GLOBAL - The asset management industry lacks recognised reporting standards with discrepancies in performance and risk indicators making it difficult for institutional investors to compare like with like, Fitch Ratings argues.
In its report Enhancing Reporting Practices in Asset Management, Fitch calls for common standards and more transparency across the board.
Detailed reporting that clearly put forward portfolio breakdown, risk level and performance drivers could prevent legal action such as the case brought by Unilever against Mercury Asset Management in 2001, where Mercury was forced to pay compensation for poor performance after Unilever claimed it had not been made properly aware of the underlying risks, Fitch added.
“[Producing high quality reporting] requires a full skill set and has become increasingly demanding, considering the recent changes in the asset management industry and the growing recourse by institutional investors to more complex strategies and products, said Charlotte Quiniou, associate director in Fitch's Asset Management (AMR) team.
Anne Ries, director in Fitch's AMR team, added: “In light of the fierce competition prevailing in the current low return environment and the ever increasing requirements of investors, asset managers can no longer afford to consider reporting as a by-product of asset management services. Many investors may ask for detailed, comprehensive and customised reporting, which has a cost.
Fitch said while most global asset managers are now certified Global Investment Performance Standard (GIPS) compliant, that is not necessarily the case for smaller or boutique-like asset managers. Also, GIPS certification does not encompass all reporting aspects.
While its basic purpose remains to inform investors about the performance of their assets, it is clear that reporting serves many other purposes and can prove a powerful tool for asset managers to gain a competitive edge on their peers, the report argues.
“Cost constraints in any case encourage asset managers to carefully assess the incremental added value deriving from the additional information presented,” Fitch noted. “Then, reporting is much more than just compiling investment comments and figures: it should aim to reflect a portfolio’s true risk profile, in investors’ best interests. Only under such conditions will it really meet its objectives.”
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