How should a family oversee multiple investment managers?
Key takeaways
Using several managers can diversify provider and style risk.
But it does not automatically create a diversified family portfolio.Individual managers normally optimise their own mandates.
Not the family’s aggregate balance sheet.The central challenge is portfolio architecture.
How the mandates fit together, what risks overlap and what role each allocation serves.Consolidated reporting is essential to effective oversight.
This includes performance, exposure, fee and liquidity reporting.
The short answer: Overall performance should be evaluated by a designated party
Where a family uses multiple investment managers, one party should be explicitly responsible for judging how the mandates work together. Otherwise the family may have several well-run portfolios but no coherent investment strategy.
The relevant question is not simply whether each manager has performed well. It is whether the collection of mandates delivers the intended return, risk, liquidity and diversification at family level.
Diversified providers do not guarantee diversified risk
Families appoint multiple managers for sound reasons. They may wish to avoid depending on one institution, access specialist capabilities or compare different investment approaches. Yet managers can arrive at similar underlying exposures through different products and language.
A family may hold several “balanced” mandates, each with substantial exposure to the same US equities, credit markets or investment factors. Direct holdings and private funds may create further concentration in sectors the family already owns through public markets. The family appears diversified by provider while remaining concentrated economically.
The problem is rarely visible in any single manager report.
From manager selection to portfolio architecture
Manager selection asks whether a firm is capable of performing a particular mandate. Portfolio architecture asks why the mandate exists, what it contributes and how it interacts with everything else.
This requires a family-level strategic asset allocation, clear risk parameters and an explicit purpose for each pool of capital. Liquidity assets, long-term growth capital and entrepreneurial or opportunistic allocations should not be judged by the same criteria. Nor should every manager be expected to do every job.
What effective oversight should include
A solution that enables families to effectively oversee investment managers requires six features:
- A consolidated view of performance using consistent methodologies and time periods.
- Look-through analysis of asset allocation, geography, currency, sector and material underlying exposures where data permits.
- Liquidity and commitment analysis across listed assets, private funds, direct investments and borrowing.
- An assessment of total costs, including management, custody, fund and performance-related charges where available.
- A documented manager review process covering mandate fit, organisational change, performance, risk and value for money.
- A governance calendar that distinguishes strategic decisions from short-term market commentary.
How a Private Investment Office helps
A Private Investment Office sits above the mandates. It can retain strong managers, replace those that no longer fit and identify where portfolios duplicate rather than complement one another. It also creates a consistent reporting framework, so that every provider can be judged against the role it was appointed to perform.
The aim is not constant intervention. Good oversight should reduce unnecessary activity by making the architecture clear and the review process repeatable.
Conclusion
The greatest risk in a multi-manager arrangement is not always that one manager performs badly. It is that no one is accountable for the combined result.
The answer is not necessarily another manager. It is an investment office capable of seeing across them. Contact us to discuss whether you need an overarching layer on top of the current investment managers.
Glossary
Portfolio architecture: The structure of an overall investment portfolio, including how different asset classes, investment managers and mandates work together to achieve agreed objectives for return, risk, liquidity and diversification.
Strategic asset allocation: A long-term approach to deciding how capital should be distributed across different asset classes, based on investment objectives, risk tolerance, time horizon and liquidity needs.
Look-through analysis: An assessment of the underlying investments within portfolios or funds to build a clearer picture of overall exposures, such as asset class, geography, sector, currency and investment risk.
This material is provided for informational purposes only and does not constitute investment advice or a recommendation. The views expressed reflect current market conditions and are subject to change without notice.
All materials have been obtained from sources believed to be reliable, but their accuracy is not guaranteed. There is no representation or warranty as to the current accuracy of, nor liability for, decisions based on such information.
Past performance is not a reliable indicator of future results. The value of investments and the income derived from them may rise as well as fall, and investors may not get back the amount originally invested. Capital security is not guaranteed.
