Changing managers can destroy value
The hiring and firing of investment managers by institutional investors in the UK and US can be a value-destroying activity, according to a report by global investment consultant Watson Wyatt.
The paper states there is “room for improvement” on the part of institutional investors when it comes to decisions about appointing or terminating investment managers.
It says institutional investors are too obsessed with past performance, and rely too heavily on brand names. “Termination tends to follow underperformance, and performance tends to improve post firing,” said the report.
According to Watson Wyatt, institutional investors should “resist acting in the short term and become long(er) term investors – both in terms of performance outcomes and in the saving of transition costs”.
The use of consultants during manager selections results in “larger outperformance” due to a focus on qualitative research rather than purely past performance, claims Watson Wyatt.