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Mutual Fund Sub-Advisor Oversight Requires a Data-Centric Approach

Mutual Fund Sub-Advisor Oversight Requires a Data-Centric Approach

The relationship between a mutual fund company and its mutual fund sub-advisor is an important one. These trusted partners are relied upon for their expertise in managing strategies and products critical to the success of a fund company.

The advantages of subadvisor relationships are well established. They allow fund companies to bring best-of-breed management to custom strategies and/or bring new strategies to the market relatively quickly. They are also more prevalent today than ever before. Today, assets in sub-advised mutual funds have grown to more than $4 trillion, representing nearly a quarter of the $17.7 trillion mutual fund industry.

Subadvisory relationships, like any third party partnership in financial services, require extensive documentation – from details on the duration of the agreement, to fund expense management, to fees paid to the subadvisor, just to name a few. Regardless of whether a fund company works with one subadvisor or many, the volume of information and its complexity requires a robust oversight system.

Unfortunately, fund companies often turn to the trusty excel spreadsheet or industry-agnostic Customer Relationship Management (CRM) systems to manage these relationships. Whether it’s incessantly updating and uploading a spreadsheet or navigating a CRM system that necessitates numerous custom workarounds to meet the complex, specific requirements for effective oversight, the fund company wastes precious resources. It’s a classic “square peg, round hole” scenario.

Recent announcements from fund companies that have parted ways with longstanding subadvisors have cast oversight issues into the spotlight, pushing firms to reevaluate their process and staffing. Just last month I came across a job posting from a top-five asset manager looking for an AVP for “Subadvisor Oversight and Operational Due Diligence.” Such a specific title suggests to me that the industry has a renewed appreciation for the role that oversight plays in the overall success of a firm.

Although it’s often dismissed as a necessary operational headache, implementing an efficient oversight management program rooted in good data management can improve subadvisor relationships and make them more productive in a couple of meaningful ways.

Onboarding sets the tone for a successful subadvisor relationship

First impressions are important. As noted, one of the key advantages offered by a subadvisor is speed to market with a new strategy. In order to fully realize this key benefit, the onboarding needs to be straightforward, efficient, and transparent. Lack of structure and manual onboarding processes are a direct hindrance to achieving this.

Timely due diligence ensures accountability

The backbone of the subadvisor relationship is due diligence that holds both parties accountable. A diligent fund company will complete regular reviews of its subadvisor relationships to ensure that they are fulfilling their agreements and aligning with the direction of the firm as it changes over time.

The data-centric way to better subadvisor oversight

Fortunately, technology today is more than capable of ensuring a smooth onboarding process that sets both parties up for success. For example, at Delta Data, we’ve helped clients implement a data-centric infrastructure to solve these pain points. We built our centralized portal with the necessary inputs and governance to guarantee the relevant data is collected and stored from the beginning of a subadvisor relationship. The portal is synced to a calendar that automates notifications for oversight reviews and other events related to the relationship, reducing time spent reporting to just a few clicks. With a data-centric approach, you won’t have to waste time with spreadsheets or messy exports from a CRM that wasn’t built for managing such relationships.

Subadvisor oversight used to be an operational headache. Today, by embracing new technology, there is a way forward for fund companies to make subadvisor oversight work for them.

Contact us to learn more about our work helping clients implement a data-centric subadvisor oversight program.

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Jason Davenport is VP of Products at Delta Data.  His role consists of leading the strategic direction of our Asset Management suite of products.

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