New research questions what could be considered industry-accepted wisdom: strong investment performance drives asset flows.

A white paper released this month by Chestnut Advisory Group, “Your Performance Doesn’t Really Matter:  What Successful Asset Managers Do Differently,” finds that investment performance is not the primary driver of asset flows.

“It may be an industry assumption that positive capital flows follow strong investment performance, but Chestnut’s analysis shows that asset managers who delivered the best investment performance did not raise the most capital,” the company stated in a press release.

These asset managers that raised the most capital may not have delivered the best investment returns, but they did raise more than four times the capital of the best investment performers.

According to the paper, the top quintile of funds ranked by trailing-three-year returns raised about $42 billion in capital for the six-year period, whereas the top-quintile funds ranked by net flows raised more than $175 billion for the period. This was true within each of the four asset categories Chestnut examined.

To test the assumption that capital is correlated with investment performance, Chestnut looked at quarterly data on 931 products from eVestment, for the periods September 2006 to December 2013, covering four asset categories: emerging markets, U.S. high yield, global fixed income and U.S. small- & mid-cap equities. Chestnut then examined the relationship between investment performance and net asset flows and looked at correlations between these two variables and the characteristics of the most effective asset gatherers.

So, what drives asset flows? “Great investor relations,” they say.

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.