Multiple Managers

Multiple Managers — Meaning, Definition & Full Explanation

Multiple managers refer to an investment strategy where a single investment fund or portfolio has its assets managed by several distinct, independent fund managers or sub-managers. This approach aims to diversify management styles and expertise, with an overarching investment advisor or sponsor overseeing the collective performance. Each manager is typically assigned a specific portion of the assets or a particular investment mandate.

What is Multiple Managers?

A multiple managers strategy involves distributing the assets of a single investment portfolio or fund among several independent investment managers, often called sub-managers. Each sub-manager is typically responsible for a specific segment of the portfolio, such as large-cap equities, fixed income, or international assets, allowing them to focus on their area of specialisation. The primary objective behind employing multiple managers is to achieve greater diversification not just across asset classes but also across different investment philosophies and management styles. This strategy aims to enhance risk-adjusted returns by potentially smoothing out performance volatility that might arise from relying on a single manager's approach. It also provides access to a broader range of expertise that a single fund manager might not possess across all market segments.

How Multiple Managers Works

The operation of a multiple managers strategy typically begins with an investment advisor or fund sponsor establishing a master fund or portfolio. Instead of hiring a single manager, the advisor selects several specialist sub-managers. Each of these sub-managers is then allocated a specific portion of the fund's total assets and given a defined investment mandate. For instance, one sub-manager might focus solely on growth stocks, another on value stocks, and a third on government bonds. The overall investment advisor retains responsibility for setting the fund's strategic asset allocation, monitoring the performance of each sub-manager, and ensuring they adhere to the agreed-upon guidelines and risk parameters. The advisor also handles investor communication and reporting. This layered approach allows the fund to benefit from diverse expertise and investment strategies, with the potential to achieve more consistent returns across various market conditions. It's distinct from a "fund of funds" where the primary fund invests in other entire funds, rather than directly allocating assets to individual managers within its own structure.

Multiple Managers in Indian Banking

In Indian banking and finance, the concept of multiple managers is primarily observed within Portfolio Management Services (PMS) and large Asset Management Companies (AMCs) offering mutual funds. While SEBI (Securities and Exchange Board of India) does not classify "multiple managers" as a distinct fund type, the underlying strategy is prevalent. For PMS providers regulated by SEBI (under SEBI (Portfolio Managers) Regulations, 2020), it is common for a PMS firm to have different fund managers or teams specialising in various investment strategies (e.g., small-cap, large-cap, multi-asset). A high-net-worth individual’s portfolio might be allocated across these internal specialists. Similarly, large Indian mutual fund houses like SBI Mutual Fund, HDFC Mutual Fund, and ICICI Prudential Mutual Fund employ multiple fund managers, each responsible for specific schemes or portions of schemes (e.g., an equity fund manager, a debt fund manager, an international fund manager). Though they operate under the AMC's umbrella, their individual management of specific funds or asset classes embodies the multiple managers approach. This strategy is beneficial for investors seeking diversified expertise, though it can lead to higher expense ratios or management fees compared to single-manager funds. Candidates for JAIIB/CAIIB exams may encounter this concept when studying investment management, portfolio construction, and regulatory frameworks for mutual funds and PMS.

Practical Example

Consider Ramesh, a high-net-worth individual residing in Mumbai, who decides to invest ₹10 crores through "Vista Wealth Management," a SEBI-registered Portfolio Management Service (PMS) provider. Vista Wealth Management employs a multiple managers strategy for its clients' portfolios. For Ramesh's portfolio, Vista's Chief Investment Officer (CIO) decides to allocate the funds across three specialist sub-managers:

1. Manager A (Equity Growth Specialist): Manages ₹4 crores, focusing on high-growth Indian equities.
2. Manager B (Value Equity Specialist): Manages ₹3 crores, focusing on undervalued large-cap Indian stocks.
3. Manager C (Debt & Hybrid Specialist): Manages ₹3 crores, investing in corporate bonds, government securities, and arbitrage strategies. Each manager independently makes investment decisions for their allocated portion, adhering to Vista Wealth's overall risk guidelines and investment philosophy. The CIO regularly reviews the performance of each sub-manager and adjusts allocations if necessary, ensuring Ramesh's portfolio benefits from diverse expertise while maintaining a cohesive strategy.

Multiple Managers vs Fund of Funds

The terms "Multiple Managers" and "Fund of Funds" are often confused due to their shared characteristic of involving multiple underlying investment entities, but their structures and mechanisms differ significantly.

Feature	Multiple Managers	Fund of Funds (FoF)
Investment Approach	Direct allocation of assets within a single portfolio to different sub-managers.	Invests in units/shares of other existing mutual funds.
Underlying Assets	Portions of the main fund's assets are managed directly by individual managers.	The main fund's assets are units of other funds.
Management Layer	One layer of direct management by sub-managers under a primary advisor.	An additional layer of management, as the FoF manager selects other funds.
Cost Structure	Typically higher internal fees due to multiple specialist managers.	Often involves two layers of fees: the FoF's fee plus the underlying funds' expense ratios.

A multiple managers strategy is typically used when an investment advisor wants direct control over the specific asset allocation and manager selection within a single fund structure. In contrast, a Fund of Funds is chosen by investors who want broad diversification across various existing funds and strategies, relying on the FoF manager to select the best performing underlying funds.

Key Takeaways

• Multiple Managers is an investment strategy where a single fund or portfolio's assets are managed by several independent sub-managers.
• The primary goal is to diversify management styles and expertise to potentially enhance risk-adjusted returns.
• An overarching investment advisor or fund sponsor oversees and coordinates the activities of all sub-managers.
• This strategy is commonly employed in Portfolio Management Services (PMS) and within large Indian Asset Management Companies (AMCs).
• While not a distinct fund category, SEBI regulates the entities (PMS providers, Mutual Funds) that utilise this strategy in India.
• It can lead to higher overall management fees due to the involvement of multiple specialist managers.
• The strategy is distinct from a "Fund of Funds," which invests in other existing mutual funds rather than directly allocating assets to managers.
• Understanding this concept is relevant for candidates preparing for professional banking exams like JAIIB/CAIIB under investment management topics.

Frequently Asked Questions

Q: What are the main benefits of a multiple manager strategy? A: The main benefits include diversification of investment styles, access to specialised expertise across different asset classes, and the potential for more consistent, risk-adjusted returns by reducing reliance on a single manager's performance.

Q: Are multiple manager funds typically more expensive than single-manager funds? A: Yes, generally, multiple manager funds can incur higher management fees or expense ratios. This is because the overall fund must compensate several specialist sub-managers for their expertise and active management services.

Q: Who is ultimately responsible for the performance of a multiple manager fund? A: While individual sub-managers are responsible for their allocated portions, the overall investment advisor or fund sponsor retains ultimate responsibility. They set the strategy, monitor sub-manager performance, and ensure adherence to the fund's objectives and risk parameters.