Wednesday 7th June 2023
'Some poor operators out there': ASIC urged to scrutinise multi-strategy SMAs
Multi-strategy separately managed accounts (SMAs) are "taking off like you wouldn't believe", according to SQM Research CEO Louis Christopher, but the rapid increase in their use could also be creating a regulatory blind spot.
Like separately managed accounts (SMAs), multi-strategy SMAs enable advisers to provide a more customised portfolio for investors, create the opportunity to earn a fee from putting one together, and lighten the administrative burden.
Those benefits have seen their use sky rocket. Three years ago, ratings house SQM was only rating around 10-15 strategies; it’s now rating over 150 strategies in the space, a number that continues to grow “very, very quickly” according to SQM head Louis Christopher.
“It’s a combination of factors that’s seen them proliferate quite significantly in the industry… from an investors’ perspective they feel they may well have more transparency for the underlying assets,” Christopher tells The Inside Adviser. “There’s a number of benefits but advisers are definitely keen to look at this space because there’s an opportunity to earn a fee, but done in a way that is not necessarily conflicted.”
SQM is currently the only mainstream ratings house covering the sector, Christopher says; Zenith, Lonsec, Mercer and Morningstar run their own multi-strategy SMAs, presenting a conflict. And while nothing “significantly negative” has happened in the sector Christopher believes more attention needs to be brought to bear by the regulator. ASIC’s current surveillance of the pure SMA sector is “underbearing, if anything”, which Christopher says could be down to stretched resources at the regulator.
“I think in time ASIC will need to watch this space a little more closely because there are a high number of products now being created and all the attention from ASIC in the industry has predominantly been on the standard single-strategy funds,” he says. “I think it’s time they had a bit of a look at this space.”
“There’s nothing specifically that’s come up, but we’ve noticed there’s been a couple of smaller bods who think they can go out there and suddenly be money managers when they’ve got no experience whatsoever in managing money so we’re conscious and cautious of that,” Christopher adds, noting the lack of governance over model portfolios being offered to consumers.
“With these things you wish to pre-empt such events. Sooner or later there’s going to be some poor operators out there, and while we’re trying to watch for them, you do need the regulator to be a little more active.”
Lachlan is editor of Investor Strategy News and has extensive experience covering institutional investment.
