Accelerando Associates’ Philip Kalus discusses the ‘path less travelled’ by fund selectors
Philip Kalus, managing partner at accelerando associates discusses why many fund selectors are stepping back from some new, but sound investment themes and managers, what they are missing and what might be a solution scenario.
Fund selectors in many places are expressing their need to expand their fund coverage to include additional asset classes such as specific frontier markets for example, and to include really outstanding managers and strategies within asset classes they already cover.
They are under pressure to allocate money beyond well-established choices, in order to achieve additional alpha as well as overall portfolio risk reduction.
It is not a new trend, indeed it has been going on now for a number of years, all over Europe.
The challenge of expanding, however, lies in the fact that fund selectors must step aside from their well-travelled paths, and also in many cases from their own internal procedures.
This is a challenge that for many has proven to be a step too far, mainly because of their own internal investment guidelines and more rigorous risk and compliance policies after the financial crises – especially at larger players.
This hesitancy has tragic consequences – not only for fund selectors, which are limited in selecting the best funds and managers, but also for the end-clients, as ‘best-of’ solutions can therefore only be provided to a limited extend.
It has also had tragic consequences for Europe’s fund management industry in general, as it limits the growth of some very reasonable off-the-track strategies and fund manager set-ups. Given this, they are sometimes too small to reach a sufficient size to operate efficiently.
It is very understandable, inasmuch as it distracts too much time in due diligence, by time-pressed fund selectors, to allocate relatively very little money in the end to support new strategies and managers managing low volumes.
Time is, unfortunately, a very limited and precious asset. Priorities must be set – and mostly they are set both logically and comprehensibly in relation to the size of allocations.
However, this contains the risk that fund selectors are often following and implementing the same strategies and managers, in many cases with less added-value for the end clients, and it must be said also less fun for the fund selectors themselves.