Data & Research June 30, 2015

Asset Managers Don’t Trust Performance Data

More than half do not think their performance figures are completely accurate.
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Over half, 53%, of asset managers do not think that the data they receive on their investment performance is completely accurate, a survey by SimCorp found.

Eighty percent of asset managers say their portfolio managers do not receive investment performance numbers based on intra-day position calculations, and only 59% say their portfolio managers are able to look through to see the trades, prices, foreign exchange rates and classifications driving performance. Without accurate and timely information, portfolio managers may be making ill-informed trading decisions and be at a competitive disadvantage, SimCorp says.

The reason why asset managers do not trust their performance data is because they typically rely on disparate data feeds—one for order management, one for accounting and one for performance, Marc Mallet, vice president of product and managed services at SimCorp North America, tells PLANADVISER. “Data has to be shared and then reconciled at the end of the day,” he says. Instead, asset managers should be relying on one integrated platform, Mallet says.

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What plan sponsors and advisers should learn from the survey is that “performance in and of itself isn’t the only reason to select a fund manager,” Mallet says. “They need to be concerned about service providers’ operational capabilities. Operational due diligence is becoming more prevalent. Plan advisers and plan sponsors should be taking a closer look at the systems and processes that support the investment process.

“The investment process should be seen as an opportunity, the differentiator which enables your firm to add value for your clients,” Mallet adds. “If performance data is not up-to-date, there is an inability to see what’s actually driving the performance. This casts a doubt on the accurate tracking of investments, which does not inspire investor confidence.”

There is a critical need for asset managers to have access to real-time and accurate performance data, and these survey numbers show a significant gap between the tools asset managers have available and what they require to make high-quality investment decisions, Mallet concludes.

Eighty-eight assets managers with $22.5 trillion in assets under management participated in the survey.

Compliance June 30, 2015

SCOTUS Won't Hear Reverse Stock Drop Case

The reverse stock drop case Tatum v. RJR Pension Committee has been turned down by the Supreme Court.
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Monday marked the end of the U.S. Supreme Court’s 2014-15 term, revealing the extensive list of cases the top court will hear next term—and those it won’t.

Among those that didn’t make the cut is RJR Pension Investment Committee v. Tatum et. al, an important Employee Retirement Income Security Act (ERISA) case. The case hinged on what to do when a fiduciary has breached the duty of prudence by failing to put in place a prudent process to evaluate an investment decision—in this case, dropping an investment from the plan without thoroughly investigating whether it was prudent to do so. Is it reasonable for the defendant to argue that the result would have been the same even with a prudent process in place and thus avoid liability?

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The 4th Circuit concluded that the defendants failed to have a prudent process because they failed to consider the best interests of the participants. In the face of a failure of procedural prudence, how can the fiduciary prove it still made the right substantive choice?

The defendants wanted a standard that would have allowed them to put on evidence that a prudent fiduciary could have made the same decision. The plaintiffs, and ultimately the 4th Circuit, supported a standard where the defendant must show that a prudent fiduciary would have made the same decision. Hence, the Could Have vs. Would Have issue.

In declining to hear the case, the Supreme Court apparently took into consideration a brief from the Solicitor General and the Department of Labor that argued the 4th Circuit got the decision right and that the high court shouldn’t hear it. 

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