A new chapter begins
How a multi-manager investment strategy delivers
31 October 2025
The foundations of a multi-manager approach
At its core, a multi-manager portfolio recognises that no single investment manager possesses a monopoly on good ideas, or the comprehensive expertise needed across all asset classes, geographies, and investment styles. Instead, it leverages a carefully curated selection of specialist managers, each with unique skills and insights, to create a diversified, resilient investment solution.
This approach can be implemented as either a fettered or unfettered portfolio. A fettered portfolio invests solely in funds managed by the same investment manager offering the portfolio. An unfettered portfolio predominantly invests in funds managed by appointed third-party managers, often through a ‘fund of funds’ or ‘manager of managers’ structure. The latter provides broader access to a diverse universe of managers, enhancing the potential of achieving investment returns higher than those of a relevant benchmark, adjusted for risk, through a manager's skill.
The strategic rationale
The primary goal of a multi-manager portfolio is to optimise the mix of assets, managers, and investment styles to meet a client’s specific risk and return objectives. By doing so, it aims to deliver more stable, less volatile outcomes than reliance on a single manager or strategy. Diversification across asset classes, geographies, and styles reduces concentration risk and smooths performance over market cycles.
Furthermore, a multi-manager approach allows for strategic flexibility. It enables us to adapt portfolios in response to changing macroeconomic conditions, policy shifts, or emerging opportunities. For example, during periods of rising inflation, allocations to real assets like infrastructure or commodities can be increased; while in times of market stress, allocations to government bonds or hedge funds can provide downside protection.
Addressing the challenges of an increasing complex market
Constructing an effective multi-manager portfolio
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Investment beliefs:Establishing core principles such as the importance of genuine diversification, active management skill, and integrating sustainability.
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Asset allocation framework:Diversifying across broad asset classes—equities, fixed income, real assets, alternatives—while managing risks like over-diversification. For example, government bonds can provide downside protection, but real assets like infrastructure and commodities can hedge against inflation.
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Manager selection:Identifying highly skilled managers with proven track records, low correlation to each other, and aligned investment philosophies. This involves rigorous research, ongoing monitoring, and proactive rebalancing.
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Combining managers:Using a factor-based approach, we blend managers with distinctive styles—such as quality, growth, and low-volatility—seeking to optimise risk-adjusted returns.
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Active management as a skill:Recognising that skilled active managers can generate alpha, especially in less efficient markets; while passive components help contain costs and focus active risk where it’s most likely to pay off.
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Governance and oversight:Implementing a robust framework encompassing objective setting, strategy design, manager research, portfolio monitoring, and risk management so portfolios remain aligned with client goals.
The benefits of a ‘manager of managers’ structure
One of the key advantages of a multi-manager approach is access. It opens doors to institutional-grade managers, often outside the reach of individual investors, and allows for diversification across strategies, geographies, and asset classes. This structure also offers operational benefits:
- Transparency: Real-time trade data and style-shift detection.
- Control: Customisable mandate specifications.
- Continuity: Ability to switch managers seamlessly to increase or reduce market exposure dependant on market activity.
- Cost efficiency: Leveraging scale for better fee negotiations.
A perceived downside to using a ‘manager of managers’ approach is that multi-manager investment funds involve a layered fee structure that can be higher than single-manager funds due to the additional layer of management and operational complexities. However, due to the scale of our investments (e.g. investing on behalf of more than one million members in the Mercer Super Trust as of 30 June 2025.), this downside can be mitigated.
For example, Mercer’s MySuper SmartPath® standard admin fees are between 24% and 42% below the MySuper market average, depending on the member’s account balance.[i]
Active management: skill, not luck
Active management remains a cornerstone of our approach. We believe that skilful managers can add value through behavioural insights, long-term perspectives, and a nuanced understanding of market inefficiencies. Our rigorous research process aims to identify managers with demonstrated ability to outperform over market cycles, especially in less efficient markets where alpha potential is higher.
While active management is vital, we also incorporate passive strategies to focus active risk on areas with the highest potential for outperformance. This balanced approach ensures portfolios are both cost-effective and optimally positioned for growth.
Enhancing governance and client confidence
A partner to your portfolio
At Mercer, we create tailored solutions to help drive your portfolio’s success.
Our specialists create bespoke, fully diversified portfolios, underpinned by rigorous research. Our worldwide network supports us with global expertise and scale to build cost-effective investment portfolios that are specific to your goals, regardless of portfolio size.
Benefit from our global research and insights, with the reassurance of a locally based investment consulting and management team that offers tailored, local advice and assistance.
As the manager of managers, you’ll partner with us to access the best investment managers in the world, helping you achieve your investment goals and giving you the confidence to thrive.