Topics in Client Reporting: Commentary & ESG

Cindy Castellano, CFA

Managing Principal

Cindy Castellano has over 30 years of experience in the investment management industry. She leads Cutter Associates’ Client-Facing and Wealth practices, advising asset and wealth management firms on their sales and distribution, marketing, product development, consultant relations, client service, and client reporting. Cindy has conducted system searches for CRM, marketing automation, portals, pitchbooks/client presentation, content management, client reporting, client onboarding, and RFP systems. Prior to joining Cutter, Cindy served as Vice President and Head of Operations for a division of Guggenheim Investments, where she led mutual fund accounting and administration; institutional accounting, billing, and client reporting; SMA operations, performance reporting (GIPS); and fixed income performance, attribution, and risk reporting. As Vice President and Head of Equities, Cindy led the firm’s investment team and supervised equity trading activities.

Cindy also spent 10 years as a Senior Portfolio Manager and Research Analyst, managing over USD 500 million in AUM for mutual funds and VITs using social awareness (ESG), large cap growth, and mid-cap growth investment strategies. She developed the investment process, directed research analysts’ day-to-day efforts, and created the firm’s social criteria and proxy voting guidelines. Cindy, a Chartered Financial Analyst, holds a bachelor’s of business administration from Washburn University. 

Aug 03, 2022

One benefit of working with so many clients is that I get a strong sense of common client reporting challenges that client leaders experience. Over the last 12 months or so, two topics have frequently come up ─ commentary and environmental, social, and governance (ESG) reporting ─ and I thought it would be worth delving into both topics in this post.

Commentary in Client Reporting

Before I go into some depth on the commentary topic, let’s start with the big picture. Your firm’s commentary should align with the way you invest. For example, if your firm invests with a bottom-up approach, then your commentary should highlight how individual securities have performed during the given period.

The commentary should provide insights into your rationale for buying or selling key holdings. Commentary about exposures such as sector or country are irrelevant and just the result of the securities that your firm finds attractive. Due to internal or client pressures, you may find that some clients ask for your firm’s opinion ─ and that’s fine. It’s important to focus your commentary through the lens of your investment strategy … and you don’t want to “overdo it.”

Providing commentary on information that is disassociated from how the firm invests can have the following negative impacts:

Waste internal resources on writing irrelevant commentary
Delay the finalization and delivery of client reports
Confuse investors and muddy how clients view your value in their portfolio

ESG in Client Reporting

The growing importance of ESG investing has added a new layer of complexity that client reporting managers need to contend with. Smart firms are updating their report templates to include ESG. However, we see some confusion about how to appropriately include ESG in reports. Fundamentally, you can take two approaches to ESG investing: ESG can be embedded into your investment process or you can use ESG as an overlay to remove securities from those deemed attractive from an investment basis. The table below describes each type of strategy and how ESG should be handled in the associated client report.

Rule of Thumb

A client report needs to match how you invest.

A client report is a core document that a firm uses to demonstrate that it’s wisely investing the client’s money in accordance with its investment management agreement (IMA). Moreover, a client report helps a firm tell its story by using data and commentary. The report should remind investors of why they invested in the manager(s) and illustrate how the investments provide value. Including extraneous information in a client report can have the opposite effect and confuse investors.

Learn More

If you haven’t done so yet, check out the 2022 Client Reporting Benchmarking Report. It’s chock-full of key findings and insights into how the industry is managing its client reporting function.