Are multi-asset strategies delivering?
Advisers and asset managers discussed whether multi-asset strategies are living up to their frequently touted benefits and found while potential advantages are significant, many practical obstacles remain.
Despite acknowledging the drawbacks of multi-asset strategies such as diversified growth funds, panellists at a Pensions Expert event held this week also enumerated their potential benefits.
Diversify strategies and managers
Steve Tyson, senior adviser at consultancy Allenbridge, said DGFs were increasingly seen as a cheaper absolute-return alternative to expensive hedge funds.
Equity-like returns are more often an aspiration than a target
He said it was important to use modelling to understand how best to combine elements such as DGFs and multi-asset credit funds to achieve the best outcomes.
As such, he noted, manager skill is still essential, especially when it comes to DGFs, but warned not to rely on a single “star manager”, as a fund’s “best assets can follow him out the door”.
Tyson said DGFs were not currently beating target returns, and said it was “worth asking why you should pay a high fee for a product that has a 60 per cent to 90 per cent correlation coefficient to the equity market”.
More transparency needed
Rupert Brindley, managing director in JPMorgan Asset Management’s global pensions and advisory group, said it was helpful that there were now clearer benchmarks for assessing multi-asset strategies’ performance.
He cautioned pension funds, whether defined benefit or defined contribution, not to “overstack” DGFs, as this will leave a portfolio overdiversified, creating governance obstacles.
He added that well-networked groups of managers with good market access rather than “individual geniuses”, were essential to create return.
Brindley also said there was not enough transparency about performance objectives in the sector yet.
Distinguish aspirations from targets
John MacDonald, senior manager research consultant at Hymans Robertson, said DGFs could benefit DC schemes in particular by giving them more access to liquid asset classes.
He said multi-asset strategies would be more suited to some funds than others, but that most could find a manager out there to meet their requirements.
It was hard, however, to compare how multi-asset strategies and their managers are performing, he said.
“Equity-like returns are more often an aspiration than a target,” said MacDonald, and pension funds should remember this when they assess performance, he advised.