Report: Growing Number of Consultants Offer Performance Measurement

(May 19, 2010) — A new report from financial market researcher Finadium reveals that while global custodians remain the largest vendors of performance measurement services to institutional investors, “advances in technology” have allowed consultants to compete more effectively with custody banks in reporting performance results for their clients.

Performance measurement is a critical part of the investment management process for institutions and asset managers, the report said. With institutional clients demanding increased granularity and transparency across asset classes, fueled partly by the passage of the Employee Retirement Income Security Act (”ERISA”) in 1974 that compelled plans to disclose liabilities and funded status, a complete view of analytics, attribution, and risk exposures has become an essential part of performance reporting. Growing interest in outsourced arrangements has resulted in an array of vendors, including custodians, consultants, independent technology firms, spin-offs of asset managers and a variety of combinations of these firms.

“To meet client demand, consulting firms either developed performance capabilities internally or sought a performance vendor solution,” wrote co-authors Josh Galper, Finandium’s managing principal, and James McCann, senior consultant, in “The State of Performance Measurement for Institutions and Asset Managers.”

To compile the study, Galper and McCann targeted the investment performance capabilities of the 40 largest 150 US consulting firms overseeing about $14 trillion or more than 75% of the assets of 8,700 U.S. institutional investors. The study found that while 55% of the top 40 consultants use internally developed and maintained performance measurement processes, 45% use services from outside providers.

According to the Finadium report, InvestorForce is the most popular of performance measurement outsourcers based on assets under advisement. InvestorForce provides services to five of the 10 largest investment consultants based on assets under advisory.