Northern Trust: Investors are taking transparency seriously
20 June 2017 Chicago
Image: Shutterstock
Transparency is an increasingly important factor when considering investment into both traditional and alternative assets, according to research by Northern Trust and The Economist Intelligence Unit.
A survey of 200 senior asset management and institutional investor executives suggested that transparency has become significantly more important to investors since before the financial crisis.
The ‘degree of transparency’ was named as a ‘very important’ consideration for alternative investment by 63 percent of respondents. For traditional investments, it was very important for 62 percent.
The survey also found that, post-investment, more alternative investors are concerned about the degree of risk than about the degree of transparency in their investment, while the opposite is true for traditional investors.
For alternatives, 25 percent said the degree of risk is the most important post-investment consideration, while 17 percent said this is the degree of transparency, and 16 percent said it is the degree of liquidity.
However, the report also suggested that pre-crisis, while 21 percent would have considered the degree of risk as the most important factor, only 3 percent would have have been most concerned about transparency.
Similarly, for investors in traditional asset classes, the degree of transparency was the most important factor for 21 percent, compared to 9 percent pre-crisis.
The degree of risk was considered most important by 18 percent, similar to the pre-crisis figure of 16 percent, while the degree of liquidity was most important for 15 percent of traditional investors both pre- and post-crisis.
When asked why transparency has become more significant for both alternative and traditional investment, a vast majority, 73 percent, of respondents cited portfolio risk management as a significant driver.
The second-most cited driver was regulatory requirements, named by 53 percent, and this was followed by competitive considerations, considered a driver by 43 percent.
However, the report noted that there is little industry consensus on who should have the final say on transparency requirements. A third of respondents, 33 percent, said the decision is down to the investment committee collectively, while 20 percent put the onus on the chief investment officer, 15 percent place it on the CEO.
Further, 10 percent said the CFO would have the final cay, and 9 percent put the decision-making down to the chief risk or compliance officer.
The report also suggested that “this lack of overriding consensus cuts across every type of organisation”.
It went on: “No clear pattern emerges overall, indicating a lack of agreed-on best practices in the industry.”
Pete Cherecwich, president of corporate and institutional services at Northern Trust, said: “These results tell us that investment transparency is a growing priority, but asset managers and institutional investors remain unsure of how to best achieve it.”
He added: “As alternative investing has reached the mainstream, the industry would benefit from consistent standards and stronger policies around transparency. Working with the world’s most sophisticated investors, we are committed to enabling greater transparency through continued research and technology development.”
A survey of 200 senior asset management and institutional investor executives suggested that transparency has become significantly more important to investors since before the financial crisis.
The ‘degree of transparency’ was named as a ‘very important’ consideration for alternative investment by 63 percent of respondents. For traditional investments, it was very important for 62 percent.
The survey also found that, post-investment, more alternative investors are concerned about the degree of risk than about the degree of transparency in their investment, while the opposite is true for traditional investors.
For alternatives, 25 percent said the degree of risk is the most important post-investment consideration, while 17 percent said this is the degree of transparency, and 16 percent said it is the degree of liquidity.
However, the report also suggested that pre-crisis, while 21 percent would have considered the degree of risk as the most important factor, only 3 percent would have have been most concerned about transparency.
Similarly, for investors in traditional asset classes, the degree of transparency was the most important factor for 21 percent, compared to 9 percent pre-crisis.
The degree of risk was considered most important by 18 percent, similar to the pre-crisis figure of 16 percent, while the degree of liquidity was most important for 15 percent of traditional investors both pre- and post-crisis.
When asked why transparency has become more significant for both alternative and traditional investment, a vast majority, 73 percent, of respondents cited portfolio risk management as a significant driver.
The second-most cited driver was regulatory requirements, named by 53 percent, and this was followed by competitive considerations, considered a driver by 43 percent.
However, the report noted that there is little industry consensus on who should have the final say on transparency requirements. A third of respondents, 33 percent, said the decision is down to the investment committee collectively, while 20 percent put the onus on the chief investment officer, 15 percent place it on the CEO.
Further, 10 percent said the CFO would have the final cay, and 9 percent put the decision-making down to the chief risk or compliance officer.
The report also suggested that “this lack of overriding consensus cuts across every type of organisation”.
It went on: “No clear pattern emerges overall, indicating a lack of agreed-on best practices in the industry.”
Pete Cherecwich, president of corporate and institutional services at Northern Trust, said: “These results tell us that investment transparency is a growing priority, but asset managers and institutional investors remain unsure of how to best achieve it.”
He added: “As alternative investing has reached the mainstream, the industry would benefit from consistent standards and stronger policies around transparency. Working with the world’s most sophisticated investors, we are committed to enabling greater transparency through continued research and technology development.”
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