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Nov 18, 2014

Asset managers that ‘get’ IR raise more funds

Ninety-two percent of investors surveyed say IR is integral to an asset manager’s mission

Asset managers that ‘get investor relations right’ raise significantly more capital than those that don’t emphasize IR, according to a study by Chestnut Advisory Group, an IR firm that specializes in the asset management industry.

Over the seven-year period studied, asset managers that focused on effective investor relations brought in $133 bn more in assets under management than other managers, Chestnut says in a 13-page white paper entitled, ‘Your performance doesn’t really matter: what successful asset managers do differently’.

The study also shows a low correlation between investment performance and capital raising, suggesting that performance is not the key factor in successful fund raising by asset managers. Chestnut says the best investment performers examined raised less than a quarter of the assets raised by the best capital raisers.

‘The asset management space is experiencing consolidation while the competition for and cost of acquiring loyal investors increases,’ says Amanda Tepper, Chestnut’s CEO, in a press release announcing the white paper. ‘For middle market asset managers, the best way to even the playing field against larger firms is to ensure they have a strong IR program to build and foster investor trust, which ultimately helps drive and retain assets.’

The paper also says 92 percent of investors surveyed feel IR is integral to the mission of an asset manager. The most important factor in their decisions to hire an asset manager is a strong understanding of the asset manager’s investment process, a factor that can be improved with effective IR. The second factor cited is asset manager credibility, followed by an understanding of the firm’s risk management, clear and consistent communications, and confidence in the firm’s business structure and incentives.

Almost 70 percent of those surveyed also say the timeliness and quality of the communications of an asset manager in relation to headline news is an important consideration when making a decision to hire. The survey shows that institutional investors turn to their asset managers more than any other source for advice about the impact of headline news on their portfolios.

For the study, Chestnut examined quarterly data on 931 eVestment products from 2006 to the end of 2013. It also conducted 74 interviews with 57 plan sponsors and consultants in the public fund sector, the corporate sector and in the endowment and foundation sector.