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    Shining a Light on Shadow SearchesWhat Managers Can Do to Succeed

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    In the past few years, there has been a significant shift in how institutional investors and consultants are approaching manager selection and research. Open calls for RFPs are becoming less common as consultants and investors are using databases to pre-screen managers, create shortlists and invite only a select group to participate in the RFP or finals process.

    Asset managers may not even realize this process is happening behind the scenes until they are notified they are being considered for a mandate or find out they missed one. This practice has been referred to in the media as a shadow search. While the traditional RFP process is unlikely to disappear anytime soon, using databases to create initial shortlists of managers is undoubtedly on the rise. On the eVestment database alone, screens are up more than 500% since 2012.

    Its a system everyone should be using. Its a walking RFP, said Chris Kamykowski, Senior Vice President at Summit Strategies Group during a recent FundFire Consultant Roundtable.1 Managers are starting to understand that shadow searches are happening more often than in the past. There are going to be situations where youre a winner or in a finals without even knowing you were in a search.

    The sheer amount of information available to investors and consultants through databases has skyrocketed in recent years. To put this vast amount of data into context, in 2015, eVestment had more than 1.3 million reviews of 60 million data points across over 50,000 products and 2,500 product characteristics. The buyer can be in the drivers seat, said Janie Kass, Managing Director at consulting firm Margolis/Kass Advisors in a recent FundFire article.2 As long as the buyer has knowledge, they really dont need as many people responding to an RFP. Its just creating extra work.

    In this paper, we will walk through an example from the eVestment platform of how a shadow search is conducted. Well also discuss some of the trends were seeing in screening activity, and how managers can use this information to position themselves for success.


    Managers are starting to understand that shadow searches are happening more often than in the past. Chris KamykowskiSenior Vice President, Summit Strategies Group

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    According to a recent Cerulli report, the vast majority (81%) of consultants polled have an approved list from which they select managers. Others start each manager search from a broad universe and screen on client-specific parameters.3 Most established consultants have dedicated resources to deploy toward each part of the consulting process and manager research teams can consist of up to hundreds of analysts. At most firms, client-facing consultants work almost exclusively from recommended lists defined by this manager research group. Any individual consultant handles dozens of new or replacement mandate searches per year. Crucial searches take place every quarter in every asset class as consultants refresh and review their recommended lists.

    Because we track the activity of investors and consultants on the eVestment platform, we are able to see in aggregate how this process plays out in real-life. We also reached out to research analysts from a variety of our consultant client firms to get a better understanding of how they are using databases to narrow down managers.

    What is a universe?

    A universe is a set of products that are grouped together by asset class and investment style. Universes can be further refined by characteristics, allocations, preferred benchmark, narratives and performance.

    How Consultants Are Using Databases

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    Consultants who are looking to evaluate a manager would start with a broad group. In the example below, an analyst looking for a Large Cap Growth strategy would begin by running a screen on all US Equity managers. The goal would be to initially narrow down the list of over 3,000 to a workable number (in this case, 86). The filters that we selected are among the most common run by our consultant and investor clients. Research analysts we interviewed also mentioned they frequently filter on factors such as inception date, fee information and preferred benchmark.

    Example of a Shadow Search on eVestment

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    From the narrowed down list of asset managers, the analyst would then research many more statistics allowing them to rank managers. Common statistics we have seen and that the research analysts we interviewed use include: Upside/Downside Capture, 1-year, 3-year, and 5-year performance statistics, information ratio, current number of holdings, active share and AUM.

    Further Analysis

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    At this point in the process, the sales and marketing efforts of investment managers can play a very large role. What is the perception of your firm? What do investors and consultants think when they see your firms name on their screen? Have you had success in another area, but are not known for this type of product? Has your performance lagged recently, but you have a reputation that your product will protect in down-markets? These types of subjective criteria can certainly be a factor in marketing success.

    Asset Class


    Firm AUM

    Product AUM

    Firm Ownership

    Vehicle Availability

    Derivatives & ESG

    Product Personnel





    Relative to Peers



    Increasingly Common Screening Sequence

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    Managers may be surprised to learn that while performance is always an important factor in manager selection, it is not the top criteria for initial screens. In fact, performance screens are down by half since 2013. In 2015, only 15% of initial screens were for performance and 5.61% of screens were for AUM information. This means that 79.4% of screens were for other data points.

    For instance, ESG is a data point increasing in popularity, as seen in the list at left. Request of ESG information continues to grow with databases adding or expanding requests for this information. From January 2014 to September 2015, screens for ESG related fields increased 312% on the eVestment database. Mercer also asks several ESG-related questions on its questionnaire. Cambridge Associates was the most recent consultant to add ESG-related fields to its questionnaire in Q4 2015.

    Several consultants issue custom questionnaires in addition to the data available in databases like eVestment and expect these forms to be filled out regularly. Much of this process is quantitative in nature as statistics are calculated on a rolling basis, risk and return is assessed, and changes in assets are studied. However, the consultants we work with pay close attention to qualitative measures as well. Has there been Portfolio Manager/Analyst turnover? Is a firm GIPS compliant/audited?

    The screening process is becoming much more robust, said Jonathan Doolan, Director at Casey Quirk in a recent FundFire article.4 He said investors and consultants are looking at the quality of the team, the depth of the team, the pedigree of the team. Many databases require detailed staff breakdowns, including total, gained and lost investment and non-investment professionals as well as key departures.

    Investors are also wanting more detailed AUM breakouts. As a result, Mercer and CAMRADATA have added year-end asset breakdowns and eVestment has expanded the global asset breakdown by geographic region to include individual countries within the Europe ex-UK universe.

    Trends in Screening ActivityTop Data Points

    Screened in 2015

    1. Product AUM2. Product Managed with ESG Bias3. Total % Minority Owned4. Current Dividend Yield5. Minimum Account Size6. Current # of Holdings7. Preferred Benchmark8. Firm AUM9. Fossil Fuel Free10. Average Quality Issue11. Active Share12. EMD: Govt / Sovereigns13. Modified Duration14. Annual Turnover15. % Employee Owned16. Current Cash17. Total Institutional AUM18. 5 Yr. Performance Return

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    It is important to note that of the products that were screened out in our example, many were actually excluded because they failed to provide data. In fact, over 600 strategies were ruled out because they failed to provide current number of holdings. Managers that are not keeping their data up-to-date risk dropping out of shadow searches for which they may very well qualify.

    When a manager fails to include certain data or provides inaccurate data, it usually means immediate elimination from the pool of managers being considered for a mandate, Kamykowski said.1

    Addressing the Challenge

    Data PointTotal

    ScreensMissed Screens

    Percent Missed

    Total AUM 1,095,346 111,836 10.2%Total % Minority Owned 88,261 41,065 46.5%Current # of Holdings 77,243 18,815 24.4%Total Institutional AUM 43,214 8,125 18.8%Is product currently managed with a ESG investment bias? 35,470 18,805 53.0%

    Effective Duration (Yrs) 33,000 7,731 23.4%Secondary Equity Style Emphasis 32,193 15,733 48.9%% Employee Owned 28,621 4,083 14.3%Average Quality Issue 28,255 6,982 24.7%% Female Owned 22,842 11,557 50.6%

    These metrics were most screened on eVestment in Q4 2015, and had a high % of products fail due to missing data.

    Q4 2015 Missed Screens

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    Its valuable to update databases as soon as possible after quarter-end to ensure maximum inclusion in screens. Using the eVestment database as an example, firms who provide data 45 days after quarter-end miss out on 18% of the searches that have already happened during a quarter on average, as seen in the table below. We believe this trend would hold true across other database