Mar 13, 2023

The following blog post is one in a series of Cutter 2023 Trends that provide insights into industry challenges and considerations for our clients and member firms in 2023 and beyond.

Performance measurement as a discipline hasn’t materially changed in several years, but the role of the performance analyst is changing across our industry. And despite budget constraints and cost cutting measures this year, we still expect the industry’s leading investment managers to devote attention to their performance teams in 2023. If they have not already, firms should begin their transformational journey in 2023, despite whatever the market may bring.

For one, talent and expertise for performance have grown much harder to come by ─ and a lot more expensive. Top talent commands a premium, so it’s no surprise that some investment management firms are investing to optimize these roles, and we expect more of them to follow suit this year. One way to achieve this: create a performance measurement center of excellence (COE). While a COE requires some upfront investment and patience along the way, investment managers can realize a number of benefits by implementing one. A COE’s benefits include ensuring that they get better value out of their staff, while contributing to skill development, career progression, and, ultimately, retention.

Firms can establish a COE by product type, strategy, client segment, or region, among others, and if a firm organizes its performance staff members in a way that allows them to focus on their areas of expertise, then sales, distribution, and portfolio management can leverage their knowledge and skill sets. Because of these reasons, along with a variety of other benefits, we predict that more firms will move toward this model in 2023.

Some firms will find the budget and resources to invest in their architectures, while others will prioritize data strategy initiatives that will benefit their performance measurement and attribution teams. Both should help investment managers not only meet the increasing demands from the front office and their own clients but allow them to better leverage their performance analysts’ experience and talent. Performance measurement today is more about analysis and data mining, which should be the focus – not wasting time cleaning and reconciling your data. Today’s tools can, and should, achieve this for your firm.

While ESG is certainly a hot topic across our industry, we don’t expect any significant changes with respect to performance attribution and ESG this year. Regulatory pressure looms on the horizon, so ESG attribution models will become a topic of discussion, but firms will only begin to dip their toes in the water in 2023, in part because the vendor landscape remains immature and many of the tools available aren’t quite there yet.

Investment managers no doubt will be forced to cut costs because of what’s happening in the market today, and we already see signs of this happening. But firms should not lose sight of the importance of performance and the potential role that the performance team can play. You should not view your performance team, which can add significant value to the front-office decision-making process, as just another necessary cost center. If firms can set strategic goals for performance measurement while prioritizing the right initiatives this year, they will find themselves, as they enter 2024, leaps and bounds ahead of the rest.

To speak with a Cutter analyst or consultant about this trend, contact us at [email protected]. To read more 2023 Trends, see our whitepaper, Trends in Asset Management: 2023 and Beyond.