Barclays spin-off in with wealthy ambitions

With total assets under management of £10bn (E14.75bn), Barclays Wealth’s multi-management is one of the largest sub-advisory operations both in the UK and Europe.

Launched at the beginning of 2005, it now includes 18 different long-only, single asset class funds, covering all markets across the globe, explains Ian Hale, director of collective investments and Bobby King, head of collective propositions at the UK firm.

The funds, each typically managed by two to five managers, are sold internally as building blocks both within discretionary Barclays’ private client portfolios and in the five Barclays’ risk profile funds. These multi-asset class actively managed portfolios are viewed as a kind of substitute for discretionary portfolios.

But not just any firm is able to set up such a multimanagement structure, claim its purveyors. “Having the scale and the assets behind us gave us the choice to go down the route of sub-advisory or fund of funds,” explains Mr King. “The experience in the industry is that if you have the choice you go sub-advisory, if you don’t have the scale, you don’t have the choice and you adopt the fund of funds approach because it is the only thing you can do.”

The benefits and the strengths of a true multi-manager business versus fund of funds are numerous, according to Mr Hale and Mr King.

These include the ability for a bank to have its own funds, specifically tailored to client’s needs, get the managers to manage the portfolio in the way they wish, as well as getting access to investment managers that are not available to retail investors. “Some of the best investment managers are normally only willing to manage mandates of significant size for large institutions,” says Mr Hale. “We have got the scale to get access to them and by subadvising them, we also allow the underlying retail investors to get that access.”

There are also cost efficiencies associated with subadvisory. Scale enables the firm to negotiate investment management fees with sub-advisers, providing a cost advantage to the business. And there are control benefits.

“When a fund is sub-advised, the pool of money is only invested for that specific firm’s investors,” says Mr King.

“In sub-advisory we are masters of our own destiny.” In a fund of funds approach, instead, there would be always the risk that, if a firm has a contrary view to other players in the market and it is not looking to sell the fund, it might see the values of its investment being eroded by the actions of others.

Another universally recognised benefit of multimanagement is that blending different managers employing different strategies will deliver a higher performing portfolio. “What is important is to get the right blend of managers who can produce the best risk-adjusted return,” says Mr King.

At Barclays Wealth, that often includes a core of more established managers but also nimbler operations, more of a boutique nature, explain the two senior managers.

Third-party managers are selected in-house by a quantitative analytic team and a second team of researchers who overlay the quantitative screening with a qualitative judgement on the fund managers. The qualitative aspect is especially relevant in the case of boutiques, who might not meet some of those criteria.

In-house manager Barclays Global Investors [BGI] also plays an important role in the Barclays Wealth multimanagement operation, as it currently runs £1.3bn of assets, invested in core single asset class funds having lower alpha target, which is BGI’s area of expertise. “We are just looking for the best asset management firms in the world, and Barclays happens to have one of the best asset management firms within its stable and we use them when appropriate,” says Mr King.

Quality of investment process is what Barclays Wealth really looks for in its sub-advisers. Being transparent about their process is also paramount. “If managers can’t articulate what their investment philosophy is, it means they don’t have one,” says Mr King.

Although managers can sometimes be asked to take part in road shows, marketing or sales support is not that important to Barclays, as the firm is able to rely on a large distribution capability, say the managers at the UK bank. Similarly, brand is not a significant selection criterion, nor is having a presence in the UK.

Barclays Wealth’s multi-manager operation is rapidly expanding and in the near future it will include a much wider range of asset classes, including hedge funds, commodity and property. However, in some cases the firm will have to purchase funds because of regulatory constrains. “Where we have a gap, we are filling in with our own single asset classes and that is been done on a subadvisory basis. Where we can’t, we will go to a fund to bridge the gap until such a point where we can do it on a sub-advisory basis, that is the model we believe in,” says Mr King. ET