Process and relationship remain key gatekeeper concerns

The Citywire survey of the leading selectors of private client fund managers reveals that by far and away the most important factor in any decision is the strength of the relationship.

The survey encompasses 41 heads of investment management selection from a wide range of private client lawyers, trust firms, accountants and pension consultants.

Despite the quite different natures of their clients at times, the gatekeepers interviewed displayed a reasonably strong degree of consistency in their answers with more than half, or 21, placing most emphasis on the relationship and scoring it five on a sliding scale of one to five, where five is the most important and one the least.

Indeed, the average score for the importance of the relationship was 4.07, notably ahead of all other considerations, such as past performance, reporting, size of firm and strength of process.

Andrew Penman, a director in the private client tax services team at Smith & Williamson, says: ‘Investment managers must demonstrate their ability to work effectively with the client. Personality is incredibly important and I put personality matching as my top priority. I like people who gel with my clients and show willing to spend time nurturing relationships.’

Breaking down the data further reveals that private client lawyers placed the most emphasis on the relationship, scoring it 4.53 on average, much higher than pension consultants who are perhaps more happy with arms-length dealings as they only ranked it 3.28 on average. Trust managers also ranked it highly at 4.2, while accountants were somewhere in between at 3.66.

But it was a top two consideration for all types of gatekeeper and can admittedly involve a significant amount of time and effort for both parties, particularly given the multiple relationships most have in place. In fact, almost two thirds of the gatekeepers, or 63.64%, place business with seven or more discretionary managers. Of the remainder, more than a quarter, or 27.27%, select from a panel of four to six fund managers, with just 9.1% only using between one and three firms.

When it comes to the private client managers they place most business with, there is a wide spread, ranging from investment banks, including Goldman Sachs and UBS, to fund manager-backed operations, BlackRock, Newton, Legg Mason and Barings. Of the purely discretionary managers, Ruffer, Brooks Macdonald and Quilter are all highlighted, along with Thurleigh and Rensburg Sheppards, which gets the
nod most often.

In terms of investment performance over the past three years, however, Ruffer emerges as the clear frontrunner, selected by 20% of the gatekeepers. Rensburg Sheppards and Newton were both named by 13.33% of respondents. A raft of firms, including Barings, BlackRock, Rathbones, Thornhill, J O Hambro and Quilter, with Smith & Willamson and Goldman Sachs, also gained a share of the plaudits, sharing just over 6% of the vote each.

Performance is key but just how those returns are delivered and their repeatability are at least as important. However, the strength of a private client manager’s investment process is perhaps the most divisive factor among the gatekeepers surveyed. For pensions consultants this is paramount, with each one scoring it the maximum five out of five. Overall, however, it ranked as the second most important factor, averaging 3.8, although lawyers only saw it as the fourth biggest influence on the decision, rating it 3.13. For accountants it was joint second, with relationship at 3.66, while trust managers also top-rated it at 4.3.