Institutional investors are more or less constantly evaluating the asset management firms with which they partner, according to a new global survey (“Patience in Investing”1) of institutional allocators. In fact, nearly half of institutional allocators evaluate managers on a quarterly basis, and less than 5% perform such reviews less frequently than once per year, according to the study.
While institutional allocators have a fair amount of patience with underperforming managers, according to the study, underperformance is the top reason asset management firms are terminated. Those terminations trigger a transition period as institutional allocators consider the merits of replacement managers – a lengthy process that requires thorough due diligence. Of course, performance isn’t the only reason that investors move assets – a change in asset allocation or goals may lead to changes in asset managers or investment strategies, too.
During such critical and sometimes lengthy periods of transition management, allocators typically don’t want to just sit on cash. As a result, according to a separate study conducted by Institutional Investor (“Managing Market Volatility in 2021”) 70%2 of institutional asset owners turn to ETFs as a solution.
“We use ETFs to increase our exposure during the time it takes for us to identify, vet, select, and implement a manager. An ETF provides us with the opportunity to buy something and get our beta exposure right away,” said a deputy CIO at a university endowment who was interviewed in the course of the survey.
Other investors find ETFs help make the transition process more seamless.
“Often, if you sell out of a manager and go to cash or some other transitional vehicle, there’s a lot of risk. When you park it in an ETF, it helps to minimize performance drag and it’s a very smooth transition from an asset class perspective,” said a portfolio manager interviewed for the Institutional Investor survey.
In short, institutional asset owners recognize the need to put money to work during periods of manager transition, and ever-versatile ETFs are among the primary tools for doing so.
1 “Patience in Investing,” Amit Goyal, Ramon Tol, Sunil Wahal, Institutional Investor, October 2021
2 N=762
FOR U.S. INSTITUTIONAL INVESTOR USE ONLY.
Carefully consider the Funds’ investment objectives, risk factors, and charges and expenses before investing. This and other information can be found in the Funds’ prospectuses or, if available, the summary prospectuses which may be obtained by visiting www.iShares.com or www.blackrock.com. Read the prospectus carefully before investing.
Investing involves risk, including possible loss of principal.
Funds that concentrate investments in specific industries, sectors, markets or asset classes may underperform or be more volatile than other industries, sectors, markets or asset classes and the general securities market. Transactions in shares of ETFs may result in brokerage commissions and will generate tax consequences. All regulated investment companies are obliged to distribute portfolio gains to shareholders. There can be no assurance that an active trading market for shares of an ETF will develop or be maintained.
This information should not be relied upon as research, investment advice, or a recommendation regarding any products, strategies, or any security in particular. This material is strictly for illustrative, educational, or informational purposes and is subject to change.
The study was sponsored by BlackRock. BlackRock is not affiliated with Institutional Investor or any of their affiliates.
Prepared by BlackRock Investments, LLC, member FINRA.
iSHARES and BLACKROCK are trademarks of BlackRock, Inc., or its subsidiaries in the United States and elsewhere. All other marks are the property of their respective owners.
iCRMH0222U/S-2004471
