Keeping Things Simple

By Dr Ruzhen Li | 20 January 2022

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Portfolio, Commentary, Insights

It has been two years since we launched Enhance Portfolio. After undertaking detailed market analysis on what clients need and what is on offer, we came to the conclusion that there is a gap to be filled; an efficient proposition for smaller trust accounts. 

On one hand, smaller accounts do not mean less fiduciary responsibility; they still have the same requirements, such as performance, governance, and service, and even more so than bigger accounts. On the other hand, the cost of the same professional service does not decrease proportionally as the AuM drops and, quite the opposite, the standard set-up can easily more than double as a percentage of AuM when it reduces from 100mil to 5mil. The result is a sub-optimal outcome for everyone, and a constant fight between what needs to be done and what can be done.

Having monitored thousands of accounts, researched hundreds of managers and advised billions of assets around the world, we felt we have a duty to come up with a solution that delivers performance, governance, and service, while keeping the cost under control. The solution? To select a handful of the best fund managers whom we have worked with extensively over the years, appoint a credible and independent custodian, and utilise our market-leading proprietary reporting system, Mosaic. This resolution offers a number of benefits:

  1. Clearly delineated roles and accountabilities: the custodian is responsible for safe custody; Enhance is responsible for manager selection; managers are responsible for the management of assets; and all parties are collectively responsible for a great client experience. Enhance effectively acts as the glue, holding everything together, and being the first port of call for clients.
  2. Easy booking-keeping and administration: there is only one line to report on the valuation, and transactions are limited to very few items; occasional capital contributions and withdrawals, quarterly - or less frequent - income distribution and re-investments, and monthly fee payments to the custodian and Enhance.
  3. Effective ongoing governance: Enhance is tasked to make sure the selected fund managers continue to perform and, should that no longer be the case, Enhance will replace them with a more suitable manager; this can happen overnight if necessary, and no account opening will be required again.

The final point of the above will be the proof in the pudding. When an investor is stuck with underperformance for too long, they can accept it as a (false) reality and lose any motivation to find an outperforming manager. However, outperformance is possible as the Enhance Portfolio performance table demonstrates.

1. GBP

2. USD

3. EUR

Source: Morningstar Direct
Note: MPI data is provisional and subject to change.

Some clients have asked ‘how and why can these managers outperform?’. The short answer is that they have passed the test of our rigorous 5P due diligence framework. The long answer is that each manager has their own “killer move”; some improve return by reducing cost, some add alpha through ESG, and some simply have more unique and successful processes.

The fiduciary industry has been through – and is still going through - massive changes. Regardless of whether we embrace or despite these changes, the reality is that cost of professional services are going up, and our liabilities are not going down. Tailor only if required and justified is a good principle because it will cost you. Keeping things simple will also keep the cost and liability under control, making it possible to run businesses that are proper and profitable, while maintaining client satisfaction. We believe our proposition can turn hassles and headaches into valuable assets.

One of our clients commented that our approved managers "make this investment game look easy!”. It is satisfying for us to hear this feedback because this is exactly the kind of experience we want our clients to have; we do all the heavy lifting so they can have an easy life.

We would love to chat, so please do not hesitate to contact our Portfolio team by email at the link below.