Institutional Investors: Nuveen Competitors

Delivered February 4th, 2018. Contributors: Aditi K., Becca R., Patricia R. and

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Institutional Investors: PART 1- Overview of Products and Solutions

Institutional investors' decisions and interest in products are shaped by a focus on growth and potential, world events that introduce new risks (such as global warming), data analytics (which, when used effectively, can reduce risk in decision-making), diversified asset allocation, and effective asset management.

Below you will find a deep dive of our research. 
How does asset allocation and management affect their interest in products and/or solutions? Asset allocation management and their consequent interest in products and/or solutions are primarily determined by key trends in asset class. For example, in the "Global Alternatives Survey 2016," published by Willis Towers Watson, assets demonstrating upwards class trends appear to be hedge funds, real estate, illiquid credit, and insurance-linked investments, hence the interest that institutional investors demonstrate in them. 

Additionally, institutional investors focus primarily on growth and preservation, according to a report by Fidelity Insitutional Asset Management. Their report states that decisions involve, "Both qualitative and quantitative inputs. In today's low-return, high-volatility environment, quantitative inputs... may need to take on more importance." 
What role do alternatives play for institutional investors?According to a report published by PGIM Institutional Advisory and Solutions on "The Role of Alternatives in Asset Allocation," the main reason why alternatives are seen as "positive" for institutional investors is due to the fact that they provide good returns ("Through strong manager selections and reallocation from traditional assets to alternatives, Swensen successfully generated outsized returns") and diversification ("[Alternatives] improve diversification and lower drawdown risk."). Though alternatives do have drawbacks (such as underperformance), they're outweighed by the positives and can be used/tailored to provide impressive returns ("Core real estate, value-add real estate, and opportunistic real estate, as well as leveraged buyout private equity, has the highest alpha among the strategies studied."). The study asserts that "Alternatives are far from homogeneous," allowing institutional investors to pick and choose what strategies suit them and that ultimately they would, "Encourage investors to consider the factors most relevant to their own manager universe... [to] properly address the role of alternatives in the context of their total portfolio." 
What Effects have data analytics had in the industry?The main impacts that data analytics have had in the industry are primarily along the lines of developing asset strategies, as evidenced by a study done by Quantitative Management Associates and their article on "Implementing a Real Asset Strategy." Data analysis techniques and studies have allowed them to publish insights into investing, such as quantifying the benefits of investing in real assets ("Real assets... can play multiple roles in a diversified portfolio- including total return potential, diversification from low correlations, and inflation sensitivity."). Additionally, data analysis provides investors with additional tools in deciding how to invest- both where (depending on the objective) and how much (ideally, "5-20% of the overall portfolio"). 

But even so, data analytics have had varying effects, "With some institutions benefiting substantially while others are failing to gain any advantage." Many organizations feel they are not using data as effectively as they could, largely due to the large volume of data and "Few established best practices," and institutional investors' main goals with data analytics are in, "Improving investment decisions, managing risks, and modeling or otherwise assessing risks." 
Do world events affect institutional investor's search of products and solutions? How? World events, such as global warming and the Paris climate agreement, affect institutional investors' decisions due to the fact that, "[Investors] need to note that
governments have committed to acting on climate change... Taken together, this means that their investments may be exposed to a risk that needs to be managed and potentially profited from." An example of this can be seen in Willis Towers Watson's "Global Investment Matters 2016," stating that, "Holdings of fossil fuel companies will at some stage represent the economy of the past, so the need to review them is clear." Ultimately the goal for investors and companies in addressing world events should be to not turn into a stranded asset and to, in the case of climate change, "Manage their exposure to climate change... This improves [the investors'] resilience to climate impacts, reduces the likelihood that they become a stranded asset and potentially [opening] up new commercial opportunities." 
ConclusionTo conclude, institutional investors' decisions and interest in products are shaped by a focus on growth and potential, world events that introduce new risks (such as global warming), data analytics (which, when used effectively, can reduce risk in decision-making), diversified asset allocation, and effective asset management. Investors are looking for products primarily providing diversity, lower risks, and good returns. 

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Institutional Investors: PART 2- Website Engagement

Institutional investors have access to tools which they use to engage with institutional investment websites and stay updated on day to day news. The most relevant of these tools is the Bloomberg Terminal, which provides the investors access to daily news relating to institutional investment. Those who do not have access to the Bloomberg Terminal find their news elsewhere, by using IP and PR websites. 

Bloomberg TerminalThe Bloomberg Terminal is a powerful resource utilized by institutional investors nearly everywhere. It provides them with relevant and recent news regarding the investment world by aggregating over 1,000 news sources and 90,000 web and/or social media sources on a daily basis. 
According to the Bloomberg Terminal website itself, the terminal "goes beyond traditional news sources and formats, offering exclusive and actionable editorial coverage by more than 2,400 experienced journalists globally on one integrated platform." The software offers coverage of "companie s, markets, economies, politics and governments". The Bloomberg Terminal also offers software to allow institutional investors the ability to "monitor market and industry influencers on social media". 

Bloomberg Terminal: First Word First Word is a recently launched component of the Bloomberg Terminal, which was "built on the idea of news for a market, as opposed to news about a market." It simplifies news updates for investors by transforming in depth news articles into succinct, bulleted lists, presenting all of the key information of each news story. First Word is most often used to provide investors with information regarding "key news developments, company announcements, important media reports, analyst ratings and updates on the markets". 

Bloomgerg Terminal: Interactive TVInteractive TV was created by the Bloomberg Terminal to allow institutional investors the ability to engage directly with the content provided by Bloomberg Television. The Interactive TV provides investors with in depth context behind the major headlines of the new articles. It allows investors to perform actions such as ask IB questions and comments to shows on-air, click charts displayed on TV to investigate the underlying data, click to get detailed descriptions of companies discussed, click to read the biography of any Bloomberg TV guest, and scroll back in time to watch a segment they may have missed.

Bloomberg Terminal: Bloomberg BriefsBloomberg Briefs offers downloadable reports which provide institutional investors "with market-leading intelligence, providing actionable ideas and insights into a diverse range of regions, industries and markets." It does this by delivering news, market data, calendars and commentary directly to their inboxes. 

Bloomberg Terminal: News SourcesThe Bloomberg Terminal receives all of their information from a comprehensive list of news outlets across the globe, including AP (US), Press Association (UK), DPA (Germany), AFP (France), Ansa (Italy), Interfax (Russia), Xinhua (China), Canadian Press, and the Press Trust of India. These sources are part of larger pool of over 1,000 news sources, which are translated from over 30 languages, and are influencers of over 90,000 social media accounts and web pages. 

Other Sources For Institutional InvestorsWhile roughly 80% of all institutional investors use the Bloomberg Terminal as their means of staying up to date on news, the remaining 20%, who do not have access to the terminal most likely use IR websites, otherwise known as Investor Relations websites. Unlike the Bloomberg Terminal, where customizable software allows for investors to see exactly what they want to see without any further effort, IR websites require the investors to physically search for the news article or news report in which they are interested. Companies such as PR Newswire offer over 780 IR websites for interested investors and clients. 

How Often Are PR/IP Websites Visited by Investors?According to the Shareholder Communications 365 Study, which used the responses of 3,780 analysts, 34% of institutional investors stated that they visited the websites monthly, 27% stated that they visited the websites quarterly, 20% stated that they visited the websites when they received a news update, and 19% stated that they visited the websites weekly. When asked if they visit a company's IR website first before investing, 95% of institutional investors said, "Yes, but only if they cannot find the information on the Bloomberg Terminal first". 

Examples of Other Pr Websites, IR Websites, and sourcesWhen institutional investors can not find the information they are seeking on the Bloomberg Terminal or do not have access to the terminal, they tend to utilize PR websites, IR websites, and other sources such as Google Finance, Market Watch, and Reuters. 
Google Finance was website launched on March 21, 2006, by Google. It provides investors with business and enterprise headlines regarding the financial decisions and news events of major corporations. 
Market Watch was launched by Dow Jones & Co. With more than 16 million visitors per month, it is a "leading innovator in business news, personal finance information, real-time commentary and investment tools and data". It works mainly in the United States, Europe, and Asia.
Reuters an international news agency that is based in London, United Kingdom. It provides investors with news from around the world regarding markets, businesses, politics, entertainment, and technology, in the form of articles, reports, video, and pictures.

Companies Visiting WebsitesThere was no pre-compiled information available regarding any specific companies that utilized these websites, but in a vague sense, these websites work with institutional investors, retail investors, and shareholders alike.  

ConclusionWith 80% of institutional investors utilizing its benefits, the Bloomberg Terminal is the top source for news and other information for investors. The other 20% of institutional investors utilize PR websites and IR websites such as Google Finance, Market Watch, and Reuters to stay up to date on current news and other information. All of these companies work with institutional investors, retail investors, shareholders, etc.

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Institutional Investor: PART 3- Decision Making

When choosing an institutional investor firm to work with, investors look to quantitative and qualitative info — including transparency, responsiveness of management, quality of earning calls and capital allocation strategy, among others.

As for the institutional investor website, users look for easy-to-read financial statements, as well as a compelling telling of the firm's story.

Investors work with financial investors and sell-side analysts, but when it comes to making investment decisions, these usually fall into the hands of the CFO.

HOW DO INVESTORS CHOOSE WHAT INVESTMENT FIRM TO WORK WITH
When choosing an institutional investor firm, investors use both quantitative (numbers-based, aka financial data and results) as well as qualitative information. 

Whereas returns on investment and performance is important when choosing a firm to work with, investors also pay attention to qualitative factors — as Edelman found in a survey from 2015, published in 2016. 

For instance, 91% of investors appreciate information on future opportunities, 90% look for information on capital allocation strategy and 88% look for guidance on trends in revenue, earnings, margins, and other financial metrics. 

Almost 90% consider management's vision for the company at least somewhat important, whereas 80% think the same about management's confidence about hitting goals. 

When evaluating a firm's investors programs, Edelman found that the following were the most important:

1. Responsiveness to inquiries (92%)
2. Quality of earnings conference calls (88%)
3. Existence of earnings conference calls (87%)
4. Management's willingness to meet in-person or on the phone (86%)
5. Participation and availability at investor conferences (81%)

When looking for information to make the decision, investors do internal research (54% name it their first choice, 81% name it in their top three), use a Bloomberg terminal (28% first choice, 72% top three) or go to a sell-side analyst (5% first choice, 54% top three).

ADDITIONAL PARAMETERS IN THE DECISION-MAKING PROCESS
Performance is a key factor to choosing a firm, but not the only one. In fact, according to a survey by the CFA institute, 73% of respondents named "having returns better or similar to other firms" as a reason for choosing a firm to invest with — making it the fourth most popular reason.

According to the survey, other factors that investors take into account when picking a firm to invest with are:

1. Full disclosure of fees and other costs (80%)
2. Security measures to protect data (79%)
3. Clear explanations of changes to fees and costs (79%)
5. Being forthright about conflicts of interest (72%)
6. Providing reports that are easy to follow (72%)

When evaluating a website, investors look for specific aspects of the user experience that will make navigating and accessing information painless and hassle-free.

For individual investors, simplified financial information is a huge help and one of the first things they will notice in a website. These investors are often intimidated by a lot of information, and a no-frills version will help them feel at ease.

Another element of an investment firm's website individual investors like is the story of the firm, clearly outlined for them. 

"Individual investors also wanted the company to tell them a story about its potential as an investment. Key questions include: Where does the company come from? What is it doing now? What are its innovation and research prospects? What is its vision? Note, however, that there is a difference between telling a credible, interesting, and concise story, and junking up people's browsers with superficial hype and marketing-oriented language. It's a fine line, but an important one if you want to convince investors of your company's prospects," explains Jakob Nielsen from the NNGroup.

Professional investors, who come from a corporate environment or are analysts, explains Nielsen, will not rely exclusively on a firm's website for information on their potential — they will use the site as a jumping point, but look for independent sources of info. 

However, these investors do appreciate an insider's telling of the firm's story — such as a CEO video presentation on the past, present and future of the firm on the landing page of the site. 

WHAT OTHER AUDIENCES DO USER WORK WITH TO MAKE DECISIONS?
Companies and individual investors have a number of options to work with in choosing an investment firm to work with — such as financial advisors. As Edelman's survey showed, 5% of investors would work with a sell-side analyst as first choice information source, and 54% named it among their top three information sources.

However, our research was unsuccessful in finding hard numbers showing which particular audiences investors do work with — beyond these numbers. None of the sources consulted, and others including specialized media like Forbes and the Wall Street Journal and consultancies like McKinsey. 

An aspect worth mentioning in the decision-making process is how social media is changing the way investors make decisions. Almost half of investors (49%) said that social media changed their perception on an industry, and 48% said that something they saw on social media prompted them to investigate a new industry or product to invest in. Over a third (34%) said that information obtained through social media influenced a decision to work with an investment firm or person, and 21% said that a network influenced an investment recommendation or decision.

LinkedIn is the most trusted platform for professional use, with 52% penetration in the institutional investor sector, of which 85% check it weekly.

WHO IN THE COMPANY MAKES THE DECISIONS?
According to the National Bureau of Economic Research, CEOs tend to delegate some of their tasks to other executives — including investment decisions. In fact, only 36.3% of CEOs take care of investment decisions. 

The task usually falls into the realm of responsibility of CFOs, who are in charge of any financial decisions within a company. Depending on the company, they can do it alone (or with their team) or with the help of a specific investment team. 

Sometimes other C-suite executives would get involved, if the specific investment falls within their expertise — such as if the investment is in the tech sector, the CIO will get involved in the decision-making process.

CONCLUSION
To wrap up, investors look to quantitative and qualitative info when choosing investment firms- including transparency, responsiveness of management, quality of earning calls and capital allocation strategy, among others.

Users look for easy-to-read financial statements on the institutional investor website, as well as a compelling telling of the firm's story.

Investors work with financial investors and sell-side analysts, but when it comes to making investment decisions, these usually fall into the hands of the CFO.