Commentary: A new era for manager due diligence
Skip to main content
pilogo-NEW
Subscribe
  • Subscribe
  • My Account
  • login
  • NEWS
    • Asset owners and the coronavirus
    • Alternatives
    • Consultants
    • Coronavirus
    • Defined Contribution
    • ESG
    • Frontlines
    • Hedge Funds
    • Investing / Portfolio Strategies
    • Money Management
    • Pension Funds
    • People Moves
    • Private Equity
    • Real Estate
    • Searches & Hires News
    • SECURE Act
    • Special Reports
    • WorldPensionSummit
    • Ron Schmitz
      Pandemic drives faster transition for Virginia to private markets
      Mubadala Investment Co. logo
      Mubadala draws on portfolio in coronavirus fight
      T.J. Carlson
      Texas Muni reduces downside risk during pandemic, finding opportunities now
      Scott Davis
      ‘Triage plan’ at Indiana system helped stem losses
    • BentallGreenOak agrees to acquire Metropolitan Real Estate Equity
      watch video
      0:45
      Private funds weathered 2020 turmoil
      Daniel McHugh
      Aviva Investors promotes from within for real assets CIO
      Marc Rowan
      More alts managers seek expansion to retail market
    • Kieran Mistry
      Hymans Robertson picks head for new non-traditional risk transfer unit
      Troy Saharic
      NEPC brings on director of new business development
      Bill Foley
      Foley-backed SPAC agrees to $7.3 billion deal with Alight
      Jason Schwarz, chief operating officer of Wilshire,
      New owners have big plans for future of Wilshire
    • A pharmacist administers a dose of the COVID-19 vaccine in Mountain Brook, Ala., on Feb. 21, 2021
      Business optimism grows as vaccinations spread – Fed
      watch video
      0:59
      Coronavirus and the S&P 500: February 2021
      Multiemployer pension measures cleared for relief bill vote
      The Charging Bull statue is covered in snow near the New York Stock Exchange on Feb. 11, 2021
      Bain: Private equity managers finish 2020 strong
    • OECD proposes revision of its DC ‘good design' roadmap
      Dominic Scriven, director and portfolio manger of Dragon Capital, speaks during an interview in Ho Chi Minh City, Vietnam in 2006
      Vietnam gets its first private defined contribution plan
      DCALTA releases daily valuation tool for alts in DC plans
      PSCA: Employee participation in non-qualified deferred comp plans rising
    • Michael Herskovich
      BNP Paribas Asset Management names global head of stewardship
      TPT Retirement taps into low-carbon strategies
      Gary Gensler
      Nominee Gensler backs SEC climate risk disclosure
      Emissions from a smokestack in Poland
      Asset managers facing more scrutiny on ESG issues – report
    • Donation illustration
      Jefferies will use trading commissions to do good
      Michael Arougheti
      SPACs ride wave as latest investment darling
      Spirit winners
      Prudential honors young people who are helping out
      2 U.K. pension execs take on ESG investing in new podcast
    • Robert 'Rob' Shafir listens during a Senate Permanent Subcommittee on Investigations hearing in Washington on Feb. 26, 2014
      Sculptor hedge fund hits sixth straight year of outflows
      The WallStreetBets forum on the Reddit Inc. website on a laptop computer and the GameStop logo on a smartphone in an arranged photo.
      GameStop frenzy has hedge fund managers rethinking next moves
      Gabe Plotkin, chief investment officer and portfolio manager of Melvin Capital Management, speaks during the Sohn Investment Conference in New York on May 6, 2019
      Citadel, Point72 back Melvin with $2.75 billion after losses
      Shanghai skyline
      Global hedge funds struggle even in a more open China market
    • SEC launches climate task force
      Los Angeles Fire & Police eyes up to $950 million in private equity commitments
      Bristol, Conn., scouting for investment consultant
      Railpen hires head trader in preparation for in-house trading
    • Railpen hires head trader in preparation for in-house trading
      Andy Moniz
      Acadian picks responsible investing director
      Schroders PLC office building on Gresham Street in London's financial district
      Schroders AUM gains as private assets and alternatives unit grows
      Amanda Agati
      PNC chooses new CIO for asset management group
    • Los Angeles Fire & Police eyes up to $950 million in private equity commitments
      Sempra Energy to infuse pension plans with $246 million
      Illinois pension fund liability jumps 19%
      Xerox to send $130 million to global pension plans
    • Railpen hires head trader in preparation for in-house trading
      Deborah Shufrin
      Colby College chooses new CIO
      Andy Moniz
      Acadian picks responsible investing director
      Amanda Agati
      PNC chooses new CIO for asset management group
    • The Charging Bull statue is covered in snow near the New York Stock Exchange on Feb. 11, 2021
      Bain: Private equity managers finish 2020 strong
      Carlyle secures $4.1 billion ESG-related credit facility
      Hamilton Lane raises $3.9 billion for fifth secondary fund
      PSG closes first Europe-focused fund at $1.5 billion
    • AEW chooses head of fund operations and debt finance
      Sebastiano Ferrante and Jocelyn de Verdelon
      PGIM Real Estate turns to staff to fill new roles
      European managers key in on specialist strategies
      Ingrid Jacobs
      Jones Lang LaSalle brings on head of diversity and inclusion
    • Neal and Brady
      Retirement security could be only issue both sides accept
      Retirement cartoon
      Hopes rising for retirement readiness in 2021
      Shawn O'Brien
      Annuities coming to target-date funds, but not right away
      David Ireland
      Sponsors returning to questions about in-plan annuities
    • Charging Bull, sometimes referred to as the Wall Street Bull or the Bowling Green Bull, a bronze sculpture that stands on Broadway just north of Bowling Green in the Financial District of New York City
      Top-performing managers Q4 2020
      P&I 1,000 largest retirement plans: 2021
      Retirement in emerging markets
      Outlook 2021
    • U.S. still a key market for investors
      Collected coverage of P&I's 2020 WorldPensionSummit
      Pedestrians pass a large advertisement on the Arndale Center shopping mall reading 'Act now to avoid a local lockdown' in Manchester, England
      COVID-19 puts new opportunities and risks on the agenda - WPS panelists
      Screens display stock price information over the trading floor of the NYSE Euronext exchange in Paris
      Private assets will continue to grow in portfolios – WPS panelists
  • Data
    • Research Center
    • Searches & Hires Database
    • Searches & Hires News
    • RFPs
    • Charts / Infographics
    • Sponsored Research
    • Trackers
    • Q2 2020 searches and hires overview report
      Q2 2020 money manager M&A activity summary
      Q2 2020 legal overview report
      Q1 2020 searches and hires overview report
    • Fairfax County Educational Employees discloses $61 million in commitments
      Bristol, Conn., scouting for investment consultant
      Chicago Policemen plans search for index fund manager
      North Dakota builds on infrastructure investment with $200 million commitment
    • Fairfax County Educational Employees discloses $61 million in commitments
      Bristol, Conn., scouting for investment consultant
      Chicago Policemen plans search for index fund manager
      North Dakota builds on infrastructure investment with $200 million commitment
    • Independent Investment Consulting Services
      Financial Auditing Services
      Actuarial Services
      Emerging Market Equity Manager Services
    • Taiwan Semiconductor’s No. 1 in the emerging markets book
      U.S. fixed-income returns post another positive year
      Nasdaq delivers an impressive year
      U.S. dollar's recent decline continues
    • Institutional Investors: Shared Expectations, Divergent Paths
      Global Investor Study 2016
      Workplace Financial Wellness
    • U.S. Endowment Returns Tracker
      Pension Fund Returns Tracker
      Earnings Tracker
      Corporate Pension Contribution Tracker
  • Insights
    • Opinion
    • White Papers
    • Industry Voices
    • Letters to the Editor
    • Partner Content
    • Publisher's Update
    • Tesla cartoon
      Don’t confuse wealth creation with retirement saving
      Top 1000 cartoon
      Top 1,000 retirement plans weather storm just fine
      Infrastructure cartoon
      You must go big on infrastructure, Mr. President
      Retirement cartoon
      Hopes rising for retirement readiness in 2021
    • Investment Trends: Looking Ahead Across Equity Sectors
      Rethinking Market and Reference Data Management
      China is embarking on a new stage of growth
      Gold Outlook 2021
    • Sameer Shalaby
      Commentary: Why should investors care about treasury management?
      David Blitzstein
      Commentary: Without a national retirement policy, Americans face a future of pension crises
      Lawrence Cunningham
      Commentary: Gensler should keep Clayton’s pragmatic proxy adviser rules
      My-Linh Ngo
      Commentary: Pension funds and the role of the debt market in the fight against climate change
    • Writer using a typewriter
      OCIO industry needs to adopt GIPS
      Writer or journalist workplace. stock illustration
      Even as it assails China, Trump administration emulates it
      Skeptical of Main Street support for proxy adviser proposal
      Focus on manager diversity pushes asset owners’ to walk the talk
    • P&I Content Solutions
      How will gold react?
      To people shaking hands
      P&I Content Solutions
      Lessons From 2020: Today’s OCIO Model Passes a Major Test of Governance
      Sponsored Content By MassMutual
      Leveraging Data to Manage Risk
      Sponsored Content By iShares
      ETFs are becoming a cornerstone of insurance equity portfolios
    • Help us help you by supporting quality journalism
      You Must Believe in Spring
      Everything Must Change
      Tomatoes & Investments
  • Multimedia
    • Videos
    • Webinars
    • Polls
    • Slideshows
    • Charts / Infographics
    • watch video
      0:45
      Private funds weathered 2020 turmoil
      watch video
      0:59
      Secure choice and other retirement plans at a state level
      watch video
      3:33
      P&I 1,000 by the numbers 2021
      watch video
      1:33
      A look at hiring activity in 2020
    • Emerging Markets: Expanding Investors’ View
      2021: A Fixed Income Odyssey
      Technology is the New Oil: The Changing Nature of Emerging Markets
      Powering the Change: The power of diversity and inclusion
    • POLL: Working after the pandemic
      POLL: The year ahead for the 1,000 largest U.S. retirement funds
      POLL: The Biden administration’s economic plans
      POLL: Retirement issues in 2021
    • view gallery
      9 photos
      Coronavirus and the markets
      view gallery
      22 photos
      The 1,000 largest retirement funds: 2020
      view gallery
      10 photos
      Outlook 2020
      view gallery
      10 photos
      2019 as seen through the eyes of Roger
    • By the Numbers for February 2021
      Top Performing Managers of Domestic Balanced, 4th Quarter 2020
      Top Performing Managers of Domestic High-Yield Fixed Income, 4th Quarter 2020
      Top Performing Managers of Domestic Long-Duration Fixed Income, 4th Quarter 2020
  • Events
    • Conferences
    • Webinars
    • Defined Contribution Spring Virtual Series
      DC Investment Lineup Virtual Series
      ESG Investing Virtual Series
      Private Markets Virtual Series
    • Emerging Markets: Expanding Investors’ View
      2021: A Fixed Income Odyssey
      Technology is the New Oil: The Changing Nature of Emerging Markets
      Powering the Change: The power of diversity and inclusion
  • Careers
  • Research Center
MENU
Breadcrumb
  1. Home
  2. INDUSTRY VOICES
January 26, 2021 07:00 AM

Commentary: A new era for manager due diligence

Fred DeSerio
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print
    Fred DeSerio
    Fred DeSerio

    The global financial crisis that occurred in 2007-2008 had a lasting impact on public and private pension funds, as the collapse of Lehman Brothers and massive fraud committed by Bernie Madoff placed greater emphasis on fiduciary obligations and manager due diligence.

    During the decade that followed, plan sponsors continued to hone their manager research and screening processes until a new wave of disruption sent ripples across the institutional investment landscape.

    This time, the black swan event took the shape of a global health pandemic fraught with lockdown orders that forced asset owners and asset managers to work remotely from the confines of their home offices. As the transition to work from home took hold, site visits, a longtime staple in manager due diligence, were replaced with Zoom meetings and investment managers and plan sponsors were forced to adapt to a brave new virtual world.

    See more of P&I's coverage of the coronavirus

    Initially, plan sponsors and asset owners were reluctant to conduct new searches virtually, and many elected to postpone new manager engagements, hoping the storm would be short-lived. Others decided to invest only in the managers they were currently engaged with. However, as we enter the tenth month of the pandemic with new cases in the U.S. spiking to their highest levels on record and a second wave of lockdowns rolling out across Europe, it is increasingly apparent that a return to normalcy and in-person site visits could take much longer than anticipated. Favoring the incumbent or existing manager that they are using elsewhere in the portfolio is clearly not a sustainable approach for meeting fiduciary responsibilities.

    Assessing the operational effectiveness of an investment manager without the ability to lay eyes on a firm's infrastructure, trading floor or physical footprint can also prove to be challenging, particularly if managers are reluctant to share hard or soft copies of key documents for confidentiality reasons.

    For the foreseeable future, videoconferencing will remain core to the process by which organizations evaluate the investment and operational strengths, weaknesses, characteristics and biases of managers. And while the purpose of this process remains unchanged, the virtual means by which plan sponsors assess an investment manager's culture, acumen, operational effectiveness and corporate policies will continue to create new challenges and opportunities.

    Navigating challenges of the new normal

    Providing the opportunity to have real-time, face-to-face conversations with colleagues and professionals from across the globe, video conferencing has proven to be an invaluable tool during these unprecedented times. But the technology is not without some limitations.

    For plan sponsors conducting manager due diligence entirely via virtual means, a common challenge is trying to assess the team dynamics and cultural fit of an asset manager through a computer screen.

    Despite the best efforts of all parties, virtual meetings don't have the same level of spontaneity as in-person meetings for a host of reasons, and as a result, soft sensory perception is reduced along with the interpretation of non-verbal cues that can be invaluable to shaping in-person meetings and assessing team dynamics and culture. Reduced spontaneity can also hinder an organization's understanding of the thought process of an investment team and firm, as some follow-up questions go unasked and discussions become harder to steer.

    Fortunately, with time, investment managers are growing more willing to share this proprietary data and information as the use of non-disclosure agreements expands.

    New due diligence emerging

    The sudden and unexpected transition to virtual meetings from on-site visits forced organizations to re-examine nearly every stage of their manager selection process — a development that's led to enhancements designed to foster better decision-making and results.

    First and foremost, both investment managers and plan sponsors are spending more time on planning and preparing for upcoming due diligence meetings. Not surprisingly, the elimination of travel has created more time for better information gathering. Increasingly, organizations are conducting their own qualitative and quantitative analysis of data and information provided prior to the meeting — a higher level of analysis that's unquestionably generated better questions and meeting agendas.

    Before the pandemic, a plan sponsor might only be in town for a single day and it was standard practice to schedule one long in-person meeting. With the added flexibility of virtual meetings, these marathon sessions can be broken up into a series of shorter, smaller sessions scheduled across several days. This format has proven to enhance engagement, facilitate more discussions between the organization and the investment manager, and allow professionals from different offices the opportunity to participate in targeted discussions.

    Virtual meetings also provide plan sponsors and investment managers the ability to message their own teams in parallel in real time as a meeting is taking place. Often, this communication helps to guide discussions toward what matters most for all parties.

    Finally, the unprecedented events created by COVID-19 provide plan sponsors with a rare opportunity to compare how managers are responding to a common challenge, particularly as it relates to the effectiveness of their business-continuity plans. The pandemic has created similar challenges for every asset management firm. Evaluating how firms have responded can offer valuable new insights into their governance, leadership, culture, research capabilities, and ultimately, investment processes.

    While the recent trajectory of COVID-19 cases in the U.S. and Europe suggest plan sponsors will be required to conduct manager due diligence virtually well into 2021, the amazing journey traveled during the past 10 months will undoubtedly leave a lasting mark on how manager research and screening is conducted for years to come. Given the pace at which new challenges have been overcome and tactics and techniques have been developed to navigate the current environment, due diligence in a post-pandemic working environment will likely look like a hybrid of past and present approaches.

    Fred DeSerio is head of sales and country head of Nikko Asset Management Americas, based in New York. This content represents the views of the author. It was submitted and edited under Pensions & Investments guidelines but is not a product of P&I's editorial team.

    Related Articles
    Asset owners, managers turn to technology to combat COVID-19
    Asset owners quickly curtailing in-person due diligence – survey
    Virus concerns prompt some asset owners to halt in-person due diligence
    Recommended for You
    Commentary: Why should investors care about treasury management?
    Commentary: Why should investors care about treasury management?
    Commentary: Without a national retirement policy, Americans face a future of pension crises
    Commentary: Without a national retirement policy, Americans face a future of pension crises
    Commentary: Gensler should keep Clayton’s pragmatic proxy adviser rules
    Commentary: Gensler should keep Clayton’s pragmatic proxy adviser rules
    How will gold react?
    Sponsored Content: How will gold react?
    sponsored
    Events
     
     
    Sponsored
    White Papers
    Rethinking Market and Reference Data Management
    Investment Trends: Looking Ahead Across Equity Sectors
    China is embarking on a new stage of growth
    Gold Outlook 2021
    Shifting DC Times - Winter 2021
    GP-LED OPPORTUNITIES AT THE SMALLER END OF THE MARKET
    View More
    Sponsored Content
    Partner Content
    The Industrialization of ESG Investment
    For institutional investors, ETFs can make meeting liquidity needs easier
    Gold: the most effective commodity investment
    2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios
    Ten ways retirement plan professionals add value to plan sponsors
    Gold: an efficient hedge
    View More
    E-MAIL NEWSLETTERS

    Sign up and get the best of News delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    Subscribe Today

    Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors.

    Subscribe
    Connect With Us
    • RSS
    • Twitter
    • Facebook
    • LinkedIn

    Our Mission

    To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market.

    pilogo-NEW
    About Us

    Main Office
    685 Third Avenue
    Tenth Floor
    New York, NY 10017-4036

    Chicago Office
    150 N. Michigan Ave.
    Chicago, IL 60601

    Contact Us

    Careers at Crain

    About Pensions & Investments

     

    Advertising
    • Media Kit
    • P&I Content Solutions
    • P&I Careers | Post a Job
    • Reprints & Permissions
    Resources
    • Subscribe
    • Newsletters
    • FAQ
    • P&I Research Center
    • Site map
    • Staff Directory
    Legal
    • Privacy Policy
    • Terms and Conditions
    • Privacy Request
    Pensions & Investments
    Copyright © 1996-2021. Crain Communications, Inc. All Rights Reserved.
    • NEWS
      • Asset owners and the coronavirus
      • Alternatives
      • Consultants
      • Coronavirus
      • Defined Contribution
      • ESG
      • Frontlines
      • Hedge Funds
      • Investing / Portfolio Strategies
      • Money Management
      • Pension Funds
      • People Moves
      • Private Equity
      • Real Estate
      • Searches & Hires News
      • SECURE Act
      • Special Reports
      • WorldPensionSummit
    • Data
      • Research Center
      • Searches & Hires Database
      • Searches & Hires News
      • RFPs
      • Charts / Infographics
      • Sponsored Research
      • Trackers
    • Insights
      • Opinion
      • White Papers
      • Industry Voices
      • Letters to the Editor
      • Partner Content
      • Publisher's Update
    • Multimedia
      • Videos
      • Webinars
      • Polls
      • Slideshows
      • Charts / Infographics
    • Events
      • Conferences
      • Webinars
    • Careers
    • Research Center