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14 February 2017

Investment & Pensions Europe: A purpose-driven performance metric for asset management?

Asset owners can help improve their managers’ performance by pushing firms to increase their “internalised purpose”, according to research.

The Center for Applied Research (CAR), a think tank linked to State Street, and the CFA Institute claimed this was “a hidden variable of performance”, and named it ‘phi’.

The research report referred to phi as capturing “the motivational forces of purpose, habits, and incentives that govern our behaviours and actions”, adding that it was “distinctly different from the short-term outperformance motivation or asset-gathering focus of our industry”.

The organisations behind the research claimed that phi had a “statistically significant and positive link to broad performance measures that can sustain industry and drive long-term client satisfaction”.

They argued that a one point increase in phi is associated with 28% greater chance of “excellent organisational performance”, 55% greater odds of “excellent” client satisfaction and 57% greater odds of “excellent” employee engagement.

Suzanne Duncan, senior vice president, global head of research at State Street Center for Applied Research, said that secondary research and empirical data collection suggested that organisations with excellent long-term organisational performance also deliver higher investment returns – whether they were asset owners or providers.

“The reason ‘phi’ works,” she added, “is because why we do something influences how well we do something, and it’s the ‘why’ piece that’s missing for many of the investment professionals in the industry.”

The research was based on a survey of just under 7,000 investors, investment providers, government officials, and regulators in 20 countries, including 727 financial professionals in the Europe, Middle East, and Africa (EMEA) region.

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© IPE International Publishers Ltd.

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