Scandal free performance - the key to fund flows

Fund manager performance and investment style consistency have been identified as key factors in attracting fund flows, however manager reputation also has a strong influence on fund flows, according to new research conducted by Boston-based firm, Cerulli Associates.

The US-based firm said the recent scandals in the US had tainted many of the managers involved.

“Many advisers have stopped using an asset manager because of its involvement in recent mutual fund scandals… Advisers feel scandal-tainted managers have been forced to pay more attention to regulatory and compliance issues than alpha generation, and advisers do not want their clients to associate them with unethical asset managers,” Cerulli said.

However according to Cerulli, if the US experience is any guide, the most important factor in attracting investment remained performance.

“Performance still rules as the most critical factor for selection,” it said. “Even more so than an unblemished ethical reputation.”

It said that, additionally, fund managers needed to have a consistent style of investing “because most advisers consider this essential for constructing portfolios and maintaining an effective asset allocation strategy.”

The Cerulli data suggested that it is crucial for fund managers to stay at the top of the tree in terms of reputation and performance in circumstances where many advisers use as few as three managers to fulfil all their mutual fund needs.

“Asset managers must strive to become one of an adviser’s three most used asset managers, as if they fail to do so, the competition for the remaining paucity of an adviser’s assets is fierce,” the research said.