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When selling your home in the UK, you must produce an energy efficiency certificate to show prospective buyers how much they will pay for utilities if they become the next owners. There are some within the investment business that would like asset managers to issue a similar document.
“I used to think that all investment managers had the same approach to trading,” said James Chatfield, director at Liquidnet, at a recent aiCIO conference in Melbourne, “but it is not the case—and some investors are missing out on returns.”
Clearly, Liquidnet, as an institutional trading company, has a vested interest in promoting this view—but the thesis does make sense. As there are huge numbers of variables at play, there are no concrete figures available for the upside that is being forfeited. But, according to Chatfield, there are material rewards available for the asset managers—and their underlying investors—who are equipped with the tools to help meet their best execution obligations.
“I have no doubt those rewards could (conservatively) add up to several hundred basis points over the course of any given year in terms of genuine alpha potentially left on the table,” he said.
Investors, why go to all the effort of creating a strategic asset allocation and on-boarding the best-in-class managers to invest in the best possible securities if they are going to be slapdash in their buying and selling? Basis points add up, and on multi-billion-euro portfolios over the time horizons overseen by pension and other institutional investors, the difference could be significant.
By interrogating fund managers and demanding better efficiency, investors could see improved performance.
After all, no one wants to turn their radiators on just to lose heat out of draughty windows.