Research uncovers problems and mistakes that institutional clients are loathe to let go
Asset managers that have institutional clients should expect tough questions if they underperform the market. But according to new research, relatively poor returns aren’t the only thing they should worry about — in fact, it’s not even in the top three.
In a new survey paper titled The Asset Manager Relationship, financial services specialist CoreData Research reported that among all institutional investors it polled, 57% said they would likely conduct an investment mandate review if the manager were impacted by a cyber security or data breach, or faced a significant threat.
“[A]lthough historically cyber security was not often on the radar for institutional investors, they are coming to understand the importance and value of their data and the impact a breach of this nature could have,” the report said.
The same percentage of respondents (57%) said they would initiate a review following an increase in fees. Contracts between asset managers and institutional clients usually spell out terms and conditions for compensation and fee structure, CoreData noted.
Rounding out the top three, 54% of institutional investors cited a change in fund manager as grounds for a review. “It is not surprising that a change in the captain of the strategy ship would trigger a review,” CoreData said. “However, it is remarkable that investors categorize cyber security as more important than this event.”
The report said that the typical financial-services firm should expect to face 85 cyber security breaches a year. It also cited a 2017 study, which said roughly four in 10 asset management CEOs said they were fully prepared to address a cyber event.
“In order to retain mandates long-term, asset management businesses need to take a close look at their cyber infrastructure and ensure it remains current,” CoreData said.
Other factors identified as likely triggers for investment mandate reviews were:
- Style drift (cited by 50% of institutional investors surveyed);
- Substantial increase or loss in AUM of the fund/strategy (42%);
- Negative press (37%);
- Relative underperformance for three consecutive quarters (32%);
- Rapid growth or expansion of the group (24%); and
- Top-level organizational changes, such as leadership changes or employee turnover, not directly related to the fund (23%)
