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Tim Guinness: why discretionaries should incubate smaller funds
by Danielle Levy on Sep 23, 2013 at 09:01
Guinness Asset Management founder Tim Guinness has warned of the impact of more assets falling into fewer hands post-retail distribution review (RDR), arguing that wealth managers should allocate a small portion of portfolios to smaller up-and-coming funds.
In his view, this could assist new entrants into the fund management sector and ultimately boost competition, which he says can only be a positive thing for investors.
‘RDR is basically a good thing. I believe it is completely healthy to have total transparency in charging arrangements and clean pricing, so consumers really understand what they are paying,’ Guinness (pictured) told Wealth Manager.
‘Indeed, it is healthy if there is a reduction in average management fees payable by clients, but there are going to be some unintended consequences. These include what I regard as excessive regulatory oversight, the type of regulatory oversight that seeks to protect investors against risk and lamentably fails to do so because regulators don’t understand risk.
‘This is causing independent advisers that advised small clients to exit by selling out to larger firms to cope with lower margins and a higher regulatory burden. This is causing a concentration of assets into the hands of fewer and fewer buyers.’
This, he says, is disastrous from a competition perspective, as new entrants trying to break into the fund management industry struggle to find favour with gatekeepers from large wealth management houses, which are implementing more stringent due diligence processes that include a minimum three-year track record or fund size.
‘I feel lucky that I have got my foot through the door and I can get by, but I can see people behind me having the door slammed in their face,’ he said.
Guinness believes private client houses should look to invest between 5%-10% of portfolios in smaller funds, which could bolster competition and catch the early stages of outperformance from young funds.
‘I think it would be thoroughly healthy if they all operated bits of the client portfolio explicitly as a nursery for smaller funds. The main point would be creating more competition in the fund management industry, which has got to be good for their clients,’ Guinness said.
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