Investors Want Managers’ Stories — Not Track Records — Data Show

When searching for a new manager, allocators are skipping the numbers and going straight to the narrative.

Illustration by II

Illustration by II

When it’s time to search for a new manager, conventional wisdom says institutional investors will first churn through the data on everything from performance to information ratios at Callan, HFR, Wilshire, and the other big databases. But new research, to be released publicly, next week shows that allocators’ first stop in a database is not data at all, but the description of a manager’s investment process, objectives, and other qualitative information. It’s the asset management equivalent of the college essay.

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“In the past picking managers was mostly about performance, so it was easy and quick to say, ‘here’s performance, just buy us’,” said Amanda Tepper, founder and CEO of Chestnut Advisory Group — a business advisor to asset managers, in an interview. “That used to work, but not anymore,” she says.

Tepper says few firms spend much time thinking about what makes them different from another manager in the sector. “If you look at the top 10, 15, or 20 firms in a category, the few that sound different will catch your eye,” says Tepper, the author of the report. Tepper says stock phrases such as “intensive due diligence” appear over and over in write-ups of managers’ investment processes. “But investors want to see these were written with care. Using the same words is not a sign of care,” she says.

Seventy-seven percent of asset managers thought their messages were differentiated from peers, but only 21 percent of consultants believed that managers’ messages varied, according to Chestnut’s research. In addition, 75 percent of consultants who participated in the study, said their number one search criteria was investment process and portfolio construction. Manager narratives in the eVestment database, for example, get 3,000 views each month. Chestnut had 122 institutional investors and consultants participate in the study.


Investors want more than numbers because they increasingly want more from managers, including research and perspectives beyond portfolio management. Allocators “want to be smarter because of their relationships with managers,” Tepper says.

According to Chestnut’s research, a good descriptor requires asset managers to rethink their marketing. Most asset managers’ strategies, for instance, are a good fit for a small subset of the market.

“Their descriptions sound the same because most asset managers want to raise capital from anybody. That is not effective,” says Tepper. A small boutique may want family offices, and endowments and foundations. Part of its strategy may be to make two partners available for every meeting. “If you are state pension fund you don’t even want that,” she says. A focused description will be more effective with the firm’s target audience, even if it turns off others, Tepper says. “And that’s okay.”

Chestnut also advises that managers be consistent when writing about their firms. Often a database has half a dozen qualitative fields asking similar questions in different ways. Asset managers need to make sure their language never varies and always tells the same story. The advisory firm also says managers need to be genuine, even if that takes significant work. “It has to actually reflect who you are, and what you do. You laugh, but lots of times it does not reflect the manager at all,” she says.

Tepper says qualitative information like describing an investment process is bland because subject matter experts like portfolio managers view it as a yearly ‘must-do’ that is a burden. Tepper said she recently talked to a large-cap equity manager that had a summer intern—a foreign exchange student whose native language was not English--handling the task. “It’s just tick the box, cut and paste,” she says.