Building a successful fund of funds requires more than selecting strong individual managers. Using a football manager's approach as an analogy, this article explores how T. Bailey constructs balanced portfolios through careful asset allocation, rigorous due diligence and continuous monitoring.
Fund manager tactics – building a winning team
Constructing a fund of funds is often described in technical terms such as asset allocation, manager selection and diversification. At its core, however, it is a human exercise in judgement and adaptability.
In many ways, it closely resembles a football manager building a winning team.
As T. Bailey Asset Management CEO Elliot Farley explains: “Putting together a well-balanced, successful football team is not easy. Very few people manage to do it well. You don't want to have an overly attacking field, you also don't want an overly defensive field. You need to have a strategy, and you need to find the best players that work together.
“Building a fund of funds is very similar.”
Defining the game plan
For a football manager, everything starts with knowing who the opposition is, identifying which tactics and set pieces will work best, and knowing what a good result looks like.
For fund of funds managers, it’s much the same. In fund management, this means asset allocation. Think of equities as the strikers, alternatives and commodities as the midfielders, bonds as the defenders and cash as the goalkeeper. The balance between the constituent parts of the fund determines its overall risk profile and exposure.
As T. Bailey Investment Analyst Satveer Sokhi puts it: “The teams you're playing against represent the current macro environment and you would change the funds (players) in the portfolio depending on those conditions.”
The opposition is always the market which, while changeable, rarely encounters shocks that require significant changes to be made to the fund.
Head of Equities Ben Ridley says: “As asset allocators, and given current market conditions, T. Bailey currently leans into a more defensive team than an attacking one. We also want to make sure there's no correlation that we're unaware of, in terms of doubling bets and maybe neutralising the effect that we want.
“It’s also about doing that deep dive due diligence. Does that fund manager have a clear, repeatable, differentiated investment process? Are they outperforming through a decent period? What are the drawdowns versus their index and peers?”
Star players vs consistent performers
When a football team is blessed with a global superstar, there is always a temptation to rely on that player.
In investing, recent strong performance can be misleading. Farley warns: “If something's shooting the lights out, that is always a worry. You have to understand why and whether that is repeatable.”
Ridley adds: “That repeatability is exciting because arguably there's untapped alpha.”
Siobhon Becker, Assistant Fund Manager, highlights the importance of steady contributors: “Some funds constantly chip away and deliver over the longer term. That compounding looks fantastic, even if the fund doesn’t look like a star player at that moment.
“An example that fits this is our long-term backing of the Polar Capital Global Insurance Fund, a fund that on the surface isn’t as glamorous as some other funds out there but has, over the previous five years, delivered in the region of 90% returns - more than earning its place in the portfolio,” she adds.
Risk considerations remain central. As Ridley explains: “We look at what's the volatility, what's the risk, what's the beta, how concentrated is that portfolio. That's super important.”
Watching for style drift
For a football manager, even trusted players can change in form, fitness or attitude over time.
In fund management, this risk appears as style drift or shifts in behaviour. Managers may deviate from their original approach or lose alignment with their objectives.
Farley explains: “There can be changes with that manager. Are they still incentivised? Are they still motivated? That's why we meet regularly to make sure their interests are aligned with ours.
“We backed Neil Woodford’s Patient Capital at launch in 2015,” adds Farley. “We were told he was looking to raise about £200m and deploy it over something like three years. Thematically, there was a strong story there for us.
“He ended up raising £800m and we soon realised the capital was being deployed at a much faster rate than we had expected. We exited at a premium before issues emerged. It doesn’t always work out, but constant monitoring allows you to act quickly.”
Regular and meaningful engagement ensures that each fund continues to play its intended role.
The substitutes bench
For a football manager, strength in depth is essential. Matches can turn quickly, and replacements must be ready.
Fund of funds managers adopt the same approach by maintaining a bench of thoroughly researched opportunities.
Farley says: “We do keep a subs bench.”
Becker adds: “We have to have as good an understanding of those funds as we do current holdings so that we can make quick decisions.”
This supports a core and satellite structure within portfolios, Sokhi explains: “The core holdings are like the spine of a team, and then your wingers are where you make smaller tactical plays.”
Bringing the analogy to life, Ridley adds: “Cyber security would be an attacking left winger, whereas a healthcare fund would be a defensive one.”
Scouting and the talent pipeline
For a football manager, long-term success depends on identifying and nurturing talent before it becomes obvious to everyone else.
In fund management, this comes from building and maintaining strong relationships with fund houses and continuously researching potential investments.
Becker explains: “We have established relationships across a myriad of fund houses. That ongoing insight and knowledge means we can track funds more closely and undertake deeper ongoing due diligence.”
This groundwork allows for faster decision making. It also creates the confidence to act early. As Farley notes: “People reach out to us, and we're not constrained in that we will back funds early.”
An example of where this groundwork has been rewarding is in T. Bailey’s close connection to the teams at Polar Capital.
Farley adds: “Early due diligence on the team running the Global Technology Fund gave us the confidence to back the launch of the Polar Artificial Intelligence Fund, led by Xuesong Zhao, back in 2017. Over the last five years, the fund has performed exceptionally well with returns in the region of 160%.”
The benefits of early-stage investing are outlined further in our article: Inside T. Bailey's Approach to Investing in Early-Stage Funds.
Injury time decisions
For a football manager, deciding whether to persist with an underperforming player or make a change is one of the hardest calls.
In fund management, underperformance requires careful analysis. It may reflect temporary conditions or deeper structural changes.
Ridley explains: “Our job is to try and work out what conversations may have happened internally. Something may have changed in how that portfolio is being run.”
The decision is ultimately about whether the player can return to form or no longer deserves a place on the pitch.
The art of team management
For a football manager, success comes from building a balanced, cohesive team that can adapt and perform consistently.
The same is true in fund of funds management. It requires a combination of structure, insight and ongoing judgement. The best outcomes are achieved not by assembling the most eye-catching names, but by creating a portfolio where each component plays a clear and effective role.
It is not about selecting the most exciting players. It is about building a team that can adapt, stay disciplined and deliver results over time.
Because, in both football and investing, the winners are rarely the most spectacular on paper, but the most balanced on the pitch.
