The Multi Manager Vertical Integration Champion is? 8 September 2014

How much is an acceptable percentage, for large multi managers, owned by the banks, to invest in their in-house products?

There have been a number of articles written recently on the perils of vertical integration from a consumer’s point of view, especially in light of poor advice scandals within some of Australia’s largest advice/product providers. Many of these issues have arisen because of poor monitoring of compliance, ill designed incentives (depending on your point of view!), questionable cultures (e.g. sales versus customer care), and the poor recruitment and training of advisers who have been let loose on customers to provide that ‘advice’.

Vertical integration is well understood in the wealth management market and is akin to a pharmaceutical company owning the drug manufacturing capability (asset management), the drug distribution outlets/pharmacists (administration platforms) and general practitioners (advisers). To confuse (or at least not to enlighten) consumers – because most of us would have major issues with a structure like this in the drug industry – the drug companies would operate under multiple brands that might bare no relationship with the parent company, also allowing their GPs to operate under a brand of their choice. What’s wrong with that? Plenty.

But from a multi manager point of view (one aspect of the financial services value chain), which of the big four bank plus AMP ensures that they have more in-house asset management capabilities used in their ‘multi manager’ portfolios, aside from the use of their internal platforms, versus seeking the best managers in each asset class to manage a component of their portfolios?

In a nutshell, AMP is the market leader in their Future Directions portfolios with 40%+ invested in internal funds, with ANZ having none (due to a lack of asset management capability).

Table 1 – AMP is the market leader in using in-house funds in their multi manager portfolios


table 1

Source: CFS, Advance, MLC, AMP, ANZ

How much is acceptable?

It probably depends on whom you ask! From a shareholder perspective, the more the better but from a consumer point of view (who probably has no idea about this stuff) a level below 20% might be acceptable, especially for passive exposures. From ANZ’s point of view they really have no choice but to invest externally, but the fund managers at BTIM and Ascalon could feel hard done by Advance (but this might be Advance’s value proposition to say their is no influence) and might use this table to ask for more flows! (Disclosure: Winston distributes Morphic, an Ascalon manager, to IFAs).

But wait there’s more!

To ensure that the analysis included the whiter than white industry funds, I thought I would include AustralianSuper, Australia’s largest Industry Fund to see how much of their Balanced fund is invested in-house versus partnering with external managers.  And not to be outdone, they have about 42% of their funds managed by IFM and their in-house teams across various asset classes.

Final comment

At the end of the day what matters are risk adjusted returns.  If vertically integrated groups can justify using in-house products and internal teams to manage a large slice of the portfolio pie, it has to stand up to external scrutiny. Consumers are reasonably savvy to work out if their funds are not performing, the PMs of these portfolios do care about their careers (e.g. performance matters) and advisers have to put the interests of their clients first when recommending their parent company multi manager portfolios in any event – those three factors provide a tight set of external pressures to keep focusing on performance – when the use of in-house assets start to impact returns, I am sure the multi manager PMs would respond quickly because of those pressures.

Andrew Fairweather, Founding Partner and Managing Director

Share this

  • Winston Special Opportunities

    We offer investors access to investment opportunities from world class fund managers where capacity is limited.


    We assist fund managers and companies with one-off capital raisings where we have a high conviction around the idea.


    We help managers distribute their products to the most appropriate sales channels.


    We package up fund manager skill under the Winston Capital Partners brand.

What is a financial services licensee? A person or entity is a financial services licensee if they hold an Australia financial services licence issued pursuant to the Corporations Act 2001