We have recently seen a meaningful increase in the number of multi-manager funds in a response to investor desire for all-in-one, managed and diversified investment products. Toby Goodworth of bfinance recently explained the resurgence: "The multi-manager hedge funds have made themselves more attractive — we have seen the emergence of funds of subadvisors, so rather than the classic fund-of-hedge-funds setup where one allocates directly to external underlying funds, a subadvisory relationship sees the constituent managers allocated a sleeve of the capital directly.”
Are you a multi-manager fund looking for ways to optimize and scale your infrastructure? The complexities and nuances required to manage a multi-manager firm not only require significant human capital, but the right technology to unify, consolidate, and optimize your operations. This blog focuses on some of the challenges that a multi-manager fund may experience.
Cost-effective manager onboarding
More managers should not equate to increased non-compensatory costs. In fact, your platform cost per manager should decrease the more you bring aboard. They need to start generating investment ideas immediately; ensuring their technology is capable of easily assimilating their strategies and asset classes is critical to a smooth onboarding process. Your platform should scale with you – as the number of managers grow, so should the infrastructure supporting them – but not at a greater cost.
Transparency & manager autonomy
A diverse set of portfolio managers requires a certain level of autonomy for each, but as a single firm you need full transparency to manage a tight operational ship. Your investment management system should be a unified, all-in-one platform at the hub of your operations. You need a holistic view across the entire fund, while affording your portfolio managers the autonomy to generate and execute their investment ideas.
Unify trading, save on trading costs
Whether you have a single trading desk for all your portfolio managers, or each manager has a separate one, multi-managers need a platform that can handle a vast amount of trade, order, and execution activity. A truly unified system allows you to automate low-touch orders and internally cross and block orders to save on trading costs.
Robust compliance, risk mitigation
Compliance is crucial at both the portfolio-manager sleeve and overall fund level. As a firm, you need a platform that gives you a holistic view into your fund’s compliance. Portfolio managers need the assurance they are compliant throughout the entire trading lifecycle. With numerous trades and investment ideas being executed across managers, your system should help manage risk, including ensuring that orders are properly marked through the lens of Regulation SHO. Your system should also be flexible enough to implement standardized workflows to ensure operational consistency but allow for tailoring per manager.
Portfolio of ‘Best Ideas’
Active management requires a steady inflow of investment ideas. As a multi-manager, an investment idea’s returns are only as strong as the conviction a portfolio manager has in a specific security. In the years since the 2008 financial crisis, portfolio managers have reduced risk in their portfolios, hedging against uncertainties. Although diversification is critical to reducing risk, it may hinder a portfolio manager from making high conviction picks. You need a platform that allows you to have a portfolio that can facilitate a ‘Best Ideas’ strategy, taking the best of the best from the managers you choose, auto-upsizing based on a set of pre-determined rules.
To find out how Eze Investment Suite can optimize your operations, download our product sheet.