The concentration of assets in a few large funds in the UK is an overlooked risk for investors in times of crisis such as Brexit, warns Jake Moeller, head of UK and Ireland research at Thomson Reuters Lipper.
Speaking at the Lipper Alpha UK Fund Selector Forum, Moeller says the concentration of assets in only a small number of big funds was one of the trigger events in the recent commercial property funds gating.
According to Lipper data, 23 per cent of all managed fund exposure in the UK, representing £892bn in assets under management, is invested in only 60 large funds out of a total pool of 6,000, including closed funds and funds with multiple share classes.
Moeller says: “That fund concentration in the UK is huge. These massive funds, such as the Standard Life Investments Gars, are a big risk in terms of concentration and you have that circular issue where you may think it might be a challenging market for boutiques if investors prefer the big brands.
“In terms of performance outcomes, a lot of investors might be missing a trick because they flock to these large funds. Of course, if we are all investing in the same funds and there is some sort of liquidity crisis, by being a large fund, people will try to exit at the same time all from the same portfolio and the same sector and that creates problems.”
He adds that the concentration is “something we don’t talk about enough”, with Brexit highlighting the issue.
Moeller points to the large number of overlooked funds and boutique fund managers, which offer more opportunities for fund selectors.
“Gatekeepers need to spend more time with smaller fund groups. One of these, for example, is Rathbones, which has a great three-year track record.
“We see around 40 or 50 fund groups that are consistently able to generate alpha. There are still some great funds out there but they are not going to be invested in.”