The aggregation solution to the FCA interim report
The recent FCA interim report on its market study of the asset management industry has sent vast reverberations through the fund research and investment consulting industry. For the first time fund rating agencies, DC consultants and centralised fund selection teams will be scrutinised on their processes, objectivity, approach to buying passive funds, business alignment and fund governance.
The premise of the study is that poor levels of competition within asset management exist and that one factor may be issues relating to the recommendation of fund managers. Tucked into Chapter 8 the indications from the FCA document should be a matter of concern for all professional fund investors.
“Based on our analysis, on average investment consultants are not able to identify managers that outperform compared to non-highly rated managers.” p151, Ch8, ‘Asset Management Market Study‘.
The changing regulatory landscape is putting increasing pressure on professional fund investors and consultants. There is no reason that fund research cannot be a mechanism of aggregation and work more as a community. Working as a community can identify better fund managers by sharing insights. It can help the fund research community work together, demonstrate value and identify better fund managers by sharing insights.
SharingAlpha is the first and only collective fund rating platform (globally) that provides fund buyers the opportunity to track their performance independently and share insights. Adam Smith’s ‘invisible hand’ explained how aggregation allows competition and adds value, and fund buyers can provide evidence to address the ever steepening compliance journey.
All fund selectors and investment advisors claim that they have a way of helping investors either with selecting winning funds or with deciding on the best mix between them, however none of them are able to prove that it’s worth while listening to them. SharingAlpha allows these market professionals to present a clear and measurable track record turning the task of selecting an advisor to a much more transparent and clear process.
By sharing best fund ideas and research with other fund buyers and tracking the performance of fund selection through independent verification we strongly believe that the fund selection market will correct itself in a better fashion than any regulatory intervention might achieve.
The following table compares between the approach offered by SharingAlpha and the traditional approach:
|Don’t decide which funds are rated||Potential conflict of interest (‘Pay to play‘ model)|
|Leverages on ‘wisdom of the crowds’||Analysis based on one single Fund Analyst|
|Analysts are able to use common scene||Rating agencies mainly use quant past performance analysis that does not work|
|Potential to highlight emerging managers (less than 3Y track record and relatively low AUM)||Qualitative analysis focuses on limited number of funds and institutions end up with very similar buy list|
|Warns investors on funds that are expected to underperform||Don’t cover funds to avoid|
|Rating verses passive alternative||Many use irrelevant peer grouping|
|Sharing of private information||No sharing of private information|
|Ranking of the raters!||No ranking of the raters|
Oren Kaplan is CEO and co-Founder, SharingAlpha
SharingAlpha, a user generated fund ratings and model portfolios platform, has become the world’s largest fund rating agency in terms of the number of fund analysts contributing to its ratings.
SharingAlpha rates funds based on the average rating provided by fund selectors worldwide. Apart from being able to create a better fund rating, SharingAlpha is also able to rank the individual raters in terms of their talent in selecting funds.
Their fund selection track record enables the raters to test their analysis, and if they choose the raters are able to present their proven track record to existing and potential clients.
Based on the above, SharingAlpha publishes a list of both top rated funds and top ranked Fund Selectors. An additional feature enables investment advisers to build virtual funds of funds and in turn SharingAlpha ranks them based on their performance not only as fund selectors but also as asset allocators.
The use of the website is totally free and covers over 100,000 funds listed in 110 different countries.