How big is the universe?

Author: Tom Wiseman, Managing Director, Enhance London


There are several hundred Discretionary Fund Managers (DFMs) serving the UK fiduciary community. If this is extrapolated to other jurisdictions where the use of Trust structures is widespread then one can reasonably expect the number of relevant DFMs to multiply. How then can any Investment Consultant, let alone a Trustee, hope to rationalise this ever-growing universe and ensure that the advice they provide to clients on manager selection is truly ‘whole of market’?

This is a problem for which there is no practical solution. DFMs are complex entities with portfolio products that, unlike Mutual Funds, are not publicly traded and so there are simply too many in the market for any individual or firm to track comprehensively. Unfortunately, fee levels simply do not support research of this scale. However, there are some helpful independent peer group studies that offer respectable market coverage such as STEP Trustee Managed Portfolio Indices (TMPI) and ARC PCI

Such studies are funded by participating DFMs through annual subscription fees to provide the fiduciary community with a common platform for their due diligence. In many respects it is a marketing levy on DFMs – those that pay to participate achieve greater visibility with their client demographic and implicitly gain credibility for their commitment to industry transparency. The consultancy firms behind these studies are remunerated for their intellectual capital and the infrastructure required to provide the service.

Enhance Group powers one of these peer group studies, STEP TMPI. This is a free STEP member service with a universe of over 40 DFMs that submit real client portfolio data across three core risk profiles and several base currencies. Manager subscription fees are tiered to be as inclusive of the DFM community as possible with its study output and related tools such as the TMPI Focus List provided to STEP members for free. It is proving to be a very efficient conduit between DFMs and Trustees and is a helpful source of revenue to an important fiduciary governing body.

Like fiduciaries generally, Investment Consultants often refer to such studies as part of their ongoing manager research process and Enhance in London is no different in this regard. However, it is important to note that the TMPI universe is not representative of the broader universe of DFMs that we research to select our approved managers for consultancy clients.

Our ‘approved list’ for consultancy is an independent matrix of managers that we have identified from a far broader sample of DFMs, amassed over our 11-year history in the oversight industry. Our monitoring business provides a richer pool of DFMs for us to review, with real client data now received from over 700 investment offices worldwide. Performance is one of the four headline criteria we assess against DFMs, so receiving so much real client data through our reporting client base is an excellent way for us to identify outperforming DFMs for further due diligence.

We rely on our industry experience in senior investment management and research functions to quantitatively and qualitatively assess DFMs against other criteria: process, people and price. We do this through due diligence questionnaires, onsite manager visits and the use of third-party databases and analytical systems. Our approved manager matrix is our intellectual capital and this can only be accessed by our consultancy clients. Approval is not bought, it is earned by the DFMs we select and we stake our reputation on our manager selection prowess.

Our consultancy fees are paid solely by our clients, therefore it is in our interest to select and monitor the best possible DFMs on our client’s behalf. This cannot possibly be achieved through the TMPI universe alone because the market coverage is too thin, although it would be disingenuous to say that such studies are not useful industry proxies or that they could exist without a manager subscription model.

As long as appropriate measures are carried out, such as the Chinese Walls and additional independent research that we undertake at Enhance, clients can rest assured that they are getting and uniquely informed advice for their fees.

For more information about our manager selection process please refer to:

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