Asset management sales forecasting and Executive counselling using realistic, accurate Funds flow data

In all my many years in institutional distribution, I have always carried the burden of an expectation to step up and deliver stretched sales outcomes, irrespective of the prevailing global or domestic macro environment and ignoring internal organisational turmoil impacting on business continuity and performance of investment strategies.

A number of years ago, it dawned on me, that many asset management executives and investment professionals were rather na?ve in terms of understanding and appreciating how institutional investment allocations get awarded, retained or lost, and therefore have very limited capacity to effectively and accurately forecast business flows and set pragmatic targets for sales teams.

The worst example I witnessed related to a controlling shareholder demanding a certain IRR and ROI, which their actuaries unilaterally calculated would require XY billion of inflows at an average margin of Z . No cognisance was given to where the asset manager was positioned in terms of peer relative qualitative and quantitative performance rankings, or even worse, whether any actual “flows” were taking place in the industry within the categories that the manager participated in, and if so, to whom and why those flows were taking place.

It therefore occurred to me, to set about creating a formal, accurate, market-data related, forecasting methodology that I could use to coach executives and investment professionals on, and assist the business in establishing a formal fact-based target setting methodology.

Essentially this entailed calculating the Net Portfolio Cashflow (NPF) movements for every participating manager in a particular asset class/investment strategy over the previous 12 month period. The sum total of NPF would illustrate whether a particular asset class/investment strategy had collectively gained or lost assets as a whole, and then more diagnostic analysis could be done to determine the Median or Average Net Flows per manager, with a focus on those managers with positive NPF flows. Further analysis could then be undertaken to ascertain the qualitative and quantitative reasons why certain managers were winning and some were losing.

Utilising a methodology like this removes arbitrary guesswork, and provides one with the capacity to project intelligent and realistic forecasts of what is actually happening on the ground, and what is PROBABLE as opposed to what is theoretically POSSIBLE.

The process to calculate NPF is quite simple:

1. Take each manager’s strategy AUM from 1 year back;

2. Perform a Market Value (MV) adjustment using their disclosed 1 year performance number;

3. Take the manager’s current AUM for the strategy;

4. Calculate the differential between the MV adjusted growth in AUM versus the current AUM.  

5. The differential represents the effective net gain or loss in assets for that particular manager’s strategy;

6. Perform above analysis for the entire sample group – ideally you would want to be comparing like-for-like manager strategies (same benchmarks and broad philosophies)

Whilst not precisely, actuarially sound as a methodology, given timing of cashflows etc, it is an accurate enough methodology to provide crucial strategic insights for business planning and goal/target setting.

The days of thumb-sucking a number, or meekly accepting a target from poorly informed executives will now be a thing of the past, and intelligent, market-data based conversations can held to discuss what reasonable expectations can be attained.

PM me if you need to discuss in more detail or need assistance in setting up your own NPF analysis spreadsheets.

See sample/example of an NPF Analysis spreadsheet. Real AUM data was used from a sample of real managers, but names, dates and currencies were changed for the purposes of this illustration.