Performance measurement and reporting: the next battleground

How will asset managers adapt to the changing demographics of their client base, which will increasingly be dominated by digital savvy millennials in the years ahead? The challenge will be twofold; not only do these investors have different investment needs, they also expect greater transparency.
The first part of the equation concerns the investment offer. Asset managers have traditionally sold products – collective funds investing in a particular asset class or geography, say – and left investors to bolt those products together in order to build a portfolio appropriate to their needs. Increasingly, however, investors want solutions – that is, multi-asset investment strategies that deliver a return tailored to their objectives. These strategies will encompass traditional long-only equity and bond funds, but also a range of other assets from hedge funds to targeted and absolute return products.
The shift is palpable. A recent State Street survey found that 78 per cent of asset managers expect a greater proportion of client assets to move to bespoke solutions over the next five years. With this move comes challenges, however. Not all managers will have the expertise to offer a multi-asset solution. And those that do will have to implement new performance measurement and reporting functionality that does much more than simply provide an up-to-date net asset value.
Indeed, the performance measurement piece is set to become a key battleground for asset managers moving towards offering more complex investment solutions. On the one hand, managers will need to manage a wider range of data coming in from a variety of sources and in different formats – including in areas such as hedge funds, private equity and unlisted investment, where information is not always immediately available. On the other, they will need to find new ways to share this data with clients, providing the context they need to make sense of performance analysis in relation to their own circumstances.
That is likely to mean providing more data than ever before. Clients will no longer be satisfied with receiving only performance figures – they will want to know how that performance was achieved, with detailed information about the risks to which they are exposed, the minutiae of their asset allocation positions, and complete visibility on charging practices at every stage of the value chain.
Moreover, different clients will have different requirements. Providing a bespoke reporting service so that clients can pick and choose the data they want may soon be a basic requirement for asset managers courting millennial investors.
Delivering these reporting services digitally is going to be essential – not only because millennial investors will expect nothing else, but also because a paper-based approach will not be up to the job of providing the detail and functionality required.
Client portals are therefore set to become increasingly important tools for asset managers, providing clients with a customisable performance reporting service. These portals will deliver a consistent user experience, providing access to the same level of detail to all investors through easy-to-use interfaces. They will also have to seamlessly integrate internal data and third-party information, while ensuring accuracy and consistency.
In practice, few clients will exploit the full functionality on offer from such portals. But it is important to ensure that asset managers’ services do not simply cater to the lowest common denominator – rather, all clients should be able to get exactly what they need from an asset manager’s portal, in the form of their choosing.
Asset managers that get this right have an opportunity to build much more engaged relationships with their investors. Rather than providing clients with, say, bi-annual reports from the manager, communication will be continuous and two-way.
Indeed, this is a model already being actively pursued by investment platforms, many of which compete aggressively on the basis of their functionality and customisation options. Asset managers that want to retain a strong link with their clients, rather than ceding the relationship to third-party platforms or other intermediaries, will need to do the same.
Time is running out to develop these services. As the consultancy Deloitte warns in a new report on trends in asset management, “Millennials will affirm their status as the new drivers of consumption going forward”. Asset managers had better be ready to respond.