Multi-asset investing has become one of the hottest buzz terms in the investment management industry over the last few years. Almost every week another asset management firm enters the multi-asset space with the launch of a new range of multi-asset products. However, multi-asset funds are not a new invention; they have been around for decades.
While Harry Markowitz published his seminal paper on modern portfolio management and the risk-reducing benefits of diversification in the early 1950s, only much later, just over 20 years ago, did multi-asset investing first appear in practice – in the endowment fund of Yale University.
Yale’s endowment fund aimed not only to maximise returns but to maximise returns for a given level of risk. The concept of maximising risk-adjusted return or maximising return within acceptable risk bounds was implemented in a large, renowned portfolio. Ever since, institutional investors and wealthy individuals have diversified their portfolios across asset classes. Multi-asset investing, therefore, is not novel and it has been around for over 20 years. Why now, then, has multi-asset investing become so popular?
Multi-asset investing is a fairly simple concept. Instead of limiting the portfolio’s investment universe to a single asset class, such as equities or bonds, multi-asset portfolios invest across different asset classes, combining equities, bonds, real estate and alternative investments. The portfolios reduce risk through diversification, enjoy a wide investment opportunity set and can deliver different return and risk profiles. The typical portfolio of most individual and institutional investors is multi-asset.
The rise of multi-asset investing can be attributed to four main trends:
- Expected capital market conditions;
- Performance of active portfolio management;
- Regulatory developments; and
- The shift to investment solutions rather than investment products.
These trends have a significant impact on the returns and risks of investments, the investment management industry, the way assets are managed and the expectations of investors.
In Yoram Lustig’s next post, he will explore the expected capital market conditions and how these are suited to a multi-asset investing approach.
Yoram Lustig is the author of Multi-Asset Investing: A practical guide to modern portfolio management – available to buy from Harriman House.