Fiduciary managers 'still unable' to offer performance comparisons
GLOBAL - Fiduciary managers should embrace transparency to foster confidence in their trade and offer clients the ability to make "meaningful" performance comparisons across the sector, a new report commissioned by Qatar Financial Centre Authority has argued.
The report, entitled 'Success of the Fittest: A Swift Survey of Shifts in Asset Management', examines the challenges facing an industry that is no longer worthy of trust, according to author Bob McDowall.
McDowall says it is "notoriously difficult" for fiduciary managers to report track records in a way that allows pension funds to compare asset performance with liabilities.
He also highlights the issue of finding a suitable benchmark to measure success.
"Clients should be able to make meaningful comparisons across providers - something that is missing from the industry," he says.
McDowall, director of a Guernsey-based private equity company, adds: "Many providers focus on funding ratios but ignore the investment risks taken to get to that position."
He points out that the market currently lacks a standard, and says the "favoured approach" is to devise a balanced scorecard involving a combination of three key factors -diversification, tactical asset allocation and hiring managers.
The report also touches on the problem facing asset managers that are also part of larger banks deemed "too big to fail".
"The reputation of the asset management division suffers when the banking brand is damaged," he says.
"Substantial outflows of funds can delay or cause fund illiquidity and ultimately cause investor losses due to the inability of investors to redeem their investments."
McDowall says this raises the question of whether asset managers should be "compelled" to be treated as independent businesses, akin to retail banks.
"The answer is not straightforward, as this degree of detachment and independence may inhibit growth through increased marketing and distribution costs, but [it] would add to the transparency of the asset managers' operations," he says.