Thought Papers

Location, Location, Location

Does It Matter When Choosing an Asset Manager for Your Organization?

Special note to our readers:

At Balentine, we have always believed in supporting local businesses and communities whenever possible, whether in our commercial endeavors or our longstanding philanthropic activities. In fact, we created this content just before the COVID-19 pandemic struck and chose to postpone its release temporarily while our clients, our team, and the world grappled with COVID’s initial impact on institutions, careers, and loved ones.

Now, as businesses, non-profits, executives, fiduciaries, and individuals begin to move beyond the initial shock and adjust to new ways of working and living—and as public discourse turns increasingly to the importance of supporting one another locally as a way to create community and mitigate risk—we believe the time is right to share this perspective on location and what it means when choosing asset managers for your organization.

As a trustee, you’re tasked with using thorough due diligence to pick the best manager to steward your organization’s financial assets. In times of crisis, this responsibility becomes even more important.

Understandably, your first consideration is performance track record. That is likely followed quickly by other pillars of due diligence, such as the asset manager’s history, the repeatability of their investment philosophy and process, and the stability of the firm as evidenced by turnover or by leadership’s ability to articulate a clear succession plan.

Another less obvious but still important question trustees often ask us is whether the location of the asset manager really matters. Trustees understandably wonder if, by choosing a local manager, they might get lower returns, miss out on specialized knowledge, or receive a lower level of client service relative to managers in a different city or metro area.

While not a typical pillar of due diligence, location is indeed worth considering. But perhaps not for the reasons you might expect.

First, let’s consider why location is even a question in the digital, connected era. In the world of asset management—particularly for institutions—we encounter many trustees who assume asset managers in cities such as New York, Boston, Chicago, San Francisco, and Los Angeles perform better for clients due to their location in or near big financial centers. Even as the world has flattened exponentially and financial markets have become digitally interconnected to an unprecedented degree, this idea has been perpetuated by some asset managers who try to tie the cache of certain cities to performance on behalf of clients.

It’s a common and understandable myth and misconception, driven in part by the fact that large financial centers do offer some legitimate economies of scope through integration with leading universities and large numbers of investment professionals living in the immediate area.

The reality based on data: location doesn’t mean you have to compromise performance

Our team members (made up of experts from around the nation), along with many of our clients who also span the U.S., have long known that the location of asset managers has little or nothing to do with performance.

In fact, we recently examined statistics on more than 15,000 products and 2,000 asset managers. The data, drawn from eVestment, a global leader in research on institutional investing, shows that the performance of managers in cities like New York, Chicago, San Francisco, and Los Angeles tends to be only average. Not only are their returns average, they’re no better than managers located in Georgia.

Tangible and intangible benefits of working with local asset managers

The potential for greater accessibility and transparency

Choosing asset managers close to your organization’s headquarters can make it easier to visit in person, get valuable face time with experts and senior executives at the firm, and get to know the firm culture and ethos on a deeper level. This can give you a uniquely direct view into their people, decision tools, and ways of working, enabling you to make a more informed decision about whether to hire them or not.

More importantly, it lets the asset manager get to know your organization.

“This gives an asset manager a chance to get to know your goals and your people on a deeper level, which can help them align their investment strategy with your policies, organizational/business strategy, and culture,” explains Ben Webb, Director of Manager Selection and Implementation at Balentine. He adds this can be particularly useful should burning questions or, more rarely, problems arise which need to be discussed quickly or face to face.

If the asset manager also happens to be a smaller or mid-sized shop, proximity may afford you a level of access to their staff you simply can’t get with an enormous global firm or one that’s much farther away.

What if the firm isn’t interested in making time to meet with you in person and allowing you to tour their offices? Even if their performance is outstanding, we consider this a red flag in terms of the priority they may place on building client relationships. Thus, we would urge any client to think carefully about entrusting them with investments.

The combined value of cost-effective service delivery and world-class expertise

When you choose to work with a local asset manager, it can reduce overhead and administrative costs such as air and other travel expenses, which may otherwise be billed to you or funded by the management fees charged to your organization. This allows fees you do pay to be reinvested in more meaningful ways such as new technology or leading talent which are then applied on your behalf.

Local managers with a strong culture and solid reputation in the industry can successfully attract and retain world-class talent. For instance, Balentine is honored to be a recipient of Pensions & Investments‘ “Best Places to Work in Money Management” award for five consecutive years. “Balentine not only brings in strong talent, we also retain that talent over time. This creates a vital continuity in our client relationships,” explains Balentine CEO and Chief Investment Officer Adrian Cronje.

Opportunity to support the local economy and nearby communities

In the era of conscious capitalism and socially responsible investing, working with a local asset manager can allow your organization an opportunity to create a positive impact on the local community. And if your mission is to better the lives of local constituents, this lets you take that mission even one step further. Local managers are giving back locally in the form of state and local taxes, meaning their tax dollars go directly back into the communities where your constituents and stakeholders live and work.

Additionally, local asset managers often contribute time and resources to local charities and causes, both at a firm and individual level.

For Balentine, these causes and contributions take many forms. Since our founding, we have been privileged to contribute to and support numerous local causes, ranging from the arts to charities that deliver meals to the home-bound to organizations that fight youth homelessness and foster financial literacy. At an individual level, our employees routinely give time and resources to local causes such as nature conservation, youth development and sports, and autism research. Many have even founded local charities—such as one that teaches inner-city youth to play squash at a newly dedicated facility—and serve on nearby non-profit and university boards.

And as the impact of the COVID pandemic has begun to reveal itself, we have furthered our efforts to support our local community by purchasing from local businesses wherever possible. Additionally, Balentine employees received gift cards they could use to support local businesses of their choice. We have also gladly provided pro bono advice to local non-profits to help them navigate the Payroll Protection Program and secure millions of dollars in vital funding, and our team has supported charities and businesses whose missions have particularly high impact during the pandemic. As always, we believe that by thinking globally and acting locally we can overcome this crisis together and emerge with an even deeper, fuller sense of community.

As you evaluate managers, be sure to weigh locale along with other aspects of due diligence

Choosing to entrust your asset management to a local partner can give you the best of all worlds: performance and expertise delivered by a local, hands-on team. Perhaps you’ve already experienced this reality, whether you work with Balentine or another respected firm local to you.

But if you’re neutral, undecided, or even skeptical, we urge you to scan your metro area and meet with local asset management teams in person. Adding this dimension to your due diligence process can help you see firsthand the difference a local partner can make in the performance of your portfolio. More importantly, it can enhance your ability to support the broader mission of your organization and the needs of your stakeholders and investors that lie beyond mere returns alone.

Lastly, we realize there may be times when investment managers are quite similar in terms of brand reputation, offerings, or numeric performance. We know from experience this may leave your team unsure of which partner to choose. All other things being seemingly equal, we find that locale can be an ideal, objective way to tip the scale as you make a final decision.

Contact Us

Looking for guidance managing your wealth? Balentine is committed to providing the education and advice our clients need to realize their goals.