Why "The Ride Matters" in Transparency for Investment Marketing

As part of our “Kurtosys Insights” series, we are speaking to some of the asset management industry’s leaders and experts and asking their thoughts and opinions on the industry, digital technology, and the future.
Barry Mandinach- advocate for investment transparency Barry Mandinach is executive vice president and head of distribution, and a member of the senior management team at Virtus Investment Partners, Inc. Mr. Mandinach leads the distribution, positioning, messaging, and marketing of Virtus investment products across all distribution platforms. He also manages relationships with the firm’s retail distribution partners, including national wirehouses, regional and independent broker-dealers, and registered investment advisors.
Tell us about Virtus and how you are positioning yourselves in the market?

At Virtus, we focus on developing investment solutions to address the challenges investors face.  To do so, we partner with leading asset managers offering diverse strategies that we think can benefit advisors and their clients. We are not limited to working exclusively with a small group of internal managers, asking them to move out of their sphere of excellence or range of expertise to try to address additional needs. Instead, we seek out distinctive managers with proven pedigrees and credible and tested investment approaches that we think are well-positioned to help our clients achieve their investment objectives.
As a firm, many of our offerings are fairly benchmark agnostic, or have high active share.   You can see that in our domestic small-cap equity offerings from Kayne Anderson Rudnick, our global equity offerings from Vontobel Asset Management, our fixed income offerings from Newfleet Asset Management, and our multi-asset portfolio from Aviva Investors.

What differentiates your business?

The key differentiator really is our multi-manager structure.  We partner with an array of compelling managers under several different ownership structures, forming economically sensible business relationships where our interests are aligned.  Our priority is to identify leading managers who are able to provide the investment capabilities we are seeking.

Is “transparency” something that marketers can do a better job of? How so?

People are drowning in information and starved for wisdom. Oftentimes, people think that “transparency” equates to knowing more details. To me, transparency means understanding what I call the “price of admission.” As an investor, you understand not only when a strategy has done well, but when it has been most difficult to own.
The ride matters. The more information we, as an industry, can make available to financial advisors and their clients about when the most challenging periods tend to be in the course of owning an investment, the better.  That kind of transparency is invaluable to producing better client outcomes.
The industry needs to get a better grip on the idea that the ride matters as much as the results: How was the performance generated? When was the strategy the most difficult to own? What were the biggest drawdowns? How long did it take you to get back to even? Those things are essential if you are going to successfully access a strategy.
Most people I meet need to grow their capital and fund their retirement. They absolutely need to invest for long-term growth, but they must go in with both eyes open. It’s our responsibility to explain, based on history, what the ride is likely going to look like.

If you could highlight the single biggest failing in the asset management industry over the last 10 years, what would it be?

I think the industry has tended to place salesmanship ahead of stewardship.  The more we, as an industry, can understand what advisors and their clients really need to fund a retirement, to grow their capital, to create inflation-protected income, without asking those clients to be someone they are incapable of being, the better. It is my view that we can help manage clients’ expectations properly by taking a full-disclosure approach to every conversation.
For example, many people think that long-only investing is very simple and that alternatives are complicated. But, truthfully, it’s critical to understand the implications of holding any investment, in a particular portfolio, for an individual client’s desired outcome.  Another broad example is the proliferation of interest in index funds.  If I defined an index fund for you as something that has a very low fee and can be very tax-efficient, but, at the same time, straightjackets an investor into a basket of stocks or bonds regardless of price, regardless of fundamentals, regardless of market conditions, it might not sound quite as appealing. I call that the hidden cost of the low fee. It matters that an investor understands the benefits and the potential pitfalls of any investment.
If the person who is contemplating buying your investment knows as much about the investment as you do, and still wants to buy it, that’s a good measure of a full-disclosure presentation.

What’s your number one priority in terms of using digital technology to save time and resources?

Everyone consumes information differently and digital is essential to any communication program today.  It’s not just about email; it’s about giving people tools they can use at their discretion.
I’d like advisors to get updates on how our portfolios are positioned, along with the latest insights from our portfolio managers. I’d like them to be able, on an interactive basis, to dig into the “ride” associated with each fund, as opposed to just seeing the star rating or the peer rank, or the growth of a dollar.

Where do you see the asset management industry in 5 years? Is it changing much? How so?

I think there will be a bigger separation between active managers, passive managers, and rules-based managers. I believe active management will be back in vogue again, but with managers who really offer risk mitigation. Many people think the only reason you hire an active manager is to beat the markets; that makes sense when you’re in an aging bull market.  But, more and more, I believe, people are going to recognize that they pay an active manager to avoid the big losses, to make it more tolerable to own an investment over the course of market cycles.
I think you’ll see more and more recognition that active management isn’t just about alpha generation.
McKinsey wrote a report a couple years ago that called client outcomes the “new alpha.” I think active managers who consciously strive to help bridge the “behavior gap,” as it’s called, between how the funds do and how the people who invest in the funds do, stand to benefit.
In the world of active management, managers who do really good analysis, and allocate well, have the potential to help clients achieve their objectives.

If you work for an asset manager and would be open to an interview with Kurtosys, please contact us or tweet us @kurtosys.