What Do Investors and Managers Want? Transparency

Nearly two-thirds of investors and asset managers in a new global survey said transparency was very important for traditional and alternative investment considerations both before and after investment.

Respondents put transparency ahead of such considerations as applicable regulations and fees.

The 2008 financial crisis heightened the importance of post-investment transparency over other investment considerations, the survey showed.

The Economist Intelligence Unit surveyed 200 senior asset management and institutional investor executives employed by asset management organizations in North America, Europe, Asia/Pacific and the Middle East, half of which had more than $5 billion in global assets under management.

The survey, which was sponsored by Northern Trust, defined alternative investments as investment products built on debt, hedge funds, infrastructure, natural resources, private equity, real estate or funds of funds of any of these.

What is driving concern about transparency in investments? According to the survey:

Portfolio risk management: 73%
Regulatory requirements: 53%
Competitive considerations: 43%
Fee calculations: 38%

About half of the respondents reported positive effects on performance from the cost and resources dedicated to ensuring transparency in their portfolio and in providing transparency to others.

The EIU also found that even though transparency has surged in importance since the financial crisis, best practices have been slow to catch on.

For one thing, responsibility for ensuring that current and potential investments are adequately transparent is in flux throughout asset management organizations.

Fifty-two percent of respondents said the responsibility fell to investment management functions, 49% said risk and compliance, and 22% each said finance and operations and IT. Seven percent reported that no function in their organization had been designated responsible.

Moreover, respondents differed on which firm executive had the final word on whether enough transparency existed to proceed with an investment.

Thirty-three percent said the investment committee collectively had final say, 20% said the chief investment officer and 15% the CEO.

These disparate responses, the EIU said, indicated a lack of industry best practice to guide this decision making.

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