Best Practices in Investor Perception Analysis for Asset Management Companies Executive Summary The ability of an investment manager to attract institutional investor 1 assets depends in great part on the manager s understanding of the principles that drive fund allocation decisions. Those decisions hinge on many different factors. They include the investor s assessment of the manager s investment philosophy, the manager s performance over specific periods of time, perceptions of the manager s credibility and trustworthiness, and many other considerations that are both objective and subjective. The convictions and attitudes that underlie allocation decisions are not always well-known to investment managers. But they are knowable. This introduction to the Investor Perception Analysis describes the means by which they can be uncovered with the full cooperation of the funds, themselves and made available to managers interested in significant expansion of the asset base. The key lies in engagement with investment funds through a methodology that has been developed and proven over many years. We are pleased to describe that to you here. Investor Perception Analysis Overview The key to the success of any asset management organization is to create trust and a reputation for achieving the investment objectives of its clients. The principals of any asset management company go to work every day with strong ideas about how their firms create value. Whether their ideas align with the views of those who allocate capital to them is a matter of immense importance. But the terms that drive investment funds allocation decisions are sometimes unclear to asset managers. Any asset management company that improves its understanding of what investors want brings an equivalent improvement to its own ability to grow assets under management and raise overall performance. There is one best way for management companies to learn how asset allocators think, and that is to ask them. If such discussions were to take place between the two principals, however, real candor would generally be minimized. The reason is that counterparties to significant business relationships such as those between investors and asset managers generally believe that the 1 We define institutional investors as public and private pension plan sponsors, foundations and endowments, Taft- Hartley plans and family offices. 1/5
careful structuring of information serves their interests best. Full disclosure of an investor s views could not be expected. This hurdle is superable, however, through the intercession of an experienced third-party consultant capable of pursuing a dynamic conversation with investors on behalf of the asset manager. Through the process of an Investor Perception Analysis, we can gather the candid and confidential views of a representative sample of investors. These may number two dozen. We then deliver the Findings to the asset manager. True candor is possible only because we maintain confidentiality around the specific source of all viewpoints and attitudes. Investors participate in such studies with the full knowledge that their views will be disclosed to the manager, but they also proceed with the assurance that their views will never be attributable back to their source. They contribute their time and expertise for the simple reason that they see it in their interest that asset managers become more knowledgeable about the interests, needs, and concerns of asset owners. And they often appreciate being asked. The purpose of the Investor Perception Analysis, therefore, is to uncover investors confidential views about how they make the decision to commit assets to a specific manager. This insight can be of inestimable value to the manager. What is it about an asset manager that makes the investor want to trust him or her with the firm s assets? What are the terms by which investors judge competence and trustworthiness? Effectiveness? Reliability? The purpose of the Investor Perception Analysis is to uncover answers to these questions. True insight on such matters can make a significant long-term difference to an asset management company and to those whose careers depend on it. Methodology: Power of the Unrestricted Dialogue Businesses, particularly in their sales and marketing initiatives, have depended for many years on opinion or perception surveys. They almost always include questionnaires that are put to groups of consumers or observers of almost any size. Almost always, they have rigid structures, restricted to specific questions and capable only of processing answers to those questions. At Montieth & Company, we have gone in the opposite direction. As we have designed this work, the Questionnaire while it can be highly detailed is not an end, but the basis for a larger conversation. The Questionnaire allows us to gather intelligence in all areas of interest to the client. But we also use the Questionnaire as an opening to engage respondents in a much larger conversation that addresses not only what the client and we see as important, but what drives the thinking of the asset owner whether we ve asked the relevant question or not. This broadening of the interview is possible because of the associative approach we take to the conversation. It can bring striking new insight on matters that become apparent to the client for the first time. 2/5
Aspects of the Conversation From a generic perspective, concepts from which we could begin to construct a customized Questionnaire might involve the following: What qualities in an asset manager both in individuals and the institution, itself are likely to create confidence that lead fund managers to allocate assets to that company? How, in general terms, do investors prefer to carry out their allocation conversations with asset managers? How do they judge whether their values and goals are aligned? On what basis do they develop a view of the asset manager s credibility? By what means do they assess the manager s: o Past performance? o Ability to pursue a disciplined, repeatable strategy? o Ability to control risk? o Quality of internal due diligence? How does the investor view: o The distinction between generalists and specialists? o The relationships between volatility and returns? Is the investor more interested in buying existing products or customized solutions? What are the investor s preferred performance metrics? Are governance, social responsibility, ethnic and gender diversity, and environmental considerations important: o In portfolio companies? o In the asset manager itself? Written Report The Findings Section of an Investor Perception Analysis consists of an Executive Summary followed by a series of chapters, usually six to ten in number, each concentrated on a specific set of considerations. Each chapter is headed by a title and a list of highlights of the findings particular to that chapter. Subchapters are headed by titles followed by our substantial commentary. This is supported by carefully edited quotes from the interviews presented in a sequence that creates a logically-developed narrative. This technique provides two very important qualities: The first is that it follows the subtle, associative nature of investors thinking. The other is that it conveys investors emotion, which is often powerful and can prove highly useful in prioritizing issues the asset manager might especially consider in communicating with investors. 3/5
Implementation of Findings Ongoing Counsel Following presentation of the Investor Perception Analysis report, Montieth & Company counsels the client on the application of its conclusions to the client s institutional sales, distribution, and marketing communications process. Its findings can enrich the client s written materials and the structure of the outreach to current and potential asset allocators. The Findings are also instrumental in the Thought Leadership produced by the asset manager, both that deployed through White Papers and less formally through the news media in the form of op-eds, or by-liners, and in media relations. Process We approach our engagement with the client as a partnership. We begin with a thorough review of issues the client considers active and material. The first interviewee, therefore, is the company, itself. Together, we develop the Questionnaire. A solid thematic foundation having been established, we look to the client for guidance on the investors of greatest interest as participants in the study. We may also contribute our own ideas on investment firms who might contribute valuable insight. With the call list established, we will then set a schedule for the project, which includes dates the interviews are to be completed, report to be delivered, live presentation of results, etc. Launch of the study commences with an introductory email from the client to targeted participants. We supply draft text of this email, which the client may adapt. Part of the message of this introductory email alerts the targeted participant that Montieth & Company will make a follow-up call over the following day or two to schedule an interview. We keep the client informed of noteworthy developments throughout the interview process. If something timely and important comes up, the client does not have to wait for the final report to hear it. We begin every interview by assuring the respondent of the anonymity of his or her answers. Though we will provide the client with a list of those who have contributed, the client will never connect a comment with a name. We maintain our commitment of confidentiality to the respondent without exception. The resulting candor is essential to the ultimate value of the work. Part of our introduction to the interview includes a statement to the respondent that one of the most valuable pieces of intelligence we can gain is an answer to a question we didn t know to ask. This invitation to say anything relevant results in original commentary that often gives the client first warning of emerging issues. 4/5
Conclusion Perhaps the most important word in this introduction to our Investor Perception Analysis is partnership. We can only carry out this work from a place of complete unity with our client s interests. What may be somewhat unusual about this is that its substance involves the core concerns that make an asset manager truly viable in the long term. These are matters of culture expressed in ideas not only with regard to the client asset manager, but the target institutional investor, as well. That s why insights in this arena are so difficult to come by, and why we think the Montieth & Company Investor Perception Analysis can provide irreplaceable value to an asset manager. Montieth Illingworth President, Montieth & Company 212.284.7625 montieth@montiethco.com Peter Firestein Senior Advisor, Montieth & Company 212.608.0877 peter@firesteinco.com 5/5