Consultants and asset allocators are asking more tough questions of their prospective asset managers — and the teams responsible for answering these questions are struggling to keep up, according to new research from Cerulli Associates.
Ninety-one percent of asset managers surveyed by Cerulli said that it was challenging for their RFP teams to meet deadlines for requests for proposal and due diligence questionnaires. Such documents have been increasing in volume, with the number of RFPs fielded by managers jumping by about 13 percent between 2017 and 2018. Due diligence questionnaires, meanwhile, increased by approximately 20 percent over that period, according to Cerulli.
Laura Levesque, a senior analyst at Cerulli, explained that the increase in manager evaluation documents is partly due to a shift in asset allocation among investors that emphasizes more complex asset classes and solutions, such as multi-asset funds. But it is also driven by allocators and investment consultants “paying more attention to the risks they’re taking,” she said by phone.
“They are digging in a little deeper,” Levesque said.
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Beyond the sheer increase in volume, RFP teams have also reported that questionnaires are becoming more complicated and customized — meaning these employees cannot simply copy and paste their firm’s standardized responses for typical RFP questions.
According to Levesque, the staff responsible for filling out RFPs and due diligence questionnaires increasingly need to seek feedback from other teams, such as the portfolio managers, to craft new responses to the more complex questions.
“Instead of just asking, ‘What is your investment philosophy?’ or ‘What is your return and risk objective?’, they’ll ask questions that start with ‘Give me an example of,’” she said. “Like, ‘Give me an example of a time you made a buy and sell decision.’”
Asset managers have doubled the size of their RFP teams compared to three years ago, according to Cerulli. Still, in a survey of firms with an average of $333 billion in assets under management, the average manager only had 2 dedicated RFP personnel.
Cerulli said managers will need to either continue adding headcount or find ways to make the process more efficient, such as leveraging technology to automate routine tasks. Otherwise, Levesque suggested that it is only going to become more challenging for asset managers to turn around RFPs and due diligence forms in a timely fashion.
“It’s a very competitive marketplace,” she said. “I can’t say for certain, but I would guess that missing deadlines could take you out of running for winning a mandate.”
Looking ahead, asset managers surveyed by Cerulli expected the volume of RFPs, requests for information, due diligence questionnaires, and consultant database updates to continue to increase through 2020, including 21 percent who believed the number of RFPs would grow by more than 10 percent in 2019. Similarly, 29 percent expected due diligence questionnaires to increase at a pace greater than 10 percent this year.
“It’s going to be more of a challenge going forward,” Levesque said.