Why Asset Manager Reputation Matters

Strong brand awareness could mean increased inflows, eVestment argues, but could also lead to heightened negative bias.

Asset managers should invest in their brand reputation.

Data and analytics firm eVestment found high firm and product awareness—or together, brand awareness—could lead to greater retained assets and new inflows.

The research defined high brand awareness as a combination of the firm’s ability to “successfully garner attention across their product lineup,” as well as the ability to “leverage the consultant attention they receive across products.”

A study of managers with active equity and fixed income products from 2012 to 2015 revealed those with higher brand awareness realized growth nearly 24 times more than their low-awareness peers.

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However, achieving this level of success on reaching a broad audience across multiple products is “extremely difficult,” eVestment said. Only 2.2% of managers were able to accomplish both high firm and product awareness; most only get one or the other.

“The average institutional consultant reviews less than two strategies per asset manager within a quarter,” the report said. “This small number signals that consultants and investors are likely searching for products agnostic of firm. It also clearly illustrates the challenge asset managers have in building brand awareness.”

Furthermore, eVestment found larger asset managers—and the higher number of offered products—“only marginally” increased their product awareness.

On average, asset managers with more than $100 billion under management had 57 actively managed strategies, while smaller managers with less than $1 billion had roughly 4 strategies. Consultants seek “a level of manager diversity in their allocation decisions and [this] speaks to the meritocratic nature of our industry,” according to eVestment.

However, brand awareness and perception can be a “double-edged sword” and can even incur negativity bias, the firm continued, as such recognition could hurt as much as help. For example, the study showed managers with the highest brand awareness averaged outflows 4.5 times larger than inflows.

“The loss of a star portfolio manager has a stronger impact than the hiring of an equally reputable star portfolio manager,” eVestment concluded. “It speaks to the importance of clear communication in containing and explaining potential drivers of negative perception which can be magnified by high brand awareness.”

eVestment brand_1 eVestment brand_2 Source: eVestment

Home > News > Manager Selection > Hedge Funds Crowding Out Liquidity

Manager Selection May 19, 2016

Hedge Funds Crowding Out Liquidity

As more managers make the same investments, the industry as a whole can become increasingly illiquid, according to Novus.

Herding behavior is draining hedge funds of liquidity, data firm Novus has found.

Although hedge funds appear to be fairly liquid when examined on an individual basis, the industry as a whole tells a different story, argued Stan Altshuller, co-founder and chief research officer at Novus.

Liquidity, he explained, boils down to how much time it takes to sell an investment without adversely impacting its price.

“Clearly, managers that own large portions of shares outstanding of thinly traded companies can’t normally unload their full investment at once, and must do so over a number of trading days so as not to drive down the price,” he wrote.

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Based solely on its own portfolio, the average hedge fund should have been able to liquidate about 92% of its equity holdings in 30 trading days without affecting prices in 2015, Altshuller said—a level of liquidity that had remained constant over the last five years. In reality, however, hedge funds don’t operate within a vacuum.

“Calculating liquidity strictly based on the manager’s own holdings is deceiving,” he wrote. “What if many managers were to try and sell simultaneously as they often do?”

Working under the assumption that managers move in lock step—“Not too far-fetched, as some investors would agree after the most recent de-risking cycle,” Altshuller quipped—Novus aggregated the equity investments of all the hedge funds in its data universe.

This time, 30-day liquidity in 2015 was just 25%—a steep drop from 2009, when managers could have liquidated half of their portfolios in 30 days even if they sold all at once.

“This trend is a direct result of more hedge fund dollars chasing the same ideas,” Altshuller wrote.

This crowding, he explained, is in part a result of the industry growing, with rising numbers of hedge fund assets making it more difficult to find unique investments. Herding also stems from converging research and investing philosophies, as well as the tendency of managers to share stock picks and copy their most respected peers.

The other reason for illiquidity, besides herding? It’s “where the money is.”

“Given that managers find alpha in less liquid securities and the long-term growth trajectory of hedge fund assets, it’s likely the illiquidity risk will only grow in the near future,” Altshuller concluded.

novus hedge fund liquidity Source: Novus’s “The Liquidity Deception”

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