Daily, at thousands of pension funds, judgements are formed on asset managers. Those managers may largely be hired and fired on the basis of hard numbers, but relationships are assessed (and sustained through hard times or otherwise curtailed) on the basis of a combination of ‘soft’ and ‘hard’ factors. Tough economic and market conditions increase the importance of those factors. But which ones do pension funds pay closest attention to?

IPE’s aim, as part of our 2012 Pension Fund Perceptions Report, was to rank some these all-important judgemental factors. So we asked participating funds to rank 26 qualitative and quantitative issues (in nine overarching categories) in order of importance.

Issues categorised within the valuations and benchmarking category were most important overall, followed by those to do with risk management. Ability to implement corporate governance guidelines or proxy voting guidelines were least important of the overarching criteria.

This might seem disappointing to those involved with responsible investment and corporate governance but the aim of this exercise was to rank the pension funds’ perception of the importance of each factor within the context of their relationship with the asset manager, not to rank the importance of each issue per se.

Unsurprisingly, the most important issue for the pension funds involved in the exercise was the ability of asset managers to generate investment returns within the risk parameters provided. Second and third were the integrity of valuations and the accuracy of reporting; fourth was adherence to the agreed mandate.

These are hard, measurable outcomes and suggest that at least some respondents have had problems with the quality of the reporting presented to them in the past. The fourth factor, adherence to the agreed mandate, is also interesting because it spans both the hard factor of asset management style and scope, as well as the soft factor of communication around that.

Three soft factors are ranking in fifth, sixth and seventh positions. These are: value for money for fees paid; the ability of relationship managers to understand the pension fund’s needs; and the more general factor of alignment of outcomes with expectations. Value for fees is not easily measurable, although it must be strongly correlated with the attainment of positive, sustained returns. Ability of relationship managers and general alignment of interest are classic soft factors and these elements have long been recognised by asset managers.

Overall, our survey shows that softer factors around communication come a strong second to the attainment of hard numerical targets, and that some hard factors have a strong soft element. As ever, pension funds relationships with asset managers are nuanced, complex and based on a considerable level of trust.