LONDON - The use of manager-of-managers investment briefs has accelerated in the U.K. and Europe during the past year.
SEI Investments (Europe), Frank Russell Co., Northern Trust Global Investments Ltd., Escher U.K. Asset Management Ltd. and Attica Asset Management Ltd., all of London, have among them pulled in new mandates worth L1.6 billion ($2.3 billion) since April 2000.
While this represents a tiny portion of assets of the overall European pension market - WM Co. Ltd., Edinburgh, estimates the U.K. market alone to be L800 billion - the market for managers of managers has grown significantly in the past year particularly in the United Kingdom.
Firms providing manager-of-managers investing estimate the market to be growing around 30% a year and say they have to thank local consultants, Gartmore Investment Management PLC Chairman Paul Myners and U.K.-based balanced managers for their newfound success.
Some of the notable recent mandates include:
* Mayborn Group Retirement Benefits Plan, London, dropped balanced manager Prudential Portfolio Managers Ltd., also of London, and appointed Frank Russell to manage all of the assets of its L13 million defined benefit plan in a manager-of-managers arrangement.
* Rexam Pensions Trustees Ltd., England, appointed Frank Russell to a L275 million manager-of-managers international equity mandate after the L1.1 billion defined benefit pension plan decided to adopt a core/specialist approach and dropped balanced manager Merrill Lynch Investment Managers, London.
* Givaudan SA, Geneva, appointed SEI Investments to manage the fragrance and flavoring group's e151.6 million ($135 million) defined benefit assets.
Endorsed by Mercer
William M. Mercer Ltd., London, now endorses the use of manager-of-managers arrangements, particularly for small pension plans, said Andrew Kirton, head of U.K. investment consulting.
He said a manager-of-managers approach is harder to justify for large pension plans and he does not think it necessary for plans with assets of L100 million or more.
"This (approach) gives smaller plans access to a diversified ranges of managers, which is something plans with small pools of assets cannot easily get," he said. Trustees at smaller plans often have difficulty finding sufficient time and resources to appoint a range of managers, he added.
Trustees at many smaller funds also had grown increasingly dissatisfied at using balanced managers, whose performance track record generally has been poor in the past few years.
Frank Russell had a particularly strong start to 2001, winning five new client mandates with assets of e920 million during the first quarter. This compares with four new mandates worth e135 million during the first quarter of 2000. It won assets of e1.8 billion for the year ended March 31. Assets under management in manager of managers mandates jumped 88%, to e12.2 billion at the end of 2000, compared with a year earlier.
Jon Baillie, managing director-institutional investor services at Russell, attributed part of the growth in assets to new distribution arrangements in France, Italy and South Africa.
But he said the general endorsement given to manager-of-manager arrangements by U.K.-based consultants has helped raise their profile, particularly among smaller plan sponsors.
Millions in mandates
According to Amit Popat, Northern Trust sales director, the firm won L246 million in new mandates in the year ended March 31, taking total assets managed for U.K. and European clients to L966 million compared with L981 million. He would not give any client names. Total global assets under management for Northern Trust Global's manager-of-managers products were $13.8 billion at the end of the March compared with 17.1 billion in 2000. Mr. Popat attributed the fall in assets under management to market movements.
Mr. Popat said it is difficult to find a trend among users of manager-of-managers structures. To date, Northern Trust has had a broad range of clients with considerable variety in mandate size, from L20 million to L200 million.
"What we have found is that the mandates have been for total assets. There is a perception that the manager-of-managers approach is just a core product," he said. But he expects to see the firm increasingly appointed to manage specialist mandates and the firm plans to roll out a private equity and hedge funds fund-of-funds by the year's end.
Escher U.K. saw assets managed for institutional manager-of-managers mandates increase 35% to L190 million by the end of March, said Stuart Gordon, managing director.
He said the firm largely had picked up business from pension plans that had dropped their balanced managers. He would not give names. The firm focused on smaller U.K. pension plans with total assets of around L20 million.
The U.K. market is picking up momentum, he said, adding that mandate wins in the next 12 months are likely to grow at the same rate as in the last year.
SEI pulled in L80 million in new mandates in the first quarter of 2001. These new mandates represent the group's total client assets in Europe, as the firm only set up in London in late 1999 and spent much of its first year marketing.
"At the moment it's a small market of people who have bought manager-of-manager arrangements, perhaps 1% or less of the total pensions market," said Patrick Disney, SEI's managing director U.K. and European institutional business.
The launch last year of the Myners review of U.K. institutional investment raised key questions about trustee responsibilities and was a catalyst for the growth of this investment style, he added.
Attica Asset Management is a relative newcomer to the market, having been marketing its manager-of-managers product since only December. But the firm won new mandates worth L40 million during the first three months of this year, according to Guy Davies, director.
Frank Russell's Mr. Baillie said the market for managers of managers is still relatively small in the U.K. and that growth so far has been off a small base.
"I am reluctant to say this has been a boom. Clearly manager of managers is a small part of the U.K. market, but the growth potential is significant," he said.