Frontier’s set of principles outlines the key traits it expects from managers seeking its recommendation, for more than 1,200 managers it researches worldwide.
The advisory group has always assessed and considered culture within the context of developing its manager ratings and recommendations, however, recent history has prompted it to rethink its processed and weighting around culture assessments.
Frontier director of sector research Paul Newfield, explained the firm has been raising its focus on culture in recent years, now set to roll out higher hurdles for managers to clear.
“As part of our research and due diligence process we are now making explicit statements and assessments of traits we are seeking from managers in the area of corporate culture,” Mr Newfield said.
“And, when issues do arise, or even signs of concern, we have developed an internal framework to help us fully explore those cases.
“Unfortunately, we have had to test some managers via that framework.”
The traits Frontier has outlined reflect treatment of clients, in terms of transparency, communication and action following an adverse event; treatment of staff, including diversity, inclusion and equality; reflection on and rectification of issues; and a lack of any patterns of systemic behavioural and cultural issues.
“We have already applied this framework to a number of cases where concerns have arisen and in some cases we’ve re-rated managers, some down sharply, when they have come up short of our expectations and for them that will mean a loss of funds either from existing clients re-allocating or potential investors choosing not to allocate in the first instance,” Mr Newfield said.
But quality fund managers should have nothing to fear, Frontier has said.
“People should not underestimate the need to properly examine the existence of these traits and the work needed to assess these factors,” Mr Newfield said.
“These traits sit on top of, and are conducive to, the ability of the manager to deliver desired return outcomes. A failure here is likely indicative of imminent failure across other more quantifiable parts of their business.”
Frontier’s dedicated investment governance team is completing research into culture and how asset owners and advisers should embed it into manager research. The paper is due to be published next month.
