January 31, 2022 | Bryan J. Dori, President/CEO
Investors today are more informed and socially engaged than ever before. Global ESG (environmental, social, and governmental) assets are on track to exceed $53 trillion by 2025, representing more than a third of the $140.5 trillion in projected total assets under management. Bridging the gap between doing good for the world and doing well financially, investors are increasingly looking for a personalized investing experience that aligns with their values.
Acknowledging this upward trajectory, manufacturers and distributors of investment products are allocating resources and prioritizing strategies that meet the demand for ESG products. Asset managers who recognize the opportunity and get it right will reap the rewards, including expanding their client base, reaching new audiences, and reinforcing their brand.
The challenge, however, is that pivoting from an existing product set to personalized products requires a change in thinking, different data sets, and new product structures. The task of effectively mobilizing and implementing ESG offerings all at once can be overwhelming. For long-term success, we suggest modifying existing strategies to create a tailored version of the product rather than launching brand new hyper-personalized ESG products. Here are four steps investment managers should take to meet investor needs.
Step 1: Let technology do the heavy lifting
In the past, delivering customized investing required a significant level of operational involvement. Now, technology like Archer’s makes it possible to create customized experiences with less day-to-day manual upkeep. With streamlined processes and less resources needed to maintain, managers are leveraging integrated technology to meet ESG preferences, or tax-optimization, through separately managed accounts or model portfolios, making these investments more accessible to investors.
Step 2: Use data, filters, and tilts to create different ESG versions of the core strategy
The quality and quantity of ESG data continues to improve as regulators around the world face pressures to address the lack of standardized data and definitions. An investment manager can take their core strategy and use filters, tilts, and themes (environmental, social, governmental, or a combination) that can then be selected by investors to overlay into their portfolio. Using filters enables managers to implement new versions of the core strategy with minimal input.
Step 3: Test for a balance of ESG and performance
While investors demand the ability for customization, they do not wish to sacrifice returns in the process. The right back testing can give managers and investors an idea of how an ESG overlay will impact returns, change the portfolio’s risk profile, and affect their overall investment strategy. Managers can take this a step further by creating dynamic reports and leveraging technology that allows the investor to see exactly how ESG overlays will impact these important factors.
Step 4: Don’t go it alone
Working with a technology provider who understands the markets, products, and potential challenges to look out for can help asset managers avoid unnecessary roadblocks.
Investment managers are wise to lean on the expertise of their technology partners to help implement and deliver the solutions that position them for long-term success versus capturing a short-term trend.
Demand for ESG has solidified its place in the market and will likely continue to be a driving force that shapes the investment landscape. With new products launching regularly and conversations happening between managers and investors about ESG nearly every day, investment managers are wise to leverage this shift and grow their business as effectively and efficiently as possible. At Archer, we’ve been helping investment managers incorporate an ESG offering for years.
Read the full White Paper, Meeting Investor Demand for ESG, to learn how to successfully tailor existing strategies for ESG and meet the changing needs of investors.
Bryan J. Dori
Bryan Dori, President and CEO of Archer, has guided the company to become an industry leader in operations, technology, and client service. Having spent his career building solutions that streamline every stage of the investment lifecycle, he has transformed Archer’s business by expanding the firm’s scope of services to help managers meet demand for increased customization. Under Bryan’s leadership, Archer was named 2020 winner of the WatersTechnology Best Outsourcing Provider to the Buy Side award and one of the Inc. 5000 fastest-growing private companies in the U.S. In 2021, Archer’s former private equity investor, NewSpring Capital, inducted Bryan into its CEO Hall of Fame. He is often quoted in the news media on financial trends and regularly blogs on Archer’s website.
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