Managers Struggle for Differentiation as Consultants Place Greater Importance on Databases
November 7, 2022 — Boston
Investment consultants’ use of databases in the manager research process continues to grow in importance
With more investment consultants relying on databases for manager research, asset managers will need to provide complete, current, and accurate data to garner the attention of investment consultants, according to the latest Cerulli Edge—U.S. Institutional Edition.
The top-15 investment consultants report using more than 30 different industry databases, ranging from large broad-based data to the very niche. Most investment consultants also keep their own proprietary databases with thousands of investment strategies on file. “Dozens of databases exist—some are extremely broad while others tend to focus on particular asset classes or regions,” notes Laura Levesque, associate director. “The overall mix of databases subscribed to by investment consultant relies entirely on their target clients and what types of strategies for which they choose to consult,” she adds.
When evaluating the number of strategies investment consultants maintain on proprietary databases by asset class, it is evident that firms cover a few hundred or even a few thousand. According to the research, the top-five median product types include equity at 5,013, private equity at 3,065, fixed income at 2,344, hedge funds at 1,154, and real estate at 841. “Getting on a proprietary database is hard enough; receiving a rating from an investment consultant is even harder,” notes Levesque.
In an environment where strategies are likely to compete with dozens of peers, performance is table stakes. Asset owners want to know how a portfolio will perform in a variety of market conditions, such as a down market or a high volatility market, and how certain events are likely to impact portfolio performance. Consistently beating benchmarks and strong historical performance are positives in the eyes of asset owners, but downside protection may take on a greater importance in the current environment.
As managers seek additional ways to stand out from the crowd, superior client support and service have become increasingly important. According to the research, highly robust analytical tools for risk analysis and performance attribution, coupled with clear, concise, easy-to-digest analysis, can be highly valuable to clients. Firms that can offer both should highlight this in databases. Although it can be more difficult to convey quantitative perspective in a database, opportunities do exist for including this information.
“Asset managers should be keenly aware of the value and marketing potential industry databases can provide,” says Levesque. “At a minimum, managers should be sure to identify the most important databases for their targeted investment consultants and keep them updated with accurate and current information regarding their available strategies,” she concludes.
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Note to editors
These findings and more are from The Cerulli Edge―U.S. Institutional Edition, 4Q 2022 Issue.