Laura Dew

Growing concern over co-investor risk is leading some buyers to turn away from pooled vehicles entirely in a bid to reclaim control of their investments.

The big getting bigger phenomenon has become a familiar theme in the asset management industry in recent years, and fund selectors say they are now having to pay just as much attention to the size of their peers.

Discretionary firms and multi-manager portfolios continue to take assets from those looking to outsource their decision-making, and are consequently investing higher amounts in individual funds. As a result, fund buyers are becoming increasingly nervous over the implications for liquidity and performance.

Tom Becket (pictured ), chief investment officer at Psigma Investment Management, told Investment Week he is moving away from fixed income funds altogether as a result of these issues.

We are phasing out the use of fixed income funds with other investors and investing in segregated mandates with external managers, he said.

This gives us more influence over decisions as we are not subject to the decision-making of others.

Given concerns over liquidity, other buyers highlighted equity funds investing down the market-cap scale as another area of concern.

Simon Milne, a director at Aubrey Capital Management, went further, saying the inclusion of any fund on a large buy list now gives him pause for thought.

If we know that one of the [largest] wealth managers is investing in a fund, or Hargreaves Lansdown is pushing it, we will think hard about whether we want to invest, he said.

In the discretionary space alone, for example, two thirds of the 200bn in assets included in a 2014 Defaqto analysis of discretionary model portfolio services and bespoke offerings was accounted for by just seven firms.

The issue is just as pressing for mid-sized and large wealth managers, many of which have to consider their own influence when investing.

Meena Lakshmanan, head of investment solutions at Vestra Wealth, said the firm ensures it never holds more than 10% of a funds assets under management.

Lakshmanan said her main concern when looking at co-investors is with funds which have a homogenous investor base, rather than those simply attracting strong inflows.

It has become an issue as investor flows are concentrated. More than client concentration, it is client type concentration that would worry me, she said.

It gives me comfort when asset management houses do research on the clients in the funds, ensure diversification, and close funds when they reach limits to ensure performance.

While managing outflows has been an issue for many open-ended fund managers in recent years, Aubreys Milne also highlighted the impact on the closed-ended space.

We worry about a large holder changing its view on an asset class or fund, and the effect that this might have as they rush for the exit. This is especially true in the closed-end fund space; a large seller in the absence of any buyers can have a large effect on the discount.