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New Managers October 2019

Perspectives

 

Employee ownership a key predictor for strongest longterm gross returns of asset managers

FCLTGlobal, a think-tank founded in 2016 by BlackRock, Canada Pension Plan Investment Board, The Dow Chemical Company, McKinsey & Company, and Tata Sons, has published a paper with relevant insights into factors associated with longterm performance of asset managers, finding that employee ownership is a key indicator to look out for. The analysis of asset managers covers those who self-report to eVestment (aggregate $45.6 trillion in assets under management, or AUM). Long-term performance is measured in terms of five-year gross returns across equity, fixed-income, and mixed portfolios among asset managers. According to FCLTGlobal's model, asset managers who score well on key long-term predictors - those at the 75th percentile - generate annual gross returns that are 90 basis points higher than asset managers at the 25th percentile. Asset managers with the strongest long-term gross returns tend to have a high level of employee ownership, which may help to align incentives. Having high net inflows is also a positive indicator,

though this finding may reflect the ability of successful managers to attract money - rather than any tendency for growth to improve returns. On the flip side, turnover among portfolio managers is an indicator of trouble ahead as is strategy proliferation. In contrast to corporations - where the factors associated with long-term success tend to hold across industries - the key predictors of asset manager success vary widely across different asset classes. Employee ownership is a stronger indicator of long-term returns on the equity side than for asset management as a whole and not significant for fixedincome. The same pattern holds for portfolio manager turnover, which is more meaningful for equities than for asset management as a whole and not significant for fixed-income. Consistent with expectations, equity managers had the greatest......................

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This article was published in Opalesque's New Managers a top-down monthly analysis, news and research publication on the global emerging manager space.
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