Enhanced competitiveness through portfolio control and client communication
The particular characteristic of the business of investment management is that its “product” is simply a “best efforts” promise with no guarantee of any outcome.
Unlike any physical product and most services, it is not possible to “test drive” an investment with any certainty that it will perform in the future as it has in the past.
While some end investors may redeem an investment simply because it falls in value, the majority of prudent investors will recognise that a loss of money is not in itself an indication that the manager has not delivered on the promise made. Instead, they will focus on whether or not the manager is doing what it was indicated would be done.
Investors will also want to be alerted should the prospects for their investment change in a material way. The EU’s MiFID regulations have incorporated an element of that concept into the rulebook such that discretionary portfolio managers must now notify their clients of a 10% fall in the value of their investments.
Direct clients of investment managers may expect even more support – to be advised whenever the manager feels the risk of a portfolio is changing – with an explanation of the strategy being deployed in such circumstances.
The EMA system, both in terms of its analytical and reporting capabilities, has been designed to facilitate a speedy awareness of changing portfolio dynamics and client friendly outputs. Further, EMA does not charge for the distribution of risk reports to third parties, so a manager is free to share whatever is considered helpful.
With EMA managers can demonstrate to clients and prospective clients that they are risk aware and that they have processes in place to ensure that they remain consistent with agreed investment mandates.
In an increasingly risk aware environment this assists managers in earning the trust required to raise assets.