how clients choose & evaluate asset...

How Clients Choose &

Evaluate Asset Managers

Key Factors That Impact Your Business

firms can’t rely solely on performance to keep and

win clients

How Clients Choose and Evaluate Asset Managers | 1

Choosing an asset manager is one of an investment team’s

most important decisions. And in today’s competitive market, the

decision process is not always clear-cut.

Traditionally, asset managers assume that when clients are

evaluating or choosing a firm, they consider asset manager

performance more than any other factor. Intuitively, this makes

sense: asset managers are tasked with creating high-performing returns

for clients, so naturally clients evaluate whether those returns are

high-performing.

But data from recent Clearwater Analytics benchmarking surveys

shows that while clients do scrutinize performance, there are

many additional factors that they consider just as important.

In today’s competitive market, with the innumerable uncontrollable

influences on performance measurement and asset success, firms can’t

rely solely on performance to keep and win clients.

| www.clearwateranalytics.com2

Survey Demographics

Figure 1: Job Roles

AccountingStaff

800+Respondents

25%

Other

Treasury

18% CFO/CIO

37%

4% Industry Consultant

16%

Health

400+Respondents

11%

P&C 55%

15%

Multi-Line11%

Life

4% Other

Fraternal 2% Reinsurance 2%

Figure 2: Insurance Investment Benchmark Survey Companies Represented

< $100M 30%

$100M-$500M 20%

$500M-$1B 12%

$1B-$5B 18%

$5B-$20B 6%

$20B-$50B 4%

>$50B 10%

Clearwater Analytics recently conducted surveys of more than 800 corporate and insurance investment

professionals, with the goal of providing comprehensive industry benchmarking data. That survey data

forms the basis for the following analysis of how investors choose new asset managers and evaluate their

current asset managers.


Figure 3: Corporate Investment Benchmark Survey Companies Represented

Financial Services 14%

Tech Hardware & Equipment 12%

Software & Computer Services 12%

Healthcare Equipment & Services 6%

Pharmaceuticals & Biotech 6%Support Services 5%

Construction & Materials 5%

30Industries

Represented

40% All Others

Figure 4: Investment Portfolio Sizes

< $100M 30%

$100M-$500M 20%

$500M-$1B 12%

$1B-$5B 18%

$5B-$20B 6%

$20B-$50B 4%

>$50B 10%

Figure 5: Number of External Managers

None

15%

26%

37%

1-2

22%

3-5

6 or More800+

Respondents


The Primacy of Performance

Asset managers have long known that investors consider

performance history important when evaluating firms. The

survey results support this: 95% of survey respondents

said that historical performance is an Important

to Extremely Important factor when evaluating or

choosing an asset manager. These statistics are clearly

mirrored in the real world, where firms with successful track

records are highly valued among investors.

An asset manager’s main role and core competency is to advise

clients and guide their investments toward high performance,

relative to benchmarks. But successful firms know that past

performance can be misleading. Market fluctuations and

evolving client philosophies, along with innumerable other

factors, impact performance measurement in unpredictable

ways. Over the past decade, several empirical research reports

have been published on the riskiness of relying on performance

as a sole deciding factor. However, clients and potential clients

continue to use performance as a benchmark.

Beyond Performance

A study published in The Journal of Finance1 examined the

selection and termination of 3,400 investment management

firms. They found that when firms were fired for

underperformance and replaced by new firms, within three

years the dismissed firm and the new firm achieved statistically

equal positive returns. Underperformance is anxiety-provoking

for clients and a red flag for potential clients; however, if

firms can demonstrate their value beyond returns, eventually

performance will improve—and so will client confidence.

While asset managers must focus on performance, its

intrinsically volatile nature increases the importance

of other value-adds.

he factors that influence clients are not always what they seem. Clearwater’s

benchmark surveys asked investment professionals how they evaluate and choose their asset

managers. Their responses form a holistic data-set on how asset managers can improve relationships

with their clients, and what investors look for when deciding which firm to trust with their

investment portfolios.

T


The good news is that investors value certain aspects of

asset management just as much as performance. And unlike

performance, these items are under firms’ control to refine

and improve. Incorporating holistic best practices and

focusing on complete client needs helps establish

clients’ trust in their firm’s net-positive performance

over time, and reinforces the fact that the client-asset

manager relationship is about more than just returns.

Risk and Reporting Transparency

The financial crisis and its aftermath revealed the need for more

transparency in investment risk management. Clients expect

more transparency than ever before.

Not only must investment professionals fulfill their organizations’

particular investment mandates, they must also balance risk with

opportunity. When asked how they manage risk:

47% use external asset managers to track and

monitor risk on their behalf

27% rely on their investment accounting provider

14% utilize a data provider

9% depend on third-party risk software2

With this heavy reliance on asset managers for risk tracking,

it’s no wonder 95% of survey respondents said they

consider risk transparency an Important to Extremely

Important factor when assessing an asset manager.

This means that respondents consider risk transparency as

important as performance when choosing or evaluating an asset

manager. Increased regulatory scrutiny, combined with clients

who are increasingly confident in pursuing riskier alternative

investments, means that risk transparency is more important

than ever before. And unlike performance, transparency

is always under firms’ control to refine and improve.

Asset management is about client relationships as much as it

is about client assets. Strong client relationships depend on

strong communication. Quality reporting is one of a firm’s

most important tools in providing the risk transparency that

Why It’s Important

Even the best manual reporting system

involves cumbersome and error-prone

data manipulation and takes employees

away from core tasks. Clients need

integrated and automated reports that

provide transparency; your employees

need to focus on their core roles instead

of on data management.

Ask Yourself

Can we

demonstrate

full risk

transparency

without adding

to employee

workload?

1. Amit Goyal and Sunil Wahal. “The Selection and Termination of Investment Management Firms by Plan Sponsors.” The Journal of Finance. VOL. LXIII, NO. 4.2. This question was not asked on The Corporate Benchmark Survey; these results are from the 400+ responses to The Insurance Benchmark Survey.


95% of investors say is important in their asset management

firm decision. In conjunction with the desire for

transparency, 87% of survey respondents ranked

reporting quality as an Important to Extremely

Important criteria when evaluating asset managers.

In addition to client reporting, sophisticated internal reporting

is also vital. Portfolio managers, for example, have different

reporting requests than clients. Using a single reporting system

throughout the firm—from portfolio managers to relationship

managers, to compliance and operations, to the end client—

ensures that data is always clear and comprehensive for all

stakeholders. Integrated reporting data that doesn’t rely on

manually managed spreadsheets allows investment teams more

time to spend actually working for clients, instead of reconciling

data. Clients and potential clients demand high-

quality reports built on transparent, audit-quality

data. A firm’s ability to provide those reports could

be a deciding factor in gaining or losing business.

High-quality risk transparency and reporting is complex. And

in today’s digital world, clients expect results at their fingertips.

As in most industries, technology has become a fast-moving

and high-value feature that offers clients and potential clients

a glimpse into firms’ overall philosophies. A firm that relies

on manual aggregation and reconciliation—where errors can

easily be introduced and overlooked—sends a distinct message

to clients about how accuracy, timeliness, and data security

are valued in that firm. Technology is highly valued by

clients—78% of respondents ranked technology as an

Important to Extremely Important evaluation factor.


Every client has different reporting

requirements. Customized reports

demonstrate that firms understand

clients’ individual needs and can

meet those needs with complete

transparency.

Ask Yourself

Can my clients

easily access

customized

reports?


Business decisions should drive

technology decisions, not the other way

around. Clients shouldn’t have to suffer

from outdated technology because

upgrading is too costly or cumbersome.

Ask Yourself

Does my

technology

cost outweigh

the benefits?


Establishing Client Confidence

It is clear that investors value risk transparency, reporting, and

high quality technology systems from their asset management

firms. However, many asset managers consider reporting (and

its levels of transparency) and technology as ancillary to the

firm’s purpose of generating high returns.

It might seem odd that investors would care about the quality of

reporting almost as much as investment performance. But when

the interplay of these highly ranked considerations is examined,

this correlation begins to make sense. Analyzing these results

within the client and asset management firm relationship, it’s

clear that the highest-ranked criteria all revolve around the most

vital aspect of an asset manager’s success: client confidence.

Clients who receive transparent, clear, thorough,

and timely reports from a firm that uses trustworthy

and up-to-date technology are simply going to

have more confidence in their asset managers. This

confidence provides clients peace of mind about their asset

management firms’ expertise and ability to guide portfolios to a

higher level of performance.

These conclusions are echoed in other survey results. 47% of

investors rely on their asset manager to provide portfolio risk

analytics. The other methods of receiving portfolio analytics—

investment accounting provider, data provider, third party risk

software, or trading platform—lag far behind. Investors clearly

value external asset management, especially for transparent,

high-quality risk reports. Clients are also aware of how an asset

manager’s technology choices impact that transparency, and take

that into consideration when evaluating their choices.


Client confidence relies in part on clear

risk analytics. Knowing their entire team

has access to transparent reports and

clean underlying data, direct from the

source with no manual intervention, is a

large part of confidence building.

Ask Yourself

Do our clients

know they are

looking at the

same data

we are?


The survey data reveals that when investors know a firm values best-in-class

reporting, risk transparency, and investment accounting technology, they are

more inclined to choose (and retain) that firm.

Investment and accounting professionals rely on asset managers for multiple

levels of service, and have expectations beyond just strong performance.

The interplay of transparency, reporting, and technology is a vital

part of an investor’s decision process, and should be a vital part of an

asset management firm’s strategy. With the right tools, asset managers can

position themselves to support clients through any new challenges in today’s

unpredictable investment environment.

To receive full survey report results that this paper was based on—which includes details on

investment and accounting challenges for U.S. insurers and corporations, their take on the current

investment and regulatory environment, and their operational and investment challenges—please

email us at [email protected] or call 208.918.2400.


CLEARWATER ANALYTICS® is the leading provider of web-based investment portfolio

accounting, reporting, and reconciliation services for corporate treasuries, insurance

companies, and asset managers. Clearwater aggregates, reconciles, and reports on more than

$1.3 trillion in assets across 25,000+ accounts daily. For more than a decade, Clearwater’s best-

in-class technology and client services have enabled firms to capitalize on new opportunities,

strengthen their existing client relationships, and streamline their internal processes. Clearwater

is committed to continuous improvement and encourages asset managers to rethink how they

approach their investment accounting and reporting operational challenges.

©2015 Clearwater Analytics All rights reserved. This material is for informational purposes only. Clearwater makes no warranties, express or implied, in this summary. All technologies described herein are either registered trademarks or trademarks of their respective owners in the United States and/or other countries.v.1 08.2015

INQUIRIES208.901.7787 [email protected] [email protected]

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