Case Study: Outsourced Performance Calculation for a Large Asset Manager

Company: A large asset manager with more than $800 billion in assets under management (AUM)
Location: Global
Financial Services Sector: Wealth Management

Background

The firm wanted to be able to market several internally managed strategies across various divisions within its network of financial advisers. The firm did not have resources to oversee the composites that are managed by the specific strategist and needed a process in place to ensure the composites created are meaningful and representative of the strategy advertised.

Challenge

The firm faced multiple challenges, including:

1. Calculating gross-of-fee performance across hundreds of thousands of portfolios.
2. Limited technology resources to effectively screen for outliers and calculate the corresponding composite returns.
3. Limited resources to devote time to assess the overall accuracy of the composite and make sure the appropriate members were included.

Solution

To address these challenges, the firm decided to outsource its calculation and assessment process to ACA Group. ACA was able to offer a comprehensive suite of services tailored to the investment management firm’s specific needs, including:

• Gross-of-fee calculations: The provider’s team of performance measurement specialists developed a customized calculation process to receive fees paid by the underlying portfolios and derive the appropriate gross-of-fee performance.
• Composite calculations: Using the calculated performance, the provider developed a process to construct the composite returns, screen for and remove outliers, and calculate the corresponding performance.
• Composite assessment: Working together with the investment management firm, ACA developed an automated scoring process to assess the accuracy of the composite construction. The scoring process allowed the investment management firm to effectively identify which composites they were comfortable with, and which needed to go back to the strategist to correct.

Results

By partnering with ACA, the investment management firm achieved several key benefits:

1. Improved operational efficiency: With the third-party providing the back-office support necessary to ensure accurate and timely calculation of performance, the firm was able to free up valuable time for their staff to focus on core business activities. It also reduced training time due to attrition and concerns with loss of intellectual capital.
2. Access to industry expertise: ACA’s team of performance measurement experts provided ongoing support and guidance, ensuring the firm stayed up to date with the latest industry trends and regulatory developments.
3. Mitigate regulatory risk: ACA provided a value added experience and expertise on Securities and Exchange Commission (SEC) and Financial Industry Regulatory Authority (FINRA) marketing and advertising regulations. The provider consulted with the firm to better inform their understanding of new requirements around the calculation and presentation of extracted and related performance under the SEC’s Marketing Rule.

Conclusion

The partnership between the investment management firm and ACA demonstrates the value of outsourcing investment performance management to a reputable third-party service provider. By leveraging the provider’s expertise and resources, the firm was able to overcome its challenges and improve its investment performance program while balancing the operational burden of the performance calculation process with the requirements of recent regulatory guidance. This ultimately led to increased trust from investors and continued growth for the firm.

Managed Performance Services Plays a Critical Role

Learn more about the strategic role Managed Performance Services plays to help firms maintain their investment performance program. 

Download our white paper to: 

• Explore the case for managed services – a form of outsourcing – to address contemporary industry trends and concerns that are making the investment landscape increasingly complex and competitive. 
• Examine best practices investment managers should be aware of when utilizing a managed service provider to help ensure a successful relationship. 
• Debunk common concerns, discover best practices, and uncover solutions to help firms overcome perceived challenges.  
• Look into real-scenario case studies, such as this one, to see how firms benefited from performance managed services. 

Watch our on demand webcast to learn the value of engaging a third-party service provider to oversee and manage your investment performance program. During the webcast, we examine how this approach has become a highly effective strategy for addressing industry challenges and driving success in a competitive environment.

How we help

Utilizing ACA's Managed Performance Services solutions allows firms to leverage unparalleled expertise, scalable solutions, and significant cost savings. In addition, collaborating with us can enhance service offerings, strengthen risk mitigation, simplify the intricate investment process, and seize opportunities for growth and innovation. 

Firms can outsource all or certain aspects of their performance measurement and reporting functions with the assurance they are working with a team that not only understands the technical aspects of calculating complex performance, but also knows industry best practices and regulatory expectations. Our suite of services includes: 

• Portfolio and fund performance calculations 
• Composite management and performance calculations 
• Global Investment Performance Standards (GIPS^®) compliance oversight and verification management 
• Risk and other performance-related statistics calculations 
• Gross and Net Money Weighted Return calculations (fund and deal level IRRs) 
• Private fund management fee and performance-based fee review and reconciliation 

If you would like to get in touch with our team today, we're ready to help. Start a conversation with us here. 

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