Institutional investors are tasked with managing some of the largest sums of money in the world.
They hold the future of their beneficiaries in their hands and therefore they need all the tools and support available in their efforts at making the right investment decisions.
Our research finds that globally, institutional investors outsource the management of around 60% of their assets to third party asset managers. Therefore, the relationship between asset managers and institutional investors is a vital building block of the world’s wealth, both current and future.
This report aims to dissect how institutional investors interact with asset managers, what they expect out of them and how the managers fit into the institutions’ bigger picture. It also examines the investors’ tolerance for underperformance and crucially, the factors which would trigger a mandate review. The findings in this report are based on data collected in November 2019 from 117 institutional investors globally, who oversee about £250bn in assets under management.
A Dutch investment consulting firm recently published an article discussing the notion of ‘RuM’ – that is relationships under management. The consultancy stresses the importance of managing relationships with outsourced asset managers to ensure high levels of operational due diligence.
Many institutions have limits on the amount of money they can assign a single asset manager. For example, the Government Pension Fund Global – The Norwegian sovereign wealth fund, cannot invest more than 0.5% of its portfolio’s net asset value in a single external manager. This means institutional investors need to manage relationships with many managers at the same time. This is where protocols and processes come into play to ensure accountability. However, outside of the formal processes, the internal investment professionals are constantly reviewing and monitoring their investments to make sure the managers are not falling foul of expectations.
An additional dimension investors need to consider is that they need to justify their decisions to their superiors, sponsors or trustees, which adds another layer of pressure.
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