On a Clear Day

Date: September 12, 2011

Imagine this. You are an investment professional whose responsibilities include presenting and explaining performance to institutional clients, and you have just wrapped up a 15-minute presentation to the investment committee of an endowment fund. The committee members are reasonably knowledgeable and the portfolio’s return is acceptable. Your remarks covered the portfolio’s quarterly results compared to a valid benchmark; the economic and capital market environment over the measurement period; an attribution analysis intended to identify the major sources of value-added return; key portfolio and benchmark characteristics; and how the portfolio is now positioned in view of the relative attractiveness of economic sectors, industries, or issuers. The investment committee’s agenda allows for another 15 minutes of discussion.

Are there any questions?


It is possible, of course, that the quality of your firm’s reports and the clarity of your own explanations are so extraordinary that all conceivable questions have already been satisfactorily answered. But let’s consider some other possibilities.

The client reports are not conducive to dialogue because they contain too much strictly quantitative data – too many numbers. There are pages of digits. A few of the tables have numerically designated footnotes such as, “weighted average P/E excludes negative earnings” and “totals may not add due to rounding,” but that’s just about all the narrative provided. There are a few charts but they are busy and unattractive; one surmises that Microsoft Excel selected the data series’ colors.

Your presentation discouraged dialogue because it contained too much information. It was overwhelming. In addition, your highly professional demeanor and fluent use of terms such as “stochastic” and “optionality” might have made asking a question seem too risky, especially in the presence of other investment committee members.

These are not insoluble problems. Graphic designers might collaborate with performance analysts to improve the effectiveness of your firm’s client reporting. Colleagues might help you develop new ways to explain complex matters, and a speaking coach might guide you toward a style that conveys, not only self-assurance and expertise, but also a reassuring openness to questions.

Assuming no change in asset allocation, clients de-select managers because they lose confidence in them. Effective client reporting and communications do not guarantee that the manager will retain a client’s confidence; the manager may very well have deviated from the firm’s mandate or discipline. But, over time, ill-designed reports and poorly delivered explanations may damage relationships and erode trust. Client reporting and communications are so important, and they can go wrong so many ways, that this blog will undoubtedly return to these topics time and again, focusing, in the future, on how the middle office can help the firm get it right.

© Copyright Philip Lawton 2011. Used with permission

To learn more about 13f-2 watch our webinar replay Part 1: Unpacking the SEC's New Disclosure Rules for Shareholders
Join us for Part 2: Operationalizing the SEC's New Disclosure Rules, for Shareholders on December 12.