How Asset Managers Can Use Data to Enhance Finals Presentations

16 Jun

How Asset Managers Can Use Data to Enhance Finals Presentations

A recent article in industry publication FundFire discussed how preparation, execution and luck all factored into successful finals presentations.

The article states that, on average, just 3% of about 2,500 U.S. equity strategies tracked by large investment consultants ever make it into finals presentations, according to Greenwich Associates.

“A successful finals presentation is one where the manager arrives on time, is prepared and organized, and tailors the presentation to the client’s needs, understanding their unique circumstances, if any,” Evan Scussel, head of equities at AndCo Consulting. “Furthermore, following the client’s direction is imperative.”

How can managers better prepare for finals presentations?

Scussel served as a judge during mock finals presentations held at eVestment’s client conference, along with Keith Hocter of Bellwether Consulting and Ryan Anderson from Pavilion.

Three teams of manager attendees were challenged to prepare ten-minute finals presentations using a hypothetical product and understand how they could use eVestment data to set their product apart from the competition. Each team worked with a consultant mentor: Kelli Schrade, formerly of Marquette Associates; Michael Butkus of Atlanta Consulting Group; and Chris Kamykowski from Summit Strategies Group.

The winning team got to bask in the glory of winning and eVestment also donated to the charity of the team’s choice. So how did the winning team do it?

What they presented:
The team opened their presentation with key firm-level information that was relevant to the fictional client. They also focused on the items they felt would set them apart such as:

  • Concentration and focus: “The strategy is fairly concentrated with high conviction and is a long-term focused equity strategy.”
  • A history of working with similar clients: “We have 10 and a half billion in public fund assets across the firm, or just under two billion in this strategy, specifically.”
  • Firm ownership: “This firm is 100% employee owned which we believe allows us to directly align our interests with our clients.”
  • Personnel tenure: “The average portfolio manager experience on our team is 32 years.”
  • Investment philosophy:
    • “The strategy utilizes a top-down investment process based on analysis of economic, political and sentiment factors that drive supply and demand for securities.”
    • “We capitalize on the structure of emerging markets by using country and sector themes developed through the analysis of the above factors and then navigating the inherent risks by leveraging the firm’s experience investing in global markets.”
    • “We then seek to add value at the security level through both traditional analyses of quantitative and fundamental factors that leverage higher level portfolio themes.”

Next, the team walked through what the client should expect from the portfolio. They used data to show, rather than simply tell, the client what an average portfolio looked like, where they had been able to add value and how the portfolio had performed.

Country Themes

“These tables show the average allocation to what we believe to be some of our major thematic country bets over the last three years. This has been persistent since the strategy’s inception. The bets do change based off what we believe to be the best opportunities, but these have stood true over the inception of the portfolio. Additionally, we have the value added by these decisions.”

Sector Themes

“These tables show an example of what your sector exposure could look like. We have a little bit of a growth tilt, but it’s a quality growth tilt. So, you’ll see we do have some larger exposure relative to the benchmark to technology, consumer, discretionary. One of the thematic bets we have right now is an overweight to consumer health care, or health care in the emerging markets. Again, here is value added based off these bets.”

Three-Year Performance

“The rolling three-year alpha chart shows you what to expect from performance perspective when you invest with us. We expect to be top quartile consistently, but that’s not always the case. When you invest actively in the space, you’re typically beating the benchmark. But as you can see, even a third quartile manager on average would be providing some alpha – we would typically be providing even more.”

Risk/Return Profile

“This chart shows the sort of risk/return profile you would get with us versus the median manager and the benchmark. What we have here is total capture, which is your upside capture over your downside capture. The red line is your benchmark, which is currently what you’re getting. The green line is the universe median. The median manager, again, is going to provide you with upside, downside protection better than you get with a passive approach.”

“The blue line is us. When you invest with us, we’re going to keep up on the upside, but we tend to underperform in an all-boats-rise environment. Where we think we really add value is on the downside. Just to give you an idea, year-to-date, markets are up pretty big. 2012 is another example. We kept up in both those periods, but we’re trailing the index. It’s periods where you have these shocks in the markets where we’re going to maintain your capital, and then, again, we’ll continue to add value on the upside.”

What questions did the consultants ask the managers after the finals presentations?

The expert judges panel got an opportunity to ask questions of the teams after their ten-minute finals presentations. Here are some of the questions asked, and how the winning team responded.

Q: What is the capacity of the strategy? Are we going to be the last ones in?
A: While you will not be the last ones in, we have reached a point where we do need to selectively choose who we work with, and we think your long-term focus would be a good fit with our long-term approach.

Q: How do you staff yourself to make sure you have the right information and experience to make those kinds of calls?
A: We organize 32 research team members into three distinct teams. Those teams tend to focus on their particular role in the research process. The capital markets innovation team does a lot of the theoretical research. They develop the models. They work with the investment policy committee, specifically to understand the themes and the drivers at the highest level.

From there, the applied research team starts to look at the list of companies that you could invest in and starts to apply some of the rules for liquidity and solvency so that we can begin to hone in on the focus that we’d like to see underlying the portfolio. Then, finally, the research team itself focuses on the bottom-up research for the list of companies that are given to them for the capital markets. All three of these teams are in a feedback loop with each other and they’re constantly focusing on just their part of the process.

Q: You talked about a feedback loop, but are there any tangible guidelines that trip a wire that say “this trade isn’t working out?”
A: Risk management is a key place where we’re trying to make sure that anything that we’re implementing in the portfolio is precisely reflecting those themes. The risk management group is dedicated to making sure that if anything starts to move off-kilter, they bring it up. They ask, do we need to adjust this, do we need to exit that, is this theme not working like we thought it would, is this security not the best reflection, is the country not the best reflection? There’s an internal feedback at all levels at all the time to help us with that.

Q: How much emphasis is there on ESG within the portfolio?
A: We do have a similar product that is managed with a specific ESG mandate for this, for our clients that are really interested in that approach. I think it’s important to note that in emerging markets, the governance is incredibly important. You want to make sure you get good governance of these companies that might not have strict regulations.

Q: Given that you’re thematic, do you have any tangible sector limits? I mean, obviously, you’re well overweight in technology. It seems like you could be virtually unconstrained.
A: From a sector limit perspective, we look at it this way. If the benchmark is a weight between zero and 10%, our maximum portfolio weight, this is country and sector, can be the benchmark plus 20%. If the benchmark weight is greater than 10%, we can go up to 10 times that weight in portfolio.

What advice did the consultants have for asset managers?

After declaring the winner, the expert panel talked through some of the reasons why they had selected the winning team.

Evan Scussel: “You really have to know who your audience is and do some homework in advance to figure out how out how you are going to connect with the people in the room. I tend to go into meetings very prepared. I know what’s in the pitchbook already and I have read the eVestment profile. I like to build a relationship and get to know what they do.”

Keith Hocter: “The teams did very well in going beyond performance in their finals presentations. They spent time on their strategy and people as well as their process. It’s possible to do that and have data to support it. If given more time, I would recommend to dig even more out of the database than performance and display the stats to back up your story. You don’t want to be all story and you don’t want to be all data. You have to hit the right balance.”

Ryan Anderson: “I found that the depth and information presented by the winning team was ahead of the others. They were also very quick to answer the questions, which speaks to the level of preparation they had.”

If you are interested in learning how eVestment can help you use data to tell a better story during your next finals presentations, contact us today.