Like all active investment strategies, multi-managers -- or 'managers of managers' -- have suffered in the past year from losses due to market falls and client redemptions. The approach, which involves outsourcing active investing and manager selection, is relatively new in the region and is struggling for traction, due to liquidity, transparency and cost issues. Now such strategies are the subject of even greater scrutiny.  

Multi-manager strategies tend to offer less transparency in their investments in underlying securities than single-manager funds, says Joseph Pacini, head of alternative investments at JP Morgan Private Bank in Asia. "You may know the managers' exposures but have less knowledge of their underlying positions," he adds.

However, there has been a move to make these strategies more transparent, and that will help them, especially in Asia, where investors want to have a closer connection to their investments, says Pacini.

Others agree that transparency has been an issue, along with performance and liquidity. In the past year, investors left many actively managed strategies for a number of reasons, a major one being performance, says William Cassidy, Hong Kong-based managing director at multi-manager specialist SEI Investments.

Other factors included fear, liquidity issues and lack of transparency. And frauds such as those perpetrated by Bernard Madoff and Allen Stanford certainly eroded trust, he adds. 

As a result of issues highlighted during the crisis, some multi-managers are being more rigorous in their processes to make sure liquidity can match redemptions and their clients are getting true diversification.

HSBC Global Asset Management, for one, has been working hard in the past 12-18 months to try to ensure it doesn't get any nasty surprises from its multi-manager portfolios.

"The better multi-manager and fund of fund strategies [during the crisis] were those that were really clear on their diversification," says James Hughes, Asia-Pacific head of multi-manager at HSBC GAM in Hong Kong. "In the credit crisis, people who just relatively blindly blended managers -- say, growth and value managers -- and assumed they were getting diversification got caught out." 

Multiple-manager structures that put different funds together without proper analysis of how they affect the overall portfolio in combination can end up with large amounts of exposure to areas they don't expect, says Hughes. Clearly, those with bigger allocations to financial firms last year will have fared particularly badly.

HSBC GAM has therefore been doing a lot of work on portfolio construction, blending, stress-testing funds and styles against each other, with different biases, markets and so on, he adds. "We probably spend even more time on that than on actual fund selection."

As for concerns over multi-manager fees, private bankers -- and, not surprisingly, multi-managers -- say clients should expect to pay relatively more for the good managers. Indeed, the consensus is that while fees will gradually come down, there is less pressure on the stronger performers to reduce their charges.

"Fees have a direct impact on performance, so those with high fees must have high targets and achieve them," says Hughes. That goes for both the multi-manager and the fund managers in its portfolio. "You don't want to squeeze an underlying manager so much that they don't pay attention to your account, but on the other hand, you don't want to overpay them for service and performance you expect. Remember, performance comes at a price, hence it's about using your better judgment to compare and contrast."

Ananth Shenoy, head of managed investments at Citi Private Bank in Singapore, takes a similar view and says he hasn't seen fees falling just yet. "When you deal with quality managers who have preserved more capital, there is not the same pressure for them to reduce their fees," he says. "Is the manager a quality shop; do they perform well? If so, fees should remain [at the same level]."