Aug 16, 2022

When communicating with investors, investment managers focus on conveying their ability to bring value to clients’ portfolios. Whether through commentary or speaking directly with clients, firms want to tell a story about how their investment convictions drive their ability to generate strong returns. Portfolio managers want to set an investment strategy that brings value to clients’ portfolios.

Conversely, performance teams work at the other end of the investment process and see the actual results of the investment strategy. As performance teams analyze performance, they review the investment outcomes and results and their insights can provide valuable feedback for the investment team.

Investment teams should view their performance teams as an untapped resource that can help them connect the dots and provide these insights.

Performance Teams Need to Understand Manager Convictions

Typically, performance teams measure accurate investment performance, produce attribution, and calculate portfolio risk and statistics. Their validation processes often require them to investigate trading activity, security pricing, corporate actions, and anything else that might impact performance. Because of this, performance analysts possess a strong knowledge of the firm’s portfolios and investment strategies that they cover and can help portfolio managers analyze and interpret performance data.

Despite this knowledge, performance analysts face a blind spot: they may lack a full understanding of the portfolio manager’s convictions related to recent trades. Without an up-to-date understanding of a portfolio manager’s convictions, performance analysts sometimes must interpret attribution from a purely technical perspective. The result? The performance analyst doesn’t make the connection between the portfolio manager’s conviction-based investment decisions and the resulting performance. This disconnect could end up with a firm missing the opportunity to deliver the intended message to clients.

Asset Managers Increasingly Realize the Value of Their Performance Team’s Insights

Historically, it has been unusual for investment teams to regularly communicate their investment convictions with the performance team. Over the years, however, I have witnessed a shift in this mindset, with firms increasing regular interactions between the performance and the front-office teams. One firm I’m familiar with extends a standing invitation to their investment strategy calls and holds monthly recap meetings directly with the performance team. These touchpoints enhance the performance team’s ability to provide the kind of insightful portfolio analysis that the portfolio managers count on. Combined with the understanding of a portfolio manager’s convictions, they can help the performance team speak to the buy and sell rationales, evaluate performance, and communicate the portfolio manager’s story.

Collaboration Is Key

Leading firms are increasing this collaboration between the front- and middle-office teams to improve the flow of information. This collaborative push has proven key to improving investment communications and connecting with clients.

Attention, performance managers! Cutter’s Performance Benchmarking survey is in field for a brief time. Participate to find out how you stack up against your peers. Check it out today.