As alternative investments become more mainstream, information about investment vehicles, underlying assets and other risk management data has become more important to investors, but best practices around transparency requirements are lagging behind the demand, according to a survey
released today by Northern Trust.
The independent survey of 200 asset managers and institutional investors, conducted in February 2017 by The Economist Intelligence Unit (EIU) and sponsored by Northern Trust, reveals that transparency leads all investment considerations and has grown in importance since the 2008 financial crisis. Respondents indicated the higher level of scrutiny applies to both traditional and alternative investments, such as hedge funds, private equity, infrastructure, real estate and natural resources:
• “Degree of transparency” was cited as very important by 63 percent for alternative and 62 percent for traditional investments, leading all other considerations.
• Transparency became more significant after the financial crisis, cited as the most important post-investment consideration by 21 percent for traditional assets and 17 percent for alternatives, compared to 9 and 3 percent, respectively, pre-crisis.
• Risk management is the most important driver for transparency in traditional or alternative investments: 73 percent of respondents said portfolio risk management was the most important element, while 53 percent cited regulatory requirements and 43 percent cited competitive considerations.
However, there was no consensus around which department within an organization ensures that existing and potential investments are adequately transparent, with responses pointing most often to either the investment management or risk and compliance functions.
“These results tell us that investment transparency is a growing priority, but asset managers and institutional investors remain unsure of how to best achieve it,” said Pete Cherecwich, President of Corporate and Institutional Services at Northern Trust. “As alternative investing has reached the mainstream, the industry would benefit from consistent standards and stronger policies around transparency. Working with the world’s most sophisticated investors, we are committed to enabling greater transparency through continued research and technology development.”
The survey showed that asset managers and investors tap a variety of sources for information on both traditional and alternative investments, including specialist databases, media reports and in-person visits. Four out of five respondents rely heavily on internal data management and analytic capabilities to manage their data. Only 6 percent outsource this function entirely.
“Our clients are seeking the best way to analyze, interpret and present their data,” said Penelope Biggs, Chief Strategy Officer, Corporate and Institutional Services at Northern Trust. “We collaborate with clients to translate data into intuitive and meaningful information, delivered through innovative technology and transparency solutions, to help them focus on their investments.”
The EIU surveyed 200 executives of organizations ranging from private equity firms and hedge funds to corporations, nonprofits and insurance companies. Respondents were dispersed globally, with 60 respondents each from North America, Asia-Pacific and Europe, and the remainder from the Middle East. Half the sample is composed of respondents from organizations with more than $5 billion in global assets under management. A whitepaper detailing the survey findings, The Path to Transparency in Alternatives Investing
, can be found on Northern Trust’s website
About Northern Trust
Northern Trust Corporation (Nasdaq: NTRS) is a leading provider of wealth management, asset servicing, asset management and banking to corporations, institutions, affluent families and individuals. Founded in Chicago in 1889, Northern Trust has offices in the United States in 19 states and Washington, D.C., and 22 international locations in Canada, Europe, the Middle East and the Asia-Pacific region. As of March 31, 2017, Northern Trust had assets under custody of US$7.1 trillion, and assets under management of US$1 trillion. For more than 125 years, Northern Trust has earned distinction as an industry leader for exceptional service, financial expertise, integrity and innovation. Visit northerntrust.com
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Northern Trust Corporation, Head Office: 50 South La Salle Street, Chicago, Illinois 60603 U.S.A., incorporated with limited liability in the U.S. Global legal and regulatory information can be found at https://www.northerntrust.com/disclosures