Is Your Asset Manager Telling the Truth? | Chief Investment Officer

Asset managers are attempting to “fudge their way to success” through unclear performance reporting—and the problem is “getting worse,” according to Cerulli Associates research.

Some managers report back-tested data to fund selectors and consultants as actual fund performance, while others fail to clarify whether performance is net or gross of fees.

“Clarity—or lack thereof—is the issue,” said Tony Griffiths, senior analyst at Cerulli.

Asset managers have been known to rebrand products or alter mandates to disguise poor performance, consultants told the firm in interviews. Product data may change between a pitch and a final proposal “without explanation.”

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Managers were also accused of aggregating assets to include segregated mandates, despite the opacity of these side-deals.

“Cerulli does not see the long-running prickly relationship between investment consultant and manager easing anytime soon, especially in the UK where demand for consultant-led fiduciary management services continues to grow and yet fiduciary management performance data are not widely available,” the analytics group said in its report.

Griffiths also expressed “some sympathy” with managers over consultants’ claims that they are “launching or adapting products based primarily on market demand.”

“Many firms feel that investment consultants set moving targets,” Griffiths said. “Managers are expected to build products and services based on personal convictions, while at the same time addressing the needs of the consultant; the suggestion being that products can be tweaked, but not tailored—a potentially impossible balancing act.”

The New Zealand Superannuation Fund has cut most of its ties with non-specialist private equity funds based outside the country.

Sales of eight fund stakes closed in the last three weeks, according to the NZ$30 billion ($20 billion) sovereign wealth investor.

“These were relatively small investments,” said Fiona Mackenzie, NZ Super’s head of investments, in statement released Tuesday. “The move to sell them is consistent with our strategy to have fewer, deeper relationships with our investment managers.”

NZ Super Asset Allocation NZ Super’s portfolio as of March 31, 2016. Partners Group, a private-asset management firm, and its affiliates picked up a portfolio of five real estate investments: Orion European Real Estate Fund III, Mountgrange Real Estate Opportunity Fund, MoREOF (Parallel I) Unit Trust, Red Fort India Real Estate Fund II, and Gateway Capital Real Estate Fund III.

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Only two offshore firms—Savanna Real Estate and Sweden’s Sveafastigheter—now have property mandates from NZ Super.

The sovereign fund unloaded three private equity investments to an undisclosed buyer last month, including Hellman & Friedman VII, JMI Equity Fund VII, and HIG Bayside Loan Opportunities Fund II.

“It is pleasing to be able to realise gains from a part of the fund’s portfolio that has performed strongly in recent years,” Mackenzie said at time of closing.

Private equity accounted for 5% of NZ Super’s portfolio as of March 31, an aggressive underweight by global institutional standards.

The California Public Employees’ Retirement System (CalPERS), for example, recently set a 10% strategic target for private equity, along with an additional 12% to real assets and 10% to real estate.

CalPERS and NZ Super have shared the same critique of their unlisted portfolios, however: An excess of relationships for undersized mandates.

“It’s harder to end strategies than begin them,” CalPERS’ investment chief Ted Eliopoulos told CIO in September 2015. One month later, the fund unloaded $3 billion in real estate to Blackstone.