Point of View

Challenging times can become valuable educational experiences once the dust has settled and people have an opportunity to step back and evaluate the situation. And although the fallout from the recent financial turmoil is still being assessed, some lessons already are clear.

One of the changes likely to occur is that the relationship between institutional investors, consultants and their investment managers will assume new dimensions. In the future, investors will want — even demand — that their managers be more proactive and educational in all aspects of the relationship.

Changes Required

As institutional investors analyze their portfolios and re-examine their asset allocation policies and risk management strategies, they will require that investment managers not only understand their changing needs and objectives, but also have the commitment and resources for delivering appropriate solutions.

To succeed in this new environment, investment managers will need to re-examine their client service organization and structure. For example, a manager might focus on a proactive communication approach with clients. This will ensure they understand and meet their clients' needs. In addition, managers must maintain the proper technology/systems, processes and other resources to assure clients of how the firm will achieve their objectives.

Structural changes, however, will not be sufficient if an investment manager does not promote the proper culture among its professionals. Managers must reach out proactively to investors and their consultants often, during challenging as well as prosperous times, to provide insight, analysis and reassurance.

Striking the Right Chord

The need for enhanced relationship dynamics was underscored by a client satisfaction survey of more than 4,000 plan sponsors conducted by Chatham Partners, a market research and strategy consulting firm.¹ One of the more surprising findings of the survey was the deterioration in investor confidence in managers' stability, investment process and personnel.

Chatham examined some of the comments that accompanied the surveys and was able to identify three key elements that investors seek:

• Reassurance about the manager's resources, strength and commitment, as well as the firm's ability to remain viable during tumultuous times.
• Confidence in both the soundness of the manager's investment process and the manager's openness and honesty in dealing with difficult issues or negative performance.
• Trust that the manager's investment team has the resources and expertise to implement the investment strategy and that their relationship manager will be proactive in responding to their needs.

Institutional investors understand they may need to adjust the structure of their investment programs from both an investment strategy and risk management perspective. Successful investment managers will recognize the increased expectations placed on them and be able to adjust accordingly.

At Northern Trust, maintaining strong relationships with clients and their consultants is core to our business.

1 “Re-building Client Confidence During an Economic Downturn,” March 2009

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