Written by Chloé de Calatchi, Head of Selection (Manager & Operational Due Diligence) at ABN AMRO Investment Solutions
The aim of open architecture investment solutions and sub-advisory is to select the best portfolio managers and solutions across a broad range of asset classes for clients who are looking for an external solution to creating portfolios.
For these clients, open architecture and sub-advisory services businesses can act as gatekeepers, ensuring only the most rigorously assessed funds are offered, helping to deliver performance and security to clients.
Such an offering should provide reassurance for clients. For example, ABN AMRO Investment Solutions implements a disciplined selection process split between two seasoned, skilled and committed teams: Manager Due Diligence (‘MDD’), and Operational Due Diligence (‘ODD’) both of which provide independent analysis. The MDD team is in charge of assessing strategies including people, processes, portfolios (investible universe, portfolio construction), performance and ESG. Its main focus is on the investment side. Complementary to that, the ODD team is in charge of assessing the quality of the operational set-up of the asset managers through governance, the organisation from front to back, IT set-up, risk and compliance management, as well as ESG commitment.
This twofold structured and robust process provides the ability to issue independent proprietary ratings and to get a 360° view of external asset managers (AMs) and their product ranges. Our dual approach is fundamental because, while some people believe that the best solution is solely performance driven, we believe that the best solution requires more balance and consists of finding the best opportunities while protecting clients from major financial loss.
Our questionnaires are thorough, with over 700 questions, and are designed to detect explainable and repeatable performances backed by a sound operational set-up.
Our detail-oriented approach necessitated a dedicated due diligence digital platform. As a result, we developed Deeligenz, a digital platform offering an efficient, high value-added process. Today both MDD and ODD are fully embedded within this platform, saving the analysts painful and lengthy tasks, and allowing them to focus on what matters the most for clients: their final assessment on the AMs and their strategies.
The Deeligenz platform allows us specifically to:
– Remove low impact tasks and be more efficient by spending quality time on-site or through videoconference with the AMs,
– Enhance collaboration amongst analysts, within AAIS and with clients,
– Improve ratings quality by being more objective and accurate through an unbiased decision-making process based on an auto-rating system,
– Process data quickly thanks to a centralised storage which is highly valued by Audit and Regulators,
– Provide standardised reports with quality content that can be rolled out externally.
This bespoke system built on the foundation of our long established expertise makes the selection process more agile and scalable.
One of the most obvious examples is the approach to ESG which is a complex and dynamic environment. Happily, we have managed to embed ESG on every layer of our selection process in our digital platform. We can adapt quickly to regulatory changes, underlining the importance of agility within the process.
We also believe it is crucial to have a dual internal rating on ESG, on both the MDD and ODD sides for a key reason. Due diligence mostly comes down to discrepancy detection. In recent years we identified a trend where some AMs were eager to sell Sustainable and ESG investments without authentic ESG DNA. The dual rating allows us to track asymmetry between the strategies the AM is promoting and its own minimum level of requirements on ESG. A strong asymmetry constitutes likely grounds for greenwashing, and would raise a major red flag on our side. Again here, we act as gatekeepers to protect our clients’ interests. Conversely, a symmetry would be a strong indicator to detect what we call an “ESG Original”.
In our experience, external AMs not only appreciate the fact that we challenge them through due diligence, but they also highly value the guidance and scope for improvement delivered by the analysts once the report is finalised. As we see market best practices on a daily basis, we are in a position to undertake a stewardship role while engaging with them. We moved the due diligence model from “trust but verify” to “rate, monitor and engage”.
We believe this approach generates a virtuous circle of excellence where the AMs improve their set-up to reach best practice and where we consequently deliver better solutions to clients. This virtuous ecosystem is our ultimate purpose and constitutes the prerequisite to maintain our industry’s sustainability over time
