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How big is the universe?

Author: Tom Wiseman, Managing Director, Enhance London

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There are several hundred Discretionary Fund Managers (DFMs) serving the UK fiduciary community. If this is extrapolated to other jurisdictions where the use of Trust structures is widespread then one can reasonably expect the number of relevant DFMs to multiply. How then can any Investment Consultant, let alone a Trustee, hope to rationalise this ever-growing universe and ensure that the advice they provide to clients on manager selection is truly ‘whole of market’?

This is a problem for which there is no practical solution. DFMs are complex entities with portfolio products that, unlike Mutual Funds, are not publicly traded and so there are simply too many in the market for any individual or firm to track comprehensively. Unfortunately, fee levels simply do not support research of this scale. However, there are some helpful independent peer group studies that offer respectable market coverage such as STEP Trustee Managed Portfolio Indices (TMPI) and ARC PCI

Such studies are funded by participating DFMs through annual subscription fees to provide the fiduciary community with a common platform for their due diligence. In many respects it is a marketing levy on DFMs – those that pay to participate achieve greater visibility with their client demographic and implicitly gain credibility for their commitment to industry transparency. The consultancy firms behind these studies are remunerated for their intellectual capital and the infrastructure required to provide the service.

Enhance Group powers one of these peer group studies, STEP TMPI. This is a free STEP member service with a universe of over 40 DFMs that submit real client portfolio data across three core risk profiles and several base currencies. Manager subscription fees are tiered to be as inclusive of the DFM community as possible with its study output and related tools such as the TMPI Focus List provided to STEP members for free. It is proving to be a very efficient conduit between DFMs and Trustees and is a helpful source of revenue to an important fiduciary governing body.

Like fiduciaries generally, Investment Consultants often refer to such studies as part of their ongoing manager research process and Enhance in London is no different in this regard. However, it is important to note that the TMPI universe is not representative of the broader universe of DFMs that we research to select our approved managers for consultancy clients.

Our ‘approved list’ for consultancy is an independent matrix of managers that we have identified from a far broader sample of DFMs, amassed over our 11-year history in the oversight industry. Our monitoring business provides a richer pool of DFMs for us to review, with real client data now received from over 700 investment offices worldwide. Performance is one of the four headline criteria we assess against DFMs, so receiving so much real client data through our reporting client base is an excellent way for us to identify outperforming DFMs for further due diligence.

We rely on our industry experience in senior investment management and research functions to quantitatively and qualitatively assess DFMs against other criteria: process, people and price. We do this through due diligence questionnaires, onsite manager visits and the use of third-party databases and analytical systems. Our approved manager matrix is our intellectual capital and this can only be accessed by our consultancy clients. Approval is not bought, it is earned by the DFMs we select and we stake our reputation on our manager selection prowess.

Our consultancy fees are paid solely by our clients, therefore it is in our interest to select and monitor the best possible DFMs on our client’s behalf. This cannot possibly be achieved through the TMPI universe alone because the market coverage is too thin, although it would be disingenuous to say that such studies are not useful industry proxies or that they could exist without a manager subscription model.

As long as appropriate measures are carried out, such as the Chinese Walls and additional independent research that we undertake at Enhance, clients can rest assured that they are getting and uniquely informed advice for their fees.

For more information about our manager selection process please refer to: http://www.enhancegroup.co.uk/our-process

The Evolution of an Index: TMPI

Author: James Painter, CEO, Enhance Jersey

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The recent Trustee Managed Portfolio Indices (TMPI) Practitioners Group Meeting was a fantastic opportunity for our Group members to celebrate the achievements of TMPI so far! As the Practitioners Group’s primary function is to ensure that TMPI remains relevant to STEP members, and because we always aim to keep our members informed, I felt it appropriate to reflect on TMPI’s evolution since the launch in 2012 and the future innovations of the service which were discussed at the meeting.

Reflecting on TMPI

Working closely with STEP, TMPI was formed with a clear vision of filling an essential gap in the market. Whilst traditional benchmarks have been widely used historically, it became more and more apparent to us that there was a high demand for a performance reference point. With the STEP readership in mind, we worked alongside STEP to build TMPI for trustees and those working in a fiduciary capacity whose primary focus and concern is based on risk.

Existing indices are often produced from an investment manager’s perspective, but they don’t reflect the true needs and interests of the investors. TMPI reports are designed as a reference point for comparison, providing information on how the peer group indices have performed and the level of volatility they have exhibited. Additionally, individual manager reports are provided to subscribing managers allowing further discussion on positioning, performance and the risk taken relative to the peer group. Together, these reports are beneficial to all parties involved, providing independent and demonstrable confirmation of a manager’s performance and ability, as well as high level insights for trustees that can help to inform and act in the best interests of their clients.

Simplicity and understanding was a key focus for us at the beginning of the project and remains at the heart of TMPI today. One of our core thought-processes was to bridge the gaps in knowledge to create a mutual understanding of information between trustee and investment manager, so how we presented information was a huge consideration.

Working closely with STEP we found an ideal way to communicate investment risk, settling on the low, medium and high risk profiles as standard terminology to encourage better communication between investment managers and the STEP community.

The introduction of the TMPI Focus List in 2015 expanded and streamlined the TMPI user experience by allowing Trustees to monitor the performance of their chosen selection of investment managers. This bespoke quarterly report outlines manager performance and risk statistics, allowing users to quickly manage and assess critical data for their selected managers.

The TMPI website received over 33,000 hits with over 4000 unique visits each quarter. Having launched the service in 2012 with just 17 founding members, the trustee managed portfolio indices now comprise over 45 subscribing investment managers.

The Future of TMPI

Feedback is essential to the evolution of TMPI. We are constantly reviewing to improve and expand our services so our users can utilise the tool to its full potential.

Because education is so crucial to TMPI, this will be a core focus for us. Our aim is to continue to grow the level of mutual understanding between trustees and investment managers by holding educational seminars and focusing on areas such as of terminology, statistics and case studies for real life application. These sessions will also allow an open forum for feedback that enable us to make future updates to better address our users’ needs.

Enhance’s own expansion to far reaching parts of the globe including Singapore, Cayman and London, has highlighted the nuances in investing between our jurisdictions through differences in portfolio construction, stock selection and risk. Our expansion identified a need for TMPI to evolve and this year TMPI expanded the indices to the Caribbean and Asian regions – a positive step towards addressing the key differences in regional investing! TMPI is constantly evolving and we have several exciting developments in the pipeline that will see our service become the global market leader of peer group indices.

Trustee Managed Portfolio Indices now available through Morningstar Direct

James-Painter

The Trustee Managed Portfolio Indices (TMPI), provided by Enhance as a STEP member service, are now available through Morningstar Direct, the cloud-based investment analysis platform from Morningstar Inc., (NASDAQ: MORN), a leading provider of independent investment research.

The Trustee Managed Portfolio Indices aim to bring about transparency and understanding between trustees and discretionary investment management professionals with regards to understanding investment risk and returns. Acting as a benchmark for portfolio performance, the indices are issued quarterly through STEP as a free STEP member service.

Through Morningstar Direct, investors can access the full suite of TMPI returns for low-, medium-, and high-risk portfolios denominated in each of GBP, EUR and USD currency, and can download historical and current index performances.

James Painter, CEO of Enhance, commented:

“At Enhance we are proud to provide the TMPI service, which has proven to be a resource that is truly world-class. With the new availability of the indices on leading investment analysis platform Morningstar Direct, we are pleased to see TMPI take its place alongside the other major global indices. By accessing TMPI through Morningstar Direct, investors can make further use of technology to gain a clear view of their portfolio’s performance across all risk groups.

STEP Announces Launch of New TMPI Regional Indices

James-Painter

STEP is pleased to announce an expansion of its member service, the Trustee Managed Portfolio Indices (TMPI), with the launch of regional indices.

The new indices, produced by Enhance Group Limited, will provide STEP members with an understanding of the level of investment performance that they should expect for portfolios managed from a particular region. In the first instance, the new indices launched will be Asia USD and Caribbean USD.

Enhance CEO James Painter commented: ‘STEP’s membership is global in nature, so it is essential that we continue to evolve this important service to meet their members’ needs. From working with practitioners in these regions, we became aware that regional differences in the management of portfolios can be acute, so the indices we provide needed to reflect that reality. We are pleased to be able to evolve the service offering with a solution to this requirement.’

STEP Chief Executive David Harvey commented: ‘TMPI has proved itself a popular member service, so we are delighted to see a further service enhancement that reflects the global nature of our membership.’

The TMPI web portal providing in-depth service information is available at www.trusteempi.com

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