After what has been a difficult year for fund managers, research houses and advisers have started to shift focus from short to long-term performance, lifting pressure off fund managers to deliver quick results, according to Hyperion Asset Management institutional business director Tim Samway.
Hyperion is a boutique fund manager currently looking to extend its reach into the retail market, and recently released a white paper titled ‘Why traditional equity portfolio risk measurement fails long-term investors’. The paper argued that the global financial crisis (GFC) highlighted the flaws in modern portfolio theory, which “has used short-term return volatility as the key focus in risk analysis”.
Samway asserted that during and immediately after the GFC, retail investors felt losses more keenly than they enjoyed profits – and advisers followed their lead.
“Advisers would then put pressure on fund managers to provide better performance tomorrow than it was today, without taking long-term risks into consideration,” Samway said. “Managers did things they otherwise wouldn’t have done to smooth out their portfolios.”
Samway referred to investments into companies such as highly geared small-cap resource companies, which provided satisfactory short-term returns but underperformed over the long term.
However, researchers have shifted focus to products which would least underperform in case of an economic downturn, Samway said.
This, he said, attracted adviser support for such products, which were usually offered by boutique fund managers.