biases could impede investors and managers from achieving their long-term
goals, according to State Street.
firm’s recent research—conducted over 18 months through surveys of nearly 4,000
investors and providers—said there are conscious and unconscious common beliefs
that stand in the way of investment success.
models for success in the investment management industry are broken,” Kelly
McKenna, global head of State Street’s think tank, said. “Investment
professionals pay significantly more attention to activities that they believe
will contribute value to alpha.”
report found more than 60% of the industry’s capital is spent in search for
alpha. But investors are becoming increasingly skeptical, with only 53% of
individual investors and 42% of investment professionals stating they believe
alpha is primarily driven by skill.
continued to say true success includes not only achieving alpha, but also
requires realizing investors’ long-term goals over time. However, only 12% of
surveyed investors said with confidence they were prepared to meet their goals.
“Investment professionals pay significantly more attention to activities that they believe will contribute value to alpha.” —Kelly McKenna, global head of State Street’s think tank.
Street said both asset owners and managers were overly dependent on past
performance in making investment decisions.
to the survey, nearly 60% of investment managers used a one- to three-year
benchmark to measure performance. More than a fifth of institutional investors
said they define success based on achieving long-term goals while 63% said they
measure success against benchmarks.
also made unconscious mistakes of being overly confident in their investment
abilities or blaming external factors for failures, the report said.
than three-quarters of asset managers said their “experience and analytical
process” were top reasons for outperformance, the survey found. In cases of underperformance,
managers blamed market conditions, clients’ expectations, or senior management
of companies they invested in, according to State Street.
time to rewrite the story,” Suzanne Duncan, global head of research of the firm’s
think tank, said. “By reconditioning the industry’s behavior, there’s an
opportunity to reinforce the values necessary to achieve true success.”
You Lucky or Skilled?