Asset manage­ment best practices

Asset management is first and foremost about developing an adequate investment strategy and secondly about implementing it efficiently while preserving the interests at play. The key to achieving this lies in putting the asset management activities out to tender.


Funda­men­tal requi­re­ment: a complete speci­fi­ca­tion of the mandate

The tender should be based on a detailed and complete speci­fi­ca­tion of the asset manage­ment mandate. The first step is to convert your own invest­ment stra­tegy into a mandate stra­tegy. The mandate speci­fi­ca­tion process also includes defi­ning a measura­ble bench­mark for the mandate. Setting out the invest­ment style is crucial: should the mandate be execu­ted with an active manage­ment style focu­sed on outper­forming the bench­mark, or with an index-orien­ted style aimed at inves­t­ing assets in a tax-effi­ci­ent and cost-effec­tive way? Any sustaina­bi­lity crite­ria to be taken into account in the invest­ments must also be speci­fied when defi­ning the invest­ment style. Last but not least, it is crucial to specify the finan­cial instru­ments: should the mandate be execu­ted with direct invest­ments, or through coll­ec­tive invest­ments (e.g. funds, ETFs)? Coll­ec­tive invest­ments offer various advan­ta­ges, espe­ci­ally for assets of up to CHF 100 million. These include rapid diver­si­fi­ca­tion, cost and tax bene­fits, and clear and simple struc­tu­ring of securities.

Compe­ti­tive tender

To obtain the best asset manage­ment solu­tion on the open market, at least three compe­ti­tive bids must be obtai­ned when putting the mandate out to tender. Based on the mandate speci­fi­ca­tion, poten­tial provi­ders are given a struc­tu­red ques­ti­on­n­aire – known as a ‘request for propo­sal’ – with ques­ti­ons cove­ring the essen­tial requi­re­ments for the tender object. During the tender process, active asset mana­gers are evalua­ted on the basis of five crite­ria, known as the ‘5 Ps’: perfor­mance, price, process, people and product charac­te­ristics. If a sustainable invest­ment style is to be pursued, the desi­red sustaina­bi­lity crite­ria should be speci­fi­cally addres­sed in the questionnaire.

Trend towards inde­xed mandate solutions

Among large insti­tu­tio­nal inves­tors such as pension funds, there is a trend towards inde­xed, cost-effec­tive and tax-effi­ci­ent asset manage­ment. The index­ing approach can be based on the weightings or the market capi­ta­li­sa­tion of the secu­ri­ties in the mandate, but it can also take sustaina­bi­lity crite­ria into account. Price is one of the most important conside­ra­ti­ons when weig­hing up diffe­rent provi­ders in tenders for inde­xed asset manage­ment manda­tes. It is ther­e­fore no surprise that the bidding process and pricing struc­ture for inde­xed asset manage­ment are highly trans­pa­rent and homo­ge­neous compared to active asset manage­ment. Based on the mandate volume put out to tender, it is possi­ble to accu­ra­tely predict what the resul­ting pricing struc­ture will look like. The inten­si­vely nego­tia­ted fees for manda­tes tende­red by the inde­pen­dent consul­ting firm c‑alm AG from 2013 to 2022 are shown in the graph below.

Source: c‑alm, compe­ti­tively nego­tia­ted fees of c‑alm since 2013 in basis points (1 basis point = 0.01%) of the volume (sliding-scale fee + TER product costs + VAT) for mixed asset manage­ment manda­tes execu­ted with index funds.

Howe­ver, conduc­ting a compre­hen­sive assess­ment of all the cost and tax compon­ents in asset manage­ment is tricky and requi­res rele­vant exper­tise: in addi­tion to the asset manage­ment fees and the custo­dian fees, the product fees for the coll­ec­tive invest­ments in the mandate are also important. The Total Expense Ratio (TER) shown for each coll­ec­tive invest­ment can be used as an indi­ca­tor. It is also important to check the swit­ching or entry fees for the mandate. These can make a big diffe­rence, espe­ci­ally when trans­fer­ring an exis­ting invest­ment set-up to a new asset manage­ment mandate. In such case, not only are invest­ment fees incur­red for the new mandate solu­tion – so too are fees for selling the exis­ting secu­ri­ties. These swit­ching costs can be redu­ced signi­fi­cantly during the tender process by also conside­ring in-kind contributions.

Last but not least: make or buy?

Inde­pen­dent consul­tancy firms like the author’s usually offer their tender exper­tise on a fee basis. The lump-sum consul­tancy fee can range from 15,000 to 30,000 Swiss francs, depen­ding on the comple­xity of the mandate speci­fi­ca­tion and the object of the tender. The larger the mandate volume, the more precise the mandate speci­fi­ca­tion will be. And the more complex the trans­fer of secu­ri­ties from the exis­ting setup to the new mandate, the more sense it makes to involve a consul­tant. For smal­ler mandate volu­mes of 0.5 to 30 million francs, the website now offers a useful free tool for inde­pendently carry­ing out a trans­pa­rent cost compa­ri­son of diffe­rent, compe­ti­tively priced asset manage­ment solu­ti­ons. You can enter your indi­vi­dual invest­ment stra­tegy into this website, speci­fy­ing your desi­red invest­ment style (inde­xed or ESG), and then compare offers from various banks and asset managers. 

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