Mercer Investment Consulting has given tacit approval for the international trend towards single-manager controlled multi-strategy funds of funds (FoFs), through the expansion of its research effort into the area.

Mercer announced at a “Meet the Rater” gathering of about 120 funds managers last week that, in response to increasing exposure by managers to new categories of investments, it would extend its research in four areas: . short duration high income within Australian fixed interest managers . mutli-strategy FoFs, being implemented, as an alternative to hedge FoFs, with a focus on offerings from single institutional managers . market neutral strategies . global long/short strategies. Marianne Feeley, head of manager research, who moved from the London office to Sydney in January, said that Mercer would not include the multi-strategy FoFs offered by asset consultants, such as its own products, in the new research but would rather concentrate on the offerings of big institutions. In Australia, these have typically been the large quant-based managers such as State Street Global Advisors and Barclays Global Investors. “We are seeing more managers assembling these types of products as they can be offered by one manager, benefit from greater transparency and one layer of fees,” she said. They often include a mix of market neutral, currency and relative value funds. Feeley said there was a trend which she had heard referred to as the “new balanced fund” and this was “open to interpretation”. Such funds are very different from the old balanced funds, which were basically single-manager offering covering three or four major asset classes with tactical asset allocation within tight boundaries. New balanced funds typically include futures for market exposure and involve swaps for “porting” alpha from one asset class to another. While asset consultants have been researching alpha transport strategies for several years, their adoption by Australian super funds has been slow to date. The new research areas are not confined to institutional products. The inclusion of short duration high income product research recognises the growth in the number of retirees who have driven increased demand for cash-plus-income distribution products. “We are assisting financial planners to understand the full universe of products available that can yield a minimum of bank bills plus one per cent per annum,” Feeley said. While Mercer has already researched market neutral and global long/short strategies, it is expanding its coverage as these products relax their long-only constraints in global markets, chasing more efficient portfolio construction. Tony Cole, the head of Mercer Investment Consulting, told the gathering that Mercer had suffered several senior departures in the past two years but had rebuilt its team and was committed to providing the best possible research and consulting. The recent addition of Andrew Harrex, a former Mercer consultant who has returned to the fold, has been important in Mercer winning a major client away from Russell Investment Group – the Government Employees Superannuation Board of Western Australia.

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