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Institutional investors place premium on trust in managers – report

The trust level among institutional investors toward their money managers is as important as achieving high returns, a report from CFA Institute says.

In the report, "The Next Generation of Trust: A Global Survey on the State of Industry Trust," 24% of institutional investors surveyed in November and December by Greenwich Associates said the most important attribute in hiring a money manager was the ability to achieve high returns. That same percentage said the money manager is trusted to act in the investors' best interest was the most important. Sixteen percent said a "commitment to ethical conduct," followed by 12% each said a recommendation by a trusted colleague and compliance with best industry standards, and 11% said amount and structure of fees.

When asked what would make institutional investors terminate a money manager, the most frequent response, at 38% of respondents, was data/confidentiality breach, followed by underperformance at 34%. In the latest survey conducted in late 2015, the top reason was underperformance at 60% of respondents, followed by 50% that said increases in fees and 45% that said data/confidentiality breach.

Also according to the survey, 72% of institutional investors said they trust the financial services industry, compared to 57% that said they trusted the financial services industry in the 2015 survey.

Within financial services, the industry most trusted was real estate, with 74% of respondents saying they trust that industry, with hedge funds the least trusted, at 59%. Seventy percent of respondents trust investment management firms. Those questions were not a part of the 2015 survey.

Greenwich Associates surveyed 829 institutional investors with assets under management of at least $50 million. They also surveyed 3,127 retail investors for the report.