How to lose a mandate

A concern other than the usual key personnel and fee changes is gaining traction among institutional investors in triggering unplanned reviews of external investment mandates, says new research.

CoreData surveyed 117 institutional investors from around the globe in a bid to understand the relationships between institutional investors and their fund managers. Together, these investors have more than $482 billion in assets under management.

Cyber security, a data breach or a significant data threat jointly topped the list, with 57% chances of the institutional investor putting a fund managermandate on the red list.

This was the same likelihood as an increase in fees (57%) and was deemed more important than a change in fund manager (54%).

"Cyber-security and data protection is gaining importance among institutional investors. They are classing a cyber security or data breach to be as significant as an increase in fees and a greater cause of alarm than a fund manager change, when considering whether to review a mandate," CoreData said.

Other factors that were likely to trigger a manager review were style drift (50%) and a substantial swelling or drying of the assets in the strategy (42%).

Surprisingly, institutional investors were not spooked-out by bad press stories on their mandated managers. Unflattering press coverage only had a 37% likelihood of landing a manager in an external review.

They are also willing to put up relative underperformance, with a 32% chance of a review after three quarters of consecutive underperformance.

Most institutional investors review their external fund managers every quarter (40%) or every year (30%). These institutions together outsourced about 60% of their assets to external managers, with a majority using more than 20 managers.

How long it takes to win a mandate

The study also looked at how long it took for institutional investors to award a mandate, discovering new mandates can be awarded in less than a month if there is already an existing relationship.However, if it's the institution's first time allocating to a manager, winning a mandate can take up to three months, and even longer than that for almost 38% of external allocations.

The research found that institutional investors tended to have their largest mandates with fund managers that they have been in business with for the longest.

"The data indicates these legacy relationships do have an impact on how long investors retain managers. In fact, the majority of the relationships underpinning the majority of large mandates have been in place for five years or more (36% 5-10 years; 30% over 10 years)," CoreData said.

Read more: mandateCoreData
Link to something O7w4jspz