Optimising Investment Manager Selection Process Outcomes

Moving From Classic to Digital Investment Manager Selection Process

The Absent Catalyst

If you have a process & tools that work, have worked for years, and are embedded in the firm, then change is often perceived as an unnecessary evil. You’re doing just fine as you are. Added to that is the innate human resistance to change, which only gets exponentially magnified when transformed to the corporate scale. So if you think you don’t need it, and no one else wants it, change ain’t gonna happen, and working lives go merrily on.

Resistance to change is compounded by the confessed nature of an institutional or professional investor. They think long term, in their relations and their investments. They like a steady-state. They are the olympiads on a marathon that only gets longer. Yet technology can bring the finish line in sight. They just need to better understand what it means to their wider process & portfolio performance.

Applying Technology to Investment Manager Selection Process

An Emerging Ally

Technology has a freaky way of creeping up on you. The things we swore we could live without, would never do or need are today firmly embedded in our personal lives. Both hardware and software are now daily essentials and not the enemy. Today, we accumulate i-devices and download apps willingly at the click of an icon.

On the corporate level, enterprise software has transformed processes: SAP & IBM drive operational efficiency across industries. And there are apps for everything: Apps support the mundane (catapulting chickens) to the essential (Government counter-terrorism intelligence via firms like Palantir Technologies). Technology has emerged from the ranks of the mythical enemy that will displace us all, to become the ally whose presence has the power to facilitate and disrupt the status quo. Today technology is defined as an opportunity.

Investment Manager Selection Process Decision Makers

Drawing Parallels

Interestingly, the asset manager selection process is made up of several micro-processes, each of which is common in other industries. Similarly, it would be logical for asset manager selection processes to be facilitated by their own dedicated mega-app. Potentially merging intellectual property from other industries, into one single straight-through-process via an enterprise solution. The question is, would they use it? See exhibit 1.

Across the app world, developers are faced with the technology adoption curve. The duration of this cycle is determined by the mindset of the user group, and the app's viral/utility factor.

In 2022, hybrid home-office working has compounded the question that professional investors are asking themselves: Where on the adoption curve should they be today?

Ultimately, the answer will be driven by the technological value proposition to the firm, and the departments involved along their entire search process. And not necessarily to each independently operating individual.

Where Does Technology Impact Investment Manager Selection Process

Adoption Rates and Digital Delta

This technological value accretion can be analysed using the asset manager selection spectrogram. It highlights the Digital Delta. This is the quantification of the value proposition, before and after adoption. In practice, this will be the sum of many incremental value accretions which, in themselves may not be game-changing, but in unity are worthy of consideration. But does the digital delta provide a sufficient catalyst?

What Is An Investment Manager Selection Process

De-noising The Spectrogram

To identify the catalysts to digitisation, Chief Investment Officers, Chief Operating Officers and Chief Risk Officers, need to review the spectrogram of their asset manager selection process as it moves from the classic process (databases, email, word, excel, attachments, notes, telephone...) to digital (browser-based enterprise software). This is the acoustic fingerprint of your value chain. It’s like working your way through an orchestra’s percussion, woodwind, string and brass sections to understand how the concerto can be improved. In the app world, we would simply “Touch to Shazam” your asset manager selection process, to uncover where the digital delta comes from.

At the core of every RFP process, four tasks need to be performed. How they are performed is what digital changes. This results in value accretion in terms of efficiency, decision quality, productivity, and the minimisation of governance risk along your value chain. What becomes clear is that the decision to digitize is ultimately an enterprise decision. It positively impacts all functional groups by re-leveraging teams and generating collaborative synergies. As such, affecting change at the corporate level should meet with less resistance, if individuals understand what it means for the firm. See exhibit 2.

An RFP process can simplistically be broken down into 4 components: Sourcing data on potential candidates; Quantitative & qualitative evaluation; Sharing  & brainstorming insights i.e. team collaboration; And documenting decisions.

The classic toolkit consisting of asset manager databases,  email, excel, word, pdf's, phone, pen & paper constrains each of these components. The classic toolkit was not specifically designed to facilitate complex multi-stage, multi-evaluator asset manager selection processes.

In contract, a digital App such as RFPnetworks.com helps remove these constraints, recalibrate processes and optimize outcomes. This is the Digital Delta.

Why Investment Manager Selectors Are Running Their Process Digitally

The EQ of Innovation Adoption Rates

But then there is the emotional rationale behind modernising, which requires brutal honesty: Does it make sense in the digital age to continue to run institutional sized searches using email, word, excel, pdf attachments and phone calls. Other industries with equally important and sizeable decisions have decided it is time to move forward. If asked whether that was the wrong decision, most, if not all, would reply that their relationship with technology is only getting deeper.

Technology is both an industrial facilitator and a disruptor, but it is no longer the mythical enemy that will displace us all. Technology needs to be viewed as the catalyst for change, and its availability and presence should be seen as an opportunity.

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