Why boutique asset managers need to drill down into the narrative

Let me tell you a story

WHY BOUTIQUE ASSET MANAGERS NEED TO DRILL DOWN INTO THE NARRATIVE

This recent headline in the FT is not a story asset managers want to hear.

86%of active equity funds

underperform

NEWS IN BRIEF:

“The findings pile further pressure on active fund managers, who have come under repeated attack... for charging

high fees for underperformance.”

NEWS IN BRIEF:

“There are good managers out there but

they are not easy to find.”

NEWS IN BRIEF:

“... which is why many institutional investors don’t bother looking.”

Based on an in-depth study by S&P Dow Jones Indices,

the FT reports:

4/5

Four out of five active equity funds failed to beat their benchmark over the past five years.

IN EUROPE

98.9 per cent underperformed over the past 10 years.

98.9%

US EQUITY FUNDS

97%

97 per cent of funds underperformed.

EMERGING MARKETS

97.8%

97.8 per cent of funds underperformed.

GLOBAL EQUITY FUNDS

“A small group of star fund managers are able to generate superior

performance, but they extract the whole of this outperformance for themselves via fees, leaving nothing for investors.”

REPORT CARD

DAVID BLAKE, LONDON’S CASS BUSINESS SCHOOLQUOTED IN: 86% OF ACTIVE EQUITY FUNDS UNDERPERFORM, FINANCIAL TIMES, MARCH 20 2016

In this context, it’s no surprise that clients and shareholders today need more detailed reporting on investment strategy.

In this context, it’s no surprise that clients and shareholders today need more detailed reporting on investment strategy.

They need a more vibrant picture of past, present and future activity, with underlying data to support decisions made.

In this context, it’s no surprise that clients and shareholders today need more detailed reporting on investment strategy.

They need a more vibrant picture of past, present and future activity, with underlying data to support decisions made.

We’re not talking about top level headlines.They want granular, 360 degree analytics and reporting.

… and they want it now.

That’s why asset managers today need a compelling, water-tight narrative to

justify their decision-making.

… and they want it now.

A good storyline gives stakeholders better visibility and insight into strategy:

A good storyline gives stakeholders better visibility and insight into strategy:

Where it has worked

A good storyline gives stakeholders better visibility and insight into strategy:

Where it has worked

Where it has not worked

A good storyline gives stakeholders better visibility and insight into strategy:

Where it has worked

Where it has not worked

Reasons why

The ability to deliver a full account of performance attribution - and the degree of risk associated with

each investment - is the way to articulate and understand the

bigger picture.

This is important for all asset managers, but all the more pertinent for boutique

firms who are looking to grow.

Smaller players have smaller margins of error. Each decision is more exposed

to scrutiny.

But they are more agile and can quickly change

course when they start to detect an unhappy ending.

The story everyone wants to talk about today is Risk.

RISKY BUSINESS IS BIG BUSINESS

The story everyone wants to talk about today is Risk.

In its 2016 Outlook, investment management consulting firm Citisoft says understanding aggregated risk across all investments and portfolios is coming increasingly to the fore.

RISKY BUSINESS IS BIG BUSINESS

RISKY BUSINESS IS BIG BUSINESS

“Changes in how managers want to analyze markets and construct portfolios

will begin driving firms to seek more integrated and robust solutions.”

CITISOFT 2016 OUTLOOK

RISKY BUSINESS IS BIG BUSINESS

“This will enable asset managers to take advantage of the benefits of expanded

risk strategies. We believe that investment risk management initiatives will continue

to be a major theme for 2016.”

CITISOFT 2016 OUTLOOK

But there’s a problem...

PERFORMANCE ATTRIBUTION DATA CAN ALSO BE USEFULLY AGGREGATED

But there’s a problem...

For many asset managers, the attribution process is very data heavy.

It involves lots of performance transaction data.

It is sensitive to errors. Correcting one data point has a knock on impact when looking at historical performance.

PERFORMANCE ATTRIBUTION DATA CAN ALSO BE USEFULLY AGGREGATED

PERFORMANCE ATTRIBUTION DATA CAN ALSO BE USEFULLY AGGREGATED

Boutique asset management firms, especially, do not have the time or resource to manually correct errors. Automated and

new technology are needed.

Boutique asset management firms, especially, do not have the time or resource to manually correct errors. Automated and

new technology are needed.

But they need data that is accurate and generated at speed so the asset managers in the front office can act.

PERFORMANCE ATTRIBUTION DATA CAN ALSO BE USEFULLY AGGREGATED

THREE KEY PRIORITIES:

Automation

THREE KEY PRIORITIES:

Automation Accuracy

THREE KEY PRIORITIES:

Automation Accuracy Speed

WITH THE RIGHT SYSTEM, BOUTIQUE ASSET MANAGERS ARE BETTER EQUIPPED TO:

Provide high quality insight in a timely fashion.

WITH THE RIGHT SYSTEM, BOUTIQUE ASSET MANAGERS ARE BETTER EQUIPPED TO:

Provide high quality insight in a timely fashion.

Give investors and regulators

total clarity.

WITH THE RIGHT SYSTEM, BOUTIQUE ASSET MANAGERS ARE BETTER EQUIPPED TO:

Provide high quality insight in a timely fashion.

Incorporate data and visuals to tell the story.

Give investors and regulators

total clarity.

WITH THE RIGHT SYSTEM, BOUTIQUE ASSET MANAGERS ARE BETTER EQUIPPED TO:

Provide high quality insight in a timely fashion.

Incorporate data and visuals to tell the story.

Give investors and regulators

total clarity.

Report back on forecasted and

actual performance.

ULTIMATELY, ACCURATE, IN DEPTH REPORTING BUILDS

INVESTOR CONFIDENCE

They may have fewer investors.

This is particularly important for boutique asset management firms because:

ULTIMATELY, ACCURATE, IN DEPTH REPORTING BUILDS

INVESTOR CONFIDENCE

They may have fewer investors.

They may have bespoke

investment styles.

This is particularly important for boutique asset management firms because:

ULTIMATELY, ACCURATE, IN DEPTH REPORTING BUILDS

INVESTOR CONFIDENCE

They may have fewer investors.

They may rely on a critical

mass of AUM.

They may have bespoke

investment styles.

This is particularly important for boutique asset management firms because:

ULTIMATELY, ACCURATE, IN DEPTH REPORTING BUILDS

INVESTOR CONFIDENCE

They may have fewer investors.

They may rely on a critical

mass of AUM.

They may have bespoke

investment styles.

There may be an optimum portfolio size.

This is particularly important for boutique asset management firms because:

Combined performance and risk analytics is not a new concept.

But what is new is the possibility to combine data, apply advanced analytics and present the results in

a user friendly format through the latest technology...

Combined performance and risk analytics is not a new concept.

But what is new is the possibility to combine data, apply advanced analytics and present the results in

a user friendly format through the latest technology...

… technology that will help boutique firms to compete and gain competitive advantage in today’s

more complex and volatile markets.

End of Story

• Clients and regulators today need more detailed reporting on investment strategy.

• The demand is for granular, 360 degree analytics and reporting.

• This is pertinent for boutique firms who are looking to grow.

• Smaller players have smaller margins of error. Each decision is more exposed to scrutiny.

• A more vibrant picture of past, present and future activity, with underlying data to support decisions made builds investor confidence.

TAKEAWAYS

LOOKING FOR IMPROVEMENT IN

YOUR MIDDLE OFFICE?

Performance and Risk Analytics 2016-2020: How a combined approach can give boutique asset management firms the edge

Review how smaller asset managers are shaping up their middle offices for the future.

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