In my previous blog, I looked at the role of investment stewardship with a focus on environmental, social and governance (ESG) investing. The blog described how the asset management industry is increasingly leveraging investment stewardship to oversee their ESG products and investments. But the use of this function is not limited to ESG: I believe that in the years to come investment stewardship could become as core to the industry as client interaction and investment management.
By its very nature, the focus on investment stewardship for asset management firms is inherently tied to value generation for investors, to the investment management strategy, and to the overall brand strategy for a firm and its products. So why limit the use of the concept only to specific products or regions? Why not scale it to seek its full potential across the firm and help create additional value?
That raises however a key question: Where are the synergies with the current operating model, data, and technology infrastructures? According to our recent survey on investment stewardship in North America, 92% of the managers surveyed want to transform their stewardship approach in the coming years. As this happens, identifying synergies with what’s already in place would be essential.
Stewardship, influence and investment management
As with so many aspects of the industry today, any investment stewardship journey starts with data insights. In the future, data and AI could play a major role in stewardship. The key to success is making the right data easily available to asset managers—so they can seek to understand how different portfolio companies are addressing key areas, and then identify the appropriate opportunities for action and influence. The goal? To help increase long-term shareholder value and fulfill fiduciary duties.
The importance of data in achieving these objectives is underlined by the results our survey referenced above. An overwhelming 84% of respondents say their firms find value in using alternative data to support research and analysis in their investment stewardship models.
If stewardship is to generate performance and value for shareholders, it should be closely aligned to the investment decision-making process and the front office. As one of my colleagues—Accenture Senior Manager, Ross Tremblay, explained recently in an article in Institutional Investor:
“If stewardship models evolve with the larger industry, asset managers may look to expand into processes like active stewardship and integrate shareholder engagement into the portfolio management end of the investment process.”
Rising importance in investment operations
When asked to identify the top three drivers for transforming investment stewardship, the asset managers participating in our survey cited value generation, investor transparency, and enhanced fiduciary. As firms develop new approaches to investment stewardship, investment operations should play a pivotal role—especially given stewardship’s growing prominence in the investment process.
In particular, Investment Operations and Investment Book of Record (IBOR) are emerging as key indicators for stewardship, acting as an indicator of performance against ESG and stewardship metrics. As investment operations continue to evolve a mindset focused purely on value generation, investment stewardship is emerging as an important channel to deliver a new set of insights across internal consumers and inevitably to end investors.
Looking forward, investors and asset managers will continue to demand more transparency into their holdings in order to deliver against their fiduciary duties. This would drive a need for holistic portfolio information, including information on holdings and aggregate ownership. As investment operations shift towards a client-centric operating model, the level of demand for stewardship metrics and insights could increase in parallel, among both internal and external stakeholders.
Mapping out the future of investment stewardship
Today, ongoing advances in technology are continuing to level the playing field for asset managers and intensify the pressure on their search for alpha. It’s against this backdrop that investment stewardship is emerging as a long-term investment management process to help influence firms’ performance and value generation.
So, as the search for alpha continues in the front-office, will investment stewardship become a new battleground? One where firms seek to balance value and performance for shareholders with doing good? And as investors continue to ask for transparency around stewardship actions, will investment stewardship become a platform to drive even greater influence across underlying companies to generate value?
We are likely to answer both of those questions within the next decade. However, the inescapable fact of the here and now is that investment stewardship is emerging as an ever more prominent aspect of the industry—and that it is an area that may increasingly converge with investment management.
For the moment, this is just one of the steps that asset managers might need to take to secure their place among tomorrow’s industry leaders. To learn more about building business models and strategies for 2025, read our latest report on the Future of Asset Management. If you would like to discuss more about your investment stewardship transformation, I would love to hear from you.