TAKING THE REINS

• Transparency Understanding of how their assets are being invested, risks being managed and any potential reasons for the performance is critical to institutional investors, with ever greater importance being placed upon this as returns suffer and regulatory burdens increase. Asset managers must tailor their operations and reporting towards a more transparent and explanatory framework in order to keep institutional investors informed of their actions, leading to a long term sustainable relationship. The wealth of assets that institutional investors hold are integral to the survival of asset managers, andmay also hold the key to future growth of the industry should institutional investors trust strengthen and their willingness to delegate assets increase. In light of this we believe ongoing discussion and enhancement of the ideas conveyed in the PwC-CACEIS Assurance Model will lead to long term and sustainable success in the industry.

The Assurance Model gave rise to four key action areas that span the variety of responses which are as follows:

• Risk-based performance over fees Risk-based performance over fees describes the need for a more indicative fee structuringmodel that satisfies institutional investors demands for fees correlated to the performance of their investment. • Operational Strength Operational strength entails the need for a strong operational team with sufficient ability to meet any of the demands an institutional investor may have as well as the expertise to help shape institutional investor requirements.The importance of demonstrating operational strength is set to increase as investors are increasingly challenged regarding risk and reporting from a variety of sources. Strength is required in order to ultimately minimise overall risk of their invest- ments and ensure long term sustainable performance. • Governance Governance covers the requirements of institutional investors for a transparent and accountable asset manager, supported by independent verification of the asset managers themselves. In order to enhance their relationship with institutional investors, asset managers should ensure strong decision making processes and controls. The rising demand from institutional investors for increased governance and independent verification of controls and processes - especially in the alternative space - is being driven by the quest for objectivity, risk control and regulatory enforcement such as the AIFMD.

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