by Niko Kloeten
Head of Fundsource Sam Stanley said he had been surprised by the cynicism shown by some advisers towards the research process, particularly after the FundSource awards late last year.
“If you were a fantastic performer and didn’t win [at the awards] it’s not because you didn’t pay us enough money,” he said.
Stanley said it seemed to be advisers who questioned the integrity of the process, while fund managers were happy with it.
“The ones who open themselves up to be reviewed by us are the ones who appreciate our research and also pay for it,” he said.
“We are a business and we have analysts, very good analysts, and that costs money therefore we need to cover our costs. If they’ve already paid us we can still give them a one-star rating.”
Morningstar head of research Chris Douglas said Morningstar does not accept payment for reviewing fund managers’ products.
However, he said if fund managers want to promote their rating they need to pay for what he described as Morningstar’s “IP”.
Douglas acknowledged it wasn’t common for firms to want to pay to publicise a poor rating.
“There are a few examples where fund managers have paid to promote an average rating… it doesn’t happen a lot but it does happen,” he said.
Douglas said payment for promoting fund ratings made up a small part of Morningstar’s income, which was mostly from selling data and subscriptions to its services.
Pathfinder Asset Management executive director John Berry said paying to be researched is “a cost of doing business” for fund managers and it has no impact on the “rigorous” process the research houses follow.
Berry said it’s difficult to raise money in funds that haven’t been researched, such as Pathfinder’s International Equity Fund which has raised about $13 million in just over a year.
“We can’t market it; there’s just no point into the market and beating the drum if it hasn’t been researched,” he said.
“They want to see it have some time in the market before they research it… if they were just after the money they would have researched it straight away.”
Niko Kloeten can be contacted at niko@goodreturns.co.nz
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With the universe of products available in NZ increasingly including offshore capabilities, it is essential that the screening process has the ability to reach into the international engine rooms, to fully understand how these managers are able to add value. This globalised approach tends to favour those research entities with offshore affiliations or offices… making it difficult for localized research groups to compete.
Research is typically a high cost, low margin business where scale is a major factor – especially in a small community such as NZ, where there is probably only room for 2 providers.