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Sharing the Horse Race Information

By September 17, 2019 December 20th, 2019 No Comments

Reasons to tell asset managers where they rank in the race against peers.

A discussion of asset manager scorecards at last week’s NeuGroup meeting on corporate cash investment management prompted the question of whether, during review meetings, you should tell external managers where they rank among peers on the performance metrics you track. In other words, should you reveal the results of the horse race to the horses?

  • Share results and compare to peers. The consensus was that yes, treasury should provide the information on win, place, show and below—although no one reveals the names of other asset managers in the horse race. Most tell the asset manager across the table which line was theirs so they can see how they stack up against peers.

Why share the information? According to members, the reason to reveal the results is to show the asset manager where they are doing well, e.g., return performance, and perhaps not so well, e.g., customer service. 

  • If the manager is a top performer, acknowledging that in the results table can motivate them to remain one, especially if they see where exactly others behind them stand (hopefully close). 
     
  • But it really helps if you need to fire a manager. Where the ranking reveal is most helpful is when it comes time to dismiss a manager, which members noted can be a hard thing to do.
    • “If you’ve shown that the manager is underperforming over multiple performance review meetings, they kind of know it’s coming, and it makes it much easier to relay the news,” as one member noted. Plus, you have given them the opportunity to improve.

Track the information to share. While portfolio performance on total return and other hard data can be obtained via Bloomberg or Clearwater, members suggested using a customer relationship management (CRM) tool to track various, soft scorecard criteria, such as the number of visits with the asset manager. Sharing the information in the review meeting also forces treasury to justify and add context to the results. 

  • A potential point of contention is if the manager was told not to invest in a certain name or names and that ends up affecting its result. Is it really fair to assess a manager’s performance if they are not given free rein within the mandate?

Beyond this stable. While this discussion applies to scorecards for external asset managers, the advice also serves for scoring any treasury relationship. So why not create scorecards for all those relationships—and then share the horse race results with everyone involved?

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Christina Popik

Author Christina Popik

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