Fund managers may be unaware as to exactly where and how much money is being spent with brokers due to a failure to fully review all their relationships qualitatively and quantitatively.
That’s according to new research from OpenGamma, which reveals that despite the majority of fund managers having formal broker review processes in place, a mere 11 per cent assess how all their brokers are actually performing.
The study, carried out over a two-month period across 22 investment management firms, also looks at whether or not fund managers are calculating the implicit costs of trading. The findings showed that implicit costs, the costs of bid-offer spreads, were only calculated by half of firms. Analysing implicit trading costs has become one of the key ways of understanding the real value of broker relationships, as fund managers continue to come under heavy pressure from end investors to deliver greater returns.
Other key findings show that prime-brokers, under the spotlight recently around whether or not they are charging a fair price to finance fund managers making speculative bets, are the group reviewed most frequently. Important challenges including collecting and calculating data are becoming ‘very time consuming’, leading the majority (75 per cent) of respondents to enhance their operational processes over the next year.
Maxime Jeanniard du Dot, COO of OpenGamma, says: “Having a process for assessing how brokers are performing is without question very valuable, but only when carried out. While regulations will be a big driver in reviewing broker performance, fund managers also have a strict fiduciary responsibility to investors. On top of this, as the geopolitical landscape begins to take shape over the coming months, it is clear that fund managers will need to gain a new level of insight to understand the best brokers to do business with.”
