Trends and Issues in Client Investment Reporting

Transcription

1 Trends and Issues in Client Investment Reporting GIPS seminar of the Swiss Bankers Association Zurich, 15 Dimitri Senik

2 Content Trends and issues in the client investment reporting area Self-regulation of client investment reporting PricewaterhouseCoopers Page 2

3 Investment reporting: prospective vs. existing clients Reporting for prospective clients GIPS Standards Usually composite perspective Performance philosophy: TWR gross-of-fees Reporting for existing clients No reporting standard yet Various self-regulation Individual portfolio perspective Performance philosophy: MWR net-of-fees Same issues with respect to the underlying data Same issues with respect to the benchmark comparisons Same issues with respect to IT support Same issues with respect to transparency Same issues with respect to client education and expectation gaps Same chances: Quality reporting is becoming a key differentiation factor! PricewaterhouseCoopers Page 3

4 Investment management reporting: key issues Main problems in the client reporting area Ranked from 1 (most important) to 3 (third important) Problem 1 Problem 2 Problem 3 Poor knowledge of investment reporting matters 0% 39% Individual reporting demands and wishes of clients 50% 36% 7% High costs 7% 29% IT Tools 32% 1 18% Source: PricewaterhouseCoopers 2006 Swiss Survey on Client Investment Reporting PricewaterhouseCoopers Page 4

5 Costs of client reporting (1) Estimate of a likely IT spending now and in 3 years time as percentage of revenue by investment managers Key functions Now In 3 Years Time Portfolio modelling Order management Trade confirmation Fund accounting Client reporting Performance measurement Compliance monitoring Transfer agency Customer relationship management 7% 3% 2% 5% 5% 3% 3% 1% 2% 7% 2% 2% 3% 1% Source: PricewaterhouseCoopers 2006 Global Investment Management Survey PricewaterhouseCoopers Page 5

6 Costs of client reporting (2) Answers to question Are any significant investments in the client reporting area planned in your company in the next 12 months? 68% 21% 11% Yes No Other Source: PricewaterhouseCoopers 2006 Swiss Survey on Client Investment Reporting PricewaterhouseCoopers Page 6

7 Costs of client reporting (3) Average number of staff members directly engaged on a full-time basis in the production of the client reporting Data Management 2.6 Performance Measurement and analysis 3.3 Benchmark calculation 2.6 Reporting preparation 4.1 Other functions 3.4 Source: PricewaterhouseCoopers 2006 Swiss Survey on Client Investment Reporting PricewaterhouseCoopers Page 7

8 Underlying data (1) Answers to question: Do you provide the underlying portfolio valuation data on a daily basis? 75% 21% Yes No Other Source: PricewaterhouseCoopers 2006 Swiss Survey on Client Investment Reporting PricewaterhouseCoopers Page 8

9 Underlying data (2) Trade-date vs. settlement-date principle 67% 67% 9% 9% 15% 15% 9% 5% Trade Date T+ 0 Trade Date T+1 Trade Date T+2 Trade Date T+3 Settlement Date Asset allocation analysis Performance measurement Source: PricewaterhouseCoopers 2006 Swiss Survey on Client Investment Reporting PricewaterhouseCoopers Page 9

10 Underlying data (3) Answers to question: Do you account for dividend income on an accrual basis (at ex-dividend date)? % 21% 1 1 Yes, for all portfolios Yes, upon request No Asset allocation analysis Performance Measurement Source: PricewaterhouseCoopers 2006 Swiss Survey on Client Investment Reporting PricewaterhouseCoopers Page 10

11 Underlying data (4) Most frequent problems with the underlying portfolio and benchmark data Timeliness of index and securities data Availability and timeliness of price data for hedge funds, OTC, structured and alternative products 50% 5 Securities and currency data quality in general Poor quality of benchmark index data Multiple price sources for the same securities Other Access to index data providers and costs of benchmark data Portfolio manager and custodian use different data sources 29% 25% 21% 21% 18% 18% Forward pricing for funds Look-through for fund-of-funds 11% 11% Source: PricewaterhouseCoopers 2006 Swiss Survey on Client Investment Reporting PricewaterhouseCoopers Page 11

12 Underlying data (5) Handling of pricing problems for investment instruments, for which a market price is not readily available or valuation problems exist Wait until the market or fair value price becomes available* 0% 0% Use the last available market / fair value price 11% 18% 25% 39% Obtain a fair value price from the custodian, broker or fund/product issuer 18% 29% 32% 39% Determine a theoretical estimated value in-house 21% 36% 39% 43% Other** * - No valuation in the meantime, ** - Process agreed with individual client Not quoted or illiquid instruments Hedge Funds and private equity investments OTC derivatives Structured Products Source: PricewaterhouseCoopers 2006 Swiss Survey on Client Investment Reporting PricewaterhouseCoopers Page 12

13 Return calculation methods used for client reporting % True Time-Weighted rate of return Single period returns are calculated under the Modified Dietz method and multiplicatively linked to produce a multi-period return. Money-weighted method is applied throughout the whole reporting period. Other Source: PricewaterhouseCoopers 2006 Swiss Survey on Client Investment Reporting PricewaterhouseCoopers Page 13

14 Treatment of fees ans taxes for the performance reporting purposes 43% 46% 36% 36% 36% 32% 25% 25% 21% 21% 1 18% 18% 18% 7% 11% 11% 7% 11% 11% 7% 11% 7% 11% 11% 0% 0% 0% Management fees Custodian fees All-in (Flat) fees Reclaimable Withholding taxes Non-Reclaimable Withholding taxes Gross only Net only Either gross or net Both gross and net Other No answer Source: PricewaterhouseCoopers 2006 Swiss Survey on Client Investment Reporting PricewaterhouseCoopers Page 14

15 Reporting tools 75% 79% 68% 6 50% 43% 46% 43% 46% 46% 36% 29% 25% 25% 18% Client Reporting Performance Measurement Return attribution Risk Controlling Risk attribution In-house developed tool External tool Spreadsheets Source: PricewaterhouseCoopers 2006 Swiss Survey on Client Investment Reporting PricewaterhouseCoopers Page 15

16 Components of client reporting Analysis of the portfolio structure Performance report 100% 100% 39% 32% Return attribution and contribution analysis Risk attribution analysis (ex-post and ex-ante risk analysis) 32% 43% 6 6 Asset-liability analysis 7% 39% Portfolio valuation statement Profit and loss statement Transactions report Cash and capital flow report 100% 6 86% 68% 36% 39% 36% 36% Report on compliance with investment guidelines 39% 57% GIPS compliant composite report the portfolio belongs to Portfolio manager comments / outlook 46% 32% 5 25% Hedge fund reporting 36% Private equity reporting 0% 32% Currency overlay reporting 7% 43% Other 1 Standard Reporting Customised Reporting 7% PricewaterhouseCoopers Source: PricewaterhouseCoopers 2006 Swiss Survey on Client Investment Reporting Page 16

17 Risk statistics included in client reporting 57% 57% 39% 39% 43% 39% 25% 25% 7% 7% 32% 29% % 0% 32% 25% 21% 21% 18% 11% 0% Volatility of returns over time Tracking error Sharpe Ratio Treynor Ratio Information Ratio Value-at-Risk Other Standard reporting ex ante Standard reporting ex post Customised Reporting ex ante Customised Reporting ex post Source: PricewaterhouseCoopers 2006 Swiss Survey on Client Investment Reporting PricewaterhouseCoopers Page 17

18 Typical frequency of client reporting 68% 46% 36% 1 Monthly Quarterly Semi-annually Annually Other Source: PricewaterhouseCoopers 2006 Swiss Survey on Client Investment Reporting PricewaterhouseCoopers Page 18

19 The form / medium of client reporting 96% 61% 32% 7% Online Paper Form Other Source: PricewaterhouseCoopers 2006 Swiss Survey on Client Investment Reporting PricewaterhouseCoopers Page 19

20 Outsourcing Source: PricewaterhouseCoopers 2006 Global Investment Management Survey (i) Now (ii) In 3 years time Investor administration and servicing Investment operations Fund accounting Client reporting Custody Legal HR Tax Finance IT Internal audit & compliance % % PricewaterhouseCoopers In house Now outsource Off shore Page 20

21 Content Trends and issues in the client investment reporting area Self-regulation of client investment reporting PricewaterhouseCoopers Page 21

22 Self-regulation of client investment reporting Investment reporting: increasing regulations UCITS III MiFID Legal regulations SFA Guidance on the presentation of the mutual fund performance EFAMA Model Simplified Prospectus EFAMA Model of Good Reporting for Investors CFAI Asset Manager Code of Professional Conduct EVCA Reporting Guidelines EIPC Guidance for Recipients of Investment Reporting ASIP Recommendations for Efficient Management of Pension Fund Assets Global Investment Performance Standards (GIPS) etc. Self-regulations PricewaterhouseCoopers Page 22

23 Self-regulation of client investment reporting Why self-regulation guidance on client reporting? Educate clients and proactively steer their expectations Build a basis for a possible best practice reporting standard Anticipate future regulations Elevate the reporting to the core instrument of a comprehensive dialog between the manager and the client Address investor needs Anticipate regulations PricewaterhouseCoopers Page 23

24 Self-regulation of client investment reporting RIPS EMEA self-regulation initiatives RIPS EMEA (former European Investment Performance Committee): A regional subcommittee of the GIPS Council Represents the European interests in the GIPS development process Enables the participating countries to promote and implement investment performance standards Launches industry initiatives to enhance the investment performance reporting framework Representatives from 24 European countries + representatives from pension funds, EFFAS, CFA Institute, EFAMA. PricewaterhouseCoopers Page 24

25 Self-regulation of client investment reporting RIPS EMEA Client Reporting Guidance Target audience: Institutional clients and high-net-worth individuals Format Questionnaire No segregation in requirements and recommendations Scope: The Guidance applies to investment reporting for existing clients The Guidance is regarded as an educational paper for investors / clients The Guidance is not considered as a formal part of GIPS. However, the Guidance refers to GIPS as one of the sources for investment reporting PricewaterhouseCoopers Page 25

26 Self-regulation of client investment reporting Best Practice Principles for Investment Reporting Adherence to ethical standards Reporting philosophy should be identifiable and transparent Reporting should take into account the type of client Reporting should present a true and fair picture Reporting should be timely and accurate Reporting should take into consideration the applicable legal requirements Correct Timely Relevant Transparent Investment Reporting Accessible Detailed Low- Compliant cost PricewaterhouseCoopers Page 26

27 Self-regulation of client investment reporting Client Reporting Guidance: areas covered The questionnaire covers the following areas: 1) Investment process and portfolio strategy 2) Underlying portfolio input data 3) Performance reporting 4) Costs of investment management 5) Compliance with investment guidelines and regulations 6) Risk management process 7) Third-party examination The Guidance was approved by RIPS EMEA in June 2006 and will be officially released soon. The final draft of the Guidance is available on: PricewaterhouseCoopers Page 27

28 Questions? Dimitri Senik, CFA PricewaterhouseCoopers Tel.: dimitri.senik@ch.pwc.com Internet: PricewaterhouseCoopers. All rights reserved. PricewaterhouseCoopers refers to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.