Investment Performance Alone Does Not Drive Asset Flows

What Chestnut’s paper suggests is that asset managers see substantial results when they have a strong focus on educating investors about exactly what they are doing with their money. Asset managers that “got investor relations right” brought in an additional $133 billion in assets under management over the seven-year period studied.

To find out what investors expected from their asset managers, Chestnut collaborated with Rivel Research Group to create a survey identifying what institutional investors want from asset managers. After conducting 74 interviews with 57 plan sponsors and 17 consultants across the government, corporate, endowment/foundation and consultant sectors, they found that trusted asset managers raise more assets, are hired more quickly and are fired more slowly than the general population of asset managers.

According to the survey, 92% of respondents said they viewed investor communication and support as integral to an asset manager’s mission. Investor relations also have a deep impact on investors’ hiring and firing, with 59% of respondents reporting that the quality of investor relations is a significant factor when deciding whether to hire or fire an asset manager.

Chestnut found that investor education breeds trust, and trusted asset managers are hired 3-12 months more quickly and fired 3-12 months more slowly.

This could translate, according to the paper, into “3-12 months of additional income for a trusted asset manager, or $25,000-$100,000 (based on a 1% average fee) for every $10mm in additional assets.”

Chestnut Advisory Group, an investor relations consulting firm serving the asset management industry, was founded in 2014 by CEO Amanda Tepper, former global director of the Senior Portfolio Management team at AllianceBernstein.

— Check out Does the World Have Too Many Active Managers? on ThinkAdvisor.