In the virtual past of early 1999 there were no internet based asset manager search systems, yet in just 15 months three products have been launched, another is imminent and rumours abound of several more to come. This is strong evidence that the idea has caught someone’s imagination. One site – InvestorForce.com – has raised $75m of venture capital financing in an effort to dominate the institutional investment “space” on the internet. The site offers far more than manager search, but this is serious money presuming very high rewards.
The clear assumption on the part of internet based manager search sites is that the manager selection process employed by pension funds and their consultants requires improvement, and that these sites offer part or all of the solution.
The key phrases deployed by these sites imply that the traditional offline manager selection process is costly, that it lacks transparency and that it is too slow. Crucially, there is a clear consensus that investors do not see the whole picture when selecting managers – that the product information at their disposal is incomplete. So the marketing psychology attempts to prompt the investor into questioning their current selection process.
If the investor and/or their consultant agrees that there is room for improvement, the next step is to ask whether the internet can offer a viable proposition for outsourcing part or all of their manager selection process.
The good news for investors and consultants is that they aren’t just faced with multiple sites providing marginally differing services. The essential manager search proposition isn’t being questioned, but all four sites have distinctly different philosophies to asset manager selection and elements of each could be used within the same search process.
The two old-timers are InvestorForce.com and IPE-Quest.com, both of which launched in summer1999; relative newcomer eFrontiers launched in spring 2000; while ManagerSelection.com has an existing site which will be fully functional by late October 2000.
Internet start-ups InvestorForce.com and eFrontiers.com were both founded by individuals with long term experience in the investment management community, IPE-Quest.com comes from the publishers of IPE magazine, while ManagerSelection.com is very closely connected to the Zurich based investment consultancy Complementa.
The core of the debate is in the data. For the moment, forget transparency, cost and speed. These may be regarded as of varying importance to an investor, but the overriding goal must be to select the best manager. There are a variety of reasons why this may be an impossible goal, but it cannot be achieved under any circumstances unless they start with the right data. If Manager X isn’t included in the initial trawl through the mass of managers offering a particular product, they can never be appointed.
So the key is in the delivery of the product data. InvestorForce and eFrontiers aim to deliver all-inclusive databases; ManagerSelection is attempting to construct a best in class database; and IPE-Quest doesn’t offer a products database!
InvestorForce and eFrontiers are predicated on offering the investor the best possible database containing as close as possible to all the investment management products designed for the investor’s home market. In classic internet style, neither company created their own data, preferring to access established and well respected data sources. InvestorForce bought US consultant, Asset Strategy Consulting, and has attached the database that came with this purchase to their online search engine. Mobius - a respected vendor of investment management data in the US - provides the data for eFrontiers.
ManagerSelection is building the content of their database from the ground up. Asset managers are invited to submit a maximum of seven traditional and three alternative investment products to the ManagerSelection.com database in the expectation that the asset managers will select their best products. This means that the investor ought to be searching through a range of investment products which are best in class.
IPE-Quest employs an entirely different approach which assumes that it is almost impossible to construct the perfect database. Our suggestion is that investors should make use of whatever data is available to them, but that they should also notify the market of their manager search by posting it on the IPE-Quest “notice board”. By doing this asset managers have the chance to respond to the investor. It doesn’t guarantee that all the relevant managers will be included in the investor’s initial long list, but we have shown that it can increase the chances considerably.
It is at this initial long list stage that IPE-Quest leaves the investor/consultant to progress their search using whatever methodology suits them. The other online search systems all offer a selection progression which continues through to the appointment of an asset manager, and the essential methodology is familiar:
• interrogate database / review results
• issue RFP / review results
• create shortlist
• conduct interviews
• appoint manager
However, they emphasise their differences in terms of electronic wizardry, and the extent to which the investor conducts the search online or offline. They also differ in terms of how an investor weights their search criteria, how the results are analysed and how to interpret this analysis.
But the post data-search methodology is in no way automated and it would be difficult to describe the process as outsourced unless the investor takes on a consultant to do it for them. This isn’t as crazy as it sounds and all four sites encourage consultants to use them on behalf of their clients. It may be that very few consultants will be over-enthusiastic about taking on the manager selection philosophy propagated by an internet site, but there is no doubt that they and their clients can benefit from the various data research methods on offer.
Tony Hay is sales director at IPE in London

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