Fund managers can expect the axe from discretionary fund managers (DFMs) if they fail to perform within the first 12 months of being granted a mandate, according to new study by CoreData Research.
The report says that DFMs are ruthless when it comes to underperformance with the average firm tolerating a mere 10 months of underperformance before replacing a manager. Half of DFMs surveyed said they would replace a fund manager who has underperformed for only six months.
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Despite fees and charges coming under increased scrutiny across all aspects of the industry, performance (89%) and perceived trustworthiness (92%) heavily outranked the importance of cost (64%) as a key factor in selecting a manager in the first place, the study found.
DFMs can often be a closed shop when it comes to selecting a new manager with almost half (49%) typically involving less than five people in the process.
Three in 10 (29%) DFMs admit to taking more than three months to award a new mandate to an asset manager they have had no past dealings with. This number drops rapidly to just 3% of DFMs who do have an existing relationship with an asset manager, backing up the importance of trust, the report further revealed.
CoreData’s DFM Research 2013 report reveals that despite the increasing focus on costs, DFMs still view a managers’ track record as the key factor in selection; however, the honeymoon period is a short one with DFMs displaying their ruthless streak by not tolerating any prolonged period of underperformance.
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By GlobalDataThe figures also show the added pressure on a fund manager whose style is out of fashion as DFMs are unlikely to give them the time to come back into favor and make up for any potential losses.
