Influential investment consultants will continue to bring assessment of culture and transparency towards the centre of their due diligence process, especially when looking at alternative and hedge fund strategies, a panel at the Absolute Returns Digital 2020 conference has heard.

In the segment of the industry once known for its secrecy and opacity, funds looking for long term partnerships are expecting due diligence to look beyond the robustness of investment teams and strategies.

“Especially in the hedge fund space where the trust element can be a big problem [assessment of culture] has been a fantastic way to avoid managers,” Sara Rejal (main picture), Willis Towers Watson senior director, investments said.

“We have walked away from managers where we thought their strategy was brilliant and they were going to get great returns, but we just said at the culture assessment that this is not for us,” she said.

“We are not there to judge, it’s really to add context around the question ‘are these the types of partners we feel comfortable to let our clients invest in for decades?’,” Rejal said.

Willis Towers Watson has brought a measurable framework to its ESG assessment through work done by its Thinking Ahead Institute, a think-tank collaboration of investment organisations globally founded in 2015.

Its work with Thinking Ahead has led to a the culture assessment of every manager, interviewing the leadership of the firm and other staff to understand how they think, operate, how they treat people and clients, Rejal explained.

“Everyone loves to hear about culture now,” she said.

 

Beyond culture, transparency has become an important attribute consultants and ultimately superannuation and pension funds are focusing on their assessment of alternative funds, Michael Sommers, Frontier Advisors principal consultant said.

Sommers joined Rejal on the panel discussing topics relating the assessment of alternative and hedge fund strategies, particularly as liquidity concerns emerged in March this year.

Sommers transparency became a massively important factor for investors in alternatives to consider when the spread of Covid and economic lockdown led to a dislocation in markets.

“In most periods things might look ok but [in variable markets] they might come unstuck and the worst thing is when it’s a surprise.

“We saw losses in managers that made sense, which is not necessarily ok, but at least you can understand it. It’s the ones that are highly unexpected that were a surprise. That could be a reflection on due diligence but it also relates to transparency,” Sommers said.

“One thing for investors to take out of this [market dislocation] is not to budge on transparency. If we find some managers not being as transparent as we really want, we are being very clear saying we are not going to progress,” he said.

Smith is head of content and managing editor of Professional Planner and Investment Magazine.
Leave a comment