Multi-asset product providers have argued that the global financial crisis has destroyed the notion that dynamic financial markets can be represented by static allocations to asset classes.
The traditional model of static asset allocation is based on the average historical performance of different asset classes, so if you know the return you are seeking, you can calculate the appropriate weighting in growth and defensive stocks.
It is a rather elegant model that is characterised by clarity, transparency and ease of use.
But one thing it does not provide is stable returns, according to multi-asset managers.
Instead, funds should be managed to a consumer price index-plus objective, achieved by investing in whatever asset matches the objective, because that is what investors ultimately take home.
There are now a number of firms in the process of developing new multi-asset strategies in response to this development, while others have grabbed the opportunity to reintroduce their existing products.
Yet, widespread success of these products is doubtful.
At a recent briefing about the Schroders Australia Real Return Fund, the firm's chief executive, Greg Cooper, was realistic about the potential of the fund.
Responding to the question of whether the industry would see the light and make the fund the firm's best-selling product, he said: "I doubt it."
The problem with these types of products is one of scale.
In essence, by investing in a multi-asset strategy the institution outsources its asset allocation process - the very service most institutional investors get paid for.
Therefore, it is unlikely these investors are very keen to allocate a large portion of their capital to these strategies.
Of course, they could take the reins in their own hands.
"What you will also find is that when the concept starts to gather momentum, funds will internalise that process of how they build that portfolio and that is what they should do," Cooper said.
Yet, this would cause much more activity in changing weightings or even mandates, and thus create greater levels of inflows and outflows.
This is not something fund managers would look forward to.
"We are obviously a big single asset class manager. We run global equities, Aussie equities, fixed interest, so in some ways we are doing ourselves a disservice here by talking: 'stop thinking about single asset classes'," Cooper said.
Regularly switching between managers also creates problems for the institutional investors, because it leads to higher costs and capital gains issues, which is not a problem for Schroders because it invests its multi-asset product in its own funds.
And so the circle is complete.
Multi-asset products and scale do not seem to mix.
