Page 40 - Transforming To Stay Successful
P. 40
Did You Know? FORK IN THE ROAD
With the decision to invest more in illiquids — and the knowledge that
our costs would rise as a result — came a choice:
According to CEM KEEP OPERATING THE SAME WAY AS BEFORE,
Benchmarking, in-house asset RELYING ON FOR-PROFIT EXTERNAL MANAGERS
management on average saves
OR
22.1 basis points of net value
added compared to INTRODUCE A NEW MODEL THAT’S MORE
outsourced management. COST-EFFECTIVE IN THE LONG RUN
Spoiler alert… we went with option two.
In the past, we depended on external managers and deployed
capital through fund investments. While we could continue on this
way — relying on the opportunities they present, their expertise and
networks — it would ultimately not be in our clients’ best financial
interests over the long-term. External asset managers operate on
a for-profit basis, tend to be more short-term in outlook (unlike our
clients), and are driven by their profit margin. They’re also 300 to 700
per cent more expensive than internal managers!
So, as a way to gradually mitigate the rate of fee increase that’s
involved with illiquid assets, we will manage more assets in-house.
Flipped ahead to this section? We talk more about
what it means to be an internal asset manager, which
is strategy three of the business plan, on page 33.
At the end of day, our costs will go up as long as we’re allocating
more to illiquid assets, but since we’re managing more assets
in-house, they won’t go up as much as they could have.
40 COSTS MATTER
40
