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ANALYSIS: Why professional investors buy multi-asset funds

Multi-asset, or asset allocation funds, have been an investor favourite for years. But why would a professional investor invest in these one-stop shop funds?

It’s probably a fair assessment that nearly all of the more than €300bn of net investments in multi-asset funds over the past three years stem from the retail sector. Multi-asset funds (or funds-of-funds) are an ideal vehicle for do-it-yourself investors looking for a simple, risk-managed investment solution that delivers a steady return.

“Five of the ten most popular products on our execution-only platform are multi-asset funds. If you have ‘income’ in your name as a fund, you’ll get inflows,” says David Karni, head of portfolio management at BCC Risparmio & Previdenza, a collective of regional banks in Italy.

But does investing in multi-asset funds make sense for professional investors too? After all, professional wealth managers are paid to manage their clients’ risk exposure and asset allocation. By allocating money to multi-asset funds, they would at least partly cede control to external managers. This dilemma probably explains why roughly half of Europe’s professional investors prefer to stay away from investing in multi-asset funds altogether (see chart).

Frank Reisbol, director of Carnegie Luxembourg, a private bank catering wealthy Nordic investors, belongs to this category. “Multi-asset funds have embedded asset allocation, making it difficult for us to control portfolio risk,” he says.

ishma oennasingRishma Moennasing

Multi-asset funds also do not fit in the philosophy of Rabobank in the Netherlands. “We want to be in control of asset allocation ourselves,” explains Rishma Moennasing, a fund analyst at the bank. “And we want to fit in certain themes [such as robotics] into our asset allocation as well. Investing in multi-asset funds doesn’t help such an approach,” she adds.  

Diversification benefits

But other investors do allocate large chunks of money to multi-asset funds, precisely because of their asset allocation benefits.

“We invest in multi-asset funds for diversification purposes,” says Grigorios Aggelidis, director at the German wealth manager Geneon Vermögensmanagement.

Alongside the actively managed funds that reflect Geneon’s own asset allocation, the company allocates 15-30% of client assets to multi-asset funds. What Aggelidis seeks to achieve with this approach, is to generate smoother returns in the long run by spreading his eggs across different baskets.   

Read on the next page how this works in practice 

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