Global institutional investors say bureaucracy and a risk-averse approach is impeding the ability of larger managers to generate higher returns
(London, August 2019) Institutional investors think larger asset managers are less able than smaller, boutique firms to deliver alpha, new research shows.
Dan Loeb’s Third Point Returns 1.9% In Jan Amid Market Turmoil
Activist hedge fund Third Point LLC recorded a profit of 1.9% in January, according to a copy of the firm's latest performance tear sheet, which ValueWalk has been able to review. These figures seem to suggest that the hedge fund managed to make the most of January's market volatility, as other hedge funds struggled. The Read More
A CoreData Research global study of institutional investors found an overwhelming majority (90%) think larger firms are at a disadvantage when it comes to delivering higher returns.
Bureaucracy (65%) is considered the prime factor impeding the ability of bigger managers to generate alpha. This is followed by a belief that larger investment houses employ a more risk-averse stock selection process (42%) and are hampered by centralized power structures resulting in time inefficiencies (39%). One quarter (24%) say less innovative solutions inhibit the ability of bigger houses to generate higher returns.
The study, which included several in-depth interviews with investment professionals, also found 80% of respondents are either indifferent to size or would choose a smaller, boutique manager over a larger corporate house when searching for an active manager to partner with. Furthermore, 90% of investors who say delivering higher alpha is a key driver in manager selection prefer working with smaller firms.
“We spoke to a range of investors as part of this study and many feel that when an asset manager gets too big there is a very real risk of it losing focus on the pursuit of pure alpha and instead becoming an asset gatherer,” said Craig Phillips, head of International, CoreData Research. “But these findings do not signal the death knell for larger investment houses. While smaller managers are more likely to be specialists in particular markets, larger firms can leverage their resources to adopt a multi-boutique structure that takes this more specialist, niche approach to a wider investor audience.”
Institutional investors say specialization or a niche approach (53%) is the second most important driver in their search for an active manager after reputation and fiduciary management (60%). Investors who value a manager’s long-term focus on alpha generation consider specialization the principal driver.
Another key finding to emerge from the study is the relative unimportance of brand. Only one quarter (27%) of investors consider brand recognition a core driver when selecting active managers.
Elsewhere, six in 10 institutional investors (61%) think a future recession represents a threat rather than opportunity for active managers. Passive investments (46%) and regulatory change (44%) are seen as further challenges. The main opportunities for asset managers, according to investors taking part in the study, come from technological and digital disruption (52%) and M&A activity (46%).
Which of the following factors, if any, impede the ability of larger firms to generate higher returns?
Bureaucracy (coordination problems, too many stakeholders, office politics, etc.): 65%
More risk-averse investment selection: 42%
Centralized power structure causing time inefficiencies: 39%
Less innovative solutions: 24%
More stringent regulation requirements: 23%
Limited in fund selection by client profile: 9%
When searching for an active manager to partner with, would you look at more well-established firms or small boutiques?
Size does not matter: 62%
Larger firms (corporation): 20%
Smaller firms (boutiques): 18%
What are the main drivers of your choice of active manager to partner with?
Reputation and fiduciary record: 60%
Specialization/niche approach: 53%
Access to different asset classes, markets, strategies etc.: 50%
Management fee structure: 33%
Deliver higher alpha: 33%
Brand recognition: 27%
Notes to Editors
- CoreData Research gathered views on active investing and alpha generation from 100 professional investors in key investment markets around the world (USA, UK, Europe, the Middle East and Africa and Asia including Australia) during July 2019.
- The professional investors included CIOs, investment managers and investment officers, fund selectors, data analysts and consultants from multi-managers, pension funds, private banks, insurance companies, endowments and foundations and sovereign wealth funds. Collectively, these investors manage an estimated $5.9 trillion in assets.
CoreData Research is a global specialist financial services research and strategy consultancy. CoreData Research understands the boundaries of research are limitless and with a thirst for new research capabilities and driven by client demand; the group has expanded over the past few years into the Americas, Africa, Asia, and Europe.
CoreData Group has operations in Australia, the United Kingdom, the United States of America, Brazil, Singapore, South Africa and the Philippines. The group’s expansion means CoreData Research has the capabilities and expertise to conduct syndicated and bespoke research projects on six different continents, while still maintaining the high level of technical insight and professionalism our repeat clients demand.
With a primary focus on financial services CoreData Research provides clients with both bespoke and syndicated research services through a variety of data collection strategies and methodologies, along with consulting and research database hosting and outsourcing services.
CoreData Research provides both business-to-business and business to- consumer research, while the group’s offering includes market intelligence, guidance on strategic positioning, methods for developing new business, advice on operational marketing and other consulting services.
The team is a complimentary blend of experienced financial services, research, marketing and media professionals, who together combine their years of industry experience with primary research to bring perspective to existing market conditions and evolving trends.
CoreData Research has developed a number of syndicated benchmark proprietary indexes across a broad range of business areas within the financial services industry.
- Experts in financial services research
- Deep understanding of industry issues and business trends
- In-house proprietary industry benchmark data
- Industry leading research methodologies
- Rolling benchmarks
The team understands the demand and service aspects of the financial services market. It is continuously in the market through a mixture of constant researching, polling and mystery shopping and provides in-depth research at low cost and rapid execution. The group builds a picture of a client’s market from hard data which allows them to make efficient decisions which will have the biggest impact for the least spend.