Asset management, family office, and asset management approach – service versus product?

“Old wine in new bottles”: Asset management approaches in the fund sector have become increasingly popular in recent years. This trend appears interesting, as clear definitions are still being fought over – as far as the precise content of these approaches is concerned. Similar to the terms fund boutique, endowment fund and family office, the battle for the sovereignty of interpretation continues. Some basic aspects, which were clarified by the Association of Independent Asset Managers Germany e.V. (VuV) into the discussion years ago may help in a discussion. Where can one find links to asset management practice? What can pure “product modules” achieve and what should make a good asset manager? Where are the opportunities and risks?

Possible discussion criteria for asset managers and family offices

The design of products and services can be discussed using many criteria. If we take the VuV concept, these aspects could be briefly mentioned:
1. investment in more than one asset class
2. suitability as a basic investment
3. aiming for a risk-adjusted return
4. fund management free from conflicts of interest

A special aspect of the topic “asset management approaches” can be the discussion about own products and the self-conception of tasks and demarcation of areas of responsibility in family offices. Similar to the asset management approaches, these areas – providers of family office services and also on the client-side – are currently the subject of intense discussion. When talking about asset managers below, certain forms of family offices with their fund products could be included in the discussion.

1. diversification of risks

Swiss banking rule: “Money is like shit, you have to spread it around”. The classic task of an asset manager should be risk management. In which product packaging he does this can be a secondary aspect in the first instance. Individual mandates indirect investments and fund shells are and have been common. Cost aspects, technical manageability, or simple communication in customer talks, also investor knowledge, play a role here in the selection. What the asset management approach 2.0 can achieve here, so to speak, after the classic mixed fund, is currently the subject of intense discussion, because here too expectations have been raised by the industry that has only been partially fulfilled.

2. basic investment and trust

As an investor – both private and institutional – caution is advised when using the term “basic investment”. A lot of trusts has been lost in sales due to the extensive use of this term. In case of doubt, endowment insurance policies, as well as closed-end funds and pure equity funds, were offered under this label in the past. The industry could benefit from a more differentiated use of this term. In the end, the question arises: How many “eggs in a basket”, development potential, and how many correlation opportunities and risks do such a fundamental component in the portfolio form?

3. risk-adjusted return

Asset management, regardless of the packaging, should put risk management in the foreground. Calculated risks can of course be taken. A large number of the commonly mixed funds and the funds that operate under the label “asset management approaches” emphasize this claim. The variety of parameters used in fund management (asset classes, instruments, strategies, etc.) theoretically offers the opportunity to often meet the demands of private clients and institutional investors. Much has been promised, but often the promised has not come true. Similar to the banking crisis and the issue of trust: Less marketing, more education is needed.

There is no doubt that the asset management industry offers many good approaches – miracles are rare. A convergence towards mediocrity can be observed. A constructively communicated “expectation management” could perhaps put fund managers or asset managers in a more positive light: Generating positive returns without a continuous uncorrelated relationship is an art. Few managers stand out – none can honestly claim to know the winner on 31 December of the year. If clients knew this too, many seemingly “mediocre” asset managers would not be forced to produce pro-cyclical activism to be at the top of any “racing lists”. In this case, one can almost claim: the fund industry with its pure asset management thinking has managed to pull the classic asset manager on the ring in the nose, so to speak!

Fund management and conflicts of interest

Independence is a precious commodity. All owner-managed asset management companies and also certain categories of family offices thrive on attributes such as neutrality and “vendor distance”. Many excellent fund managers (“fund advisors”, fund boutiques) in the area of mixed funds and asset management approaches can be found at specialized capital management companies (KVG) such as Universal Investment, Ampega, Hauck & Aufhäuser, and various other companies. Independent asset managers are becoming increasingly popular. In the 1st Frankfurt fund boutique panel survey conducted by the author of these comments, this trend was identified as the “basic tenor” based on responses from various asset managers, funds of funds managers, and family offices. This is gratifying. But, as mentioned above – does good asset management ultimately consist merely of good performance on racing lists? How do I differentiate myself as independent, even though various group-linked managers can offer excellent performance in certain phases? (Even if independents may often be ahead of the pack – is this race conducive to long-term client relationships?).

Perspective: opportunities and risks for asset managers and family offices

The discussion about the definition of the so-called asset management approaches is still in full swing. Many fund results are perhaps sobering. “Disillusionment” must be formulated with care, not necessarily in terms of disappointment. There are learning curves in every industry. Perhaps the following question could be more important in the future: What is the role of an independent asset manager or a family office? The supplier of product modules that can be changed daily or the client’s advisor and risk manager? A question that perhaps cannot be answered with “either-or” alone. In combination with portfolio management know-how: This type of advisors, trusted advisors, and “long-term thinkers” are likely to be highly recommended and survive many product and performance cycles!


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