Asset managers take short term view on performance
Investment professionals at over two thirds of US asset managers are under pressure to deliver value on their long positions within a year, according to a new report, which warns that employers who take a short-term view on evaluating performance might encourage managers to take unnecessary risks.
The report by consultants Cerulli Associates is based on a proprietary survey of institutional and retail investment managers, the majority of which were long-only. It found that 68% of asset managers surveyed evaluate their staff on a time frame of 12 months or less.
Benjamin Poor, a director at Cerulli, warned: "Short-termism might also encourage bad behaviour; if entering the fourth quarter, a managing is lagging his benchmark, he may reason that he should 'swing for the fences'.
"Compensating employees based on longer term performance rewards investment acumen while discouraging short-termism."
The report, titled Best Practices for Portfolio Management Organisations, suggests that funds houses are aware that using a one year time frame may not give an investment thesis time to play out. "For example, if an analyst believes a company will enjoy synergies through the results of a merger, those synergies may take more than 12 months to materialise," explains Poor.
The report follows news that US institutional plans have turned out their worst annual return in five years as larger allocations to alternative assets failed to insulate funds from losses on more traditional investments.
Union pension funds with $1bn (€675.2m) or more in assets under management fared the worst of the fund categories and posted 6% declines for the year, according to a report from investment managers Wilshire Associates.
Corporate trusts with under $1bn in assets under management had a 5.25% decline for the same period.
-- write to Matt Turner at mturner@efinancialnews.com
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