiple managers, it’s essential to understand the role of an investment advisor. Each fund typically has a single investment advisor responsible for providing oversight. This advisor may be affiliated with the fund’s offering company or associated with a sub-advisor relationship.
Investment advisors play a significant role in the management of multiple manager funds. They contract with various managers to balance individual allocations. This approach allows them to leverage the expertise of different managers for different segments of the fund.
Structures of multiple manager funds
Multiple manager funds can be structured in various ways, often building on the concept of sub-advisory relationships or fund of funds vehicles. These structures offer flexibility and allow investment advisors to make strategic decisions.
Pros and cons of multiple managers
Here is a list of the benefits and drawbacks to consider.
- Enhanced diversification: Multiple managers can provide a broad range of investment strategies, reducing risk.
- Access to expertise: Investors benefit from the expertise of different managers in specific areas.
- Flexibility: Investment advisors can adjust allocations based on market conditions.
- Higher fees: Multiple manager funds tend to have higher fees than standard pooled funds.
- Complexity: Managing different allocations and strategies can be complex and require expert oversight.
- Performance variability: Returns can vary depending on the managers’ performance.
Multiple manager agreements
In some cases, investment advisors may contract with multiple managers to balance individual allocations. Sub-managers typically manage these allocations as separate accounts. The managing investment advisor works closely with the sub-advisors to ensure cohesiveness and efficiencies.
Multiple manager fund of funds
Instead of contracting with individual sub-advisors to manage fund allocations, some investment advisors opt for a fund of funds approach. In this structure, the investment advisor invests directly in publicly traded funds managed by different managers. The investment advisor still oversees the fund’s assets comprehensively, but they do not interact with sub-advisors or manage funds in separate accounts.
Multiple manager investing
Multiple manager fund options provide investors with access to a variety of strategies, including fund of hedge funds. Notable examples include the Goldman Sachs Multi-Manager Alternatives Fund and the Neuberger Berman Absolute Return Multi-Manager Fund.
Goldman Sachs Multi-Manager Alternatives Fund
The Goldman Sachs Multi-Manager Alternatives Fund offers a diverse portfolio of alternative investments. It allocates assets to numerous sub-advisors, including Acadian Asset Management, Algert Global LLC, and QMS Capital Management LP, covering equity long/short, dynamic equity, event-driven, and credit strategies.
Neuberger Berman Absolute Return Multi-Manager Fund
The Neuberger Berman Absolute Return Multi-Manager Fund includes core hedge fund allocations optimized for the best risk/return tradeoff. Top allocations are to Good Hill Partners, managing asset-backed securities, and Sound Point Capital, with a credit long or short approach.
Factors influencing multiple manager selection
When investment advisors decide to employ multiple managers in a fund, several factors come into play. These factors influence the selection process and determine the success of the fund. Here are key considerations:
One of the primary considerations is the investment objectives of the fund. Are the goals focused on income, growth, or a specific asset class? Advisors must align the managers’ expertise with the fund’s objectives to achieve desired outcomes.
Different investors have varying risk tolerances. Some are more risk-averse, while others are willing to take on more significant risks for potentially higher rewards. Investment advisors must select managers whose strategies align with the fund’s risk profile.
Asset allocation is a critical component of multiple manager funds. Advisors must determine how to divide the fund’s assets among different managers and strategies. The allocation should be carefully balanced to meet diversification goals.
Real-world example: Pension fund management
Multiple manager strategies are frequently employed in managing large pension funds. These funds hold assets on behalf of employees, retirees, or beneficiaries. Investment advisors overseeing pension funds often allocate assets to various managers with expertise in different asset classes, such as equities, fixed income, and alternative investments.
For instance, a pension fund may contract with a manager who specializes in managing global equities to handle a portion of the fund’s assets. Simultaneously, another manager with expertise in fixed income securities could manage a different portion of the fund. This approach aims to diversify the pension fund’s investments and potentially improve returns while managing risk effectively.
Regulatory factors play a significant role in the structure and management of multiple manager funds. Investment advisors must adhere to regulations and guidelines set by financial authorities. These regulations may impact the selection of managers, the types of assets that can be included in the fund, and reporting requirements.
Compliance and reporting
Investment advisors must ensure that the fund complies with regulatory standards. This includes proper record-keeping, disclosure, and periodic reporting to investors. Regulatory bodies, such as the SEC (U.S. Securities and Exchange Commission), often require transparency in fund operations.
Regulations are designed to protect investors and ensure their interests are safeguarded. Investment advisors are obligated to act in the best interests of the fund’s investors, and compliance with regulatory requirements is critical in achieving this goal.
Multiple managers play a vital role in the world of fund management. They provide investors with the opportunity to access diverse strategies, reduce risk, and potentially enhance returns. While multiple manager funds come with higher fees and complexity, they offer a level of expertise and flexibility that can be advantageous for those seeking diversified investment options.
Frequently asked questions
What are multiple managers in the context of fund management?
Multiple managers, often referred to as “multi-managers,” are individuals or entities involved in the investment strategy of a fund. They play a vital role in diversifying the fund’s assets and optimizing returns.
How do investment advisors work in multiple manager funds?
Investment advisors oversee multiple manager funds and contract with various managers to handle specific allocations. They play a crucial role in balancing the expertise of different managers for various segments of the fund.
What are the advantages of multiple manager funds?
Multiple manager funds offer enhanced diversification, access to expertise in different investment strategies, and flexibility in adjusting allocations based on market conditions. However, they may come with higher fees and performance variability.
Can you provide examples of multiple manager funds?
Examples of multiple manager funds include the Goldman Sachs Multi-Manager Alternatives Fund and the Neuberger Berman Absolute Return Multi-Manager Fund. These funds allocate assets to various sub-advisors with expertise in different strategies.
What factors influence the selection of multiple managers?
Several factors influence the selection process of multiple managers, including the fund’s investment objectives, risk tolerance, and asset allocation goals. It’s essential to align the managers’ expertise with these factors.
How do regulatory considerations impact multiple manager funds?
Regulatory factors play a significant role in the structure and management of multiple manager funds. Investment advisors must adhere to regulations and guidelines set by financial authorities, which may impact manager selection, asset types, and reporting requirements.
- Multiple managers involve various managers in the investment strategy of a fund, aiming to optimize returns and reduce risk.
- Investment advisors oversee multiple manager funds, contracting with different managers for various allocations.
- Pros include enhanced diversification and access to expertise, but cons include higher fees and performance variability.
- Multiple manager funds can be structured as sub-advisory relationships or fund of funds vehicles.
- Investors can access multiple manager funds, like fund of hedge funds, to diversify their portfolios.
View article sources
- Multi manager – INREV
- Investment structures and types of investment manager … – Charities Aid Foundation
- The Value Added from Investment Managers – JSTOR