One of the key decision criteria in any RFP/mandate selection process is the analysis of the investment management processes in the firms vying for the business. While demonstration of consistent past performance per unit risk measure is a key determining factor in the process, it is very rarely used as the final decision criteria, more often than not it is only used to create a short list. Once the short list has been created, it is then down to deep analysis of the investment management process – specific attention is now being placed on the balances and controls applied to the investment management process, after all the new post-2008 investment era is highly risk averse and there is now heightened concern and scepticism around returns which are achieved in loose and fast environments.
With such intense focus now on the controls in place within the investment management process many firms are actively investing in promoting the governance they have in place. The result is often a “dressed up” process that will not pass the muster of a deep analytical audit. The placement of billions of dollars in investment is not taken lightly and any attempt at “dressing up” the process will be seen exactly for what it is.
Product data that is communicated externally is a key facet of any due diligence and any failure to demonstrate appropriate balance and controls to ensure information being pushed into the public/investor domain is accurate, consistent and timely will be noted.
Investor demands for greater breadth and depth of the information being communicated, along with increasing demands for more frequent updates, is leading to an exponential increase in the balances and controls that need to be in place to support the product information communication processes. This in turn is leading to serious headaches for compliance as they need to be sure the governance and applicable stewardship is fit for purpose.
As a result, firms who are unable to demonstrate they are in control of their client reporting process are very unlikely to be able to demonstrate they are in full control of the investment management process. Of course, there are firms which have excellent investment management processes, but you cannot derive the inference that the client reporting and product data management governance and stewardship meet the same benchmark. The inferences tend to work on negative side – i.e. if the due diligence finds there is poor governance in one area of the company they will have the impression that the same lack of balance and controls permeate the firm.
So beware what you push into the public domain – information you communicate about your own products needs to be consistent across the web, client reports, marketing decks, factsheets and RFP responses, it needs to be accurate and it needs to be timely. There are firms that have excellent demonstrable risk-adjusted returns that are not winning mandates because they cannot provide demonstrable reassurance that they are in control of core activities within their firm, remember governance is the talk, stewardship is the walk.