The effects of the Covid-19 crisis on financial markets and the participants within them has been substantial. It is necessitating a rethink of allocations, strategy selection and choice of service providers.
Ensuring that suppliers are delivering services as expected is critical. Across the investment management supply chain, visibility and collaboration should, theoretically, be straightforward.
Financial services are completely dematerialised so information should be accurate and readily available.
Yet, in reality, investors rely on a fragmented chain of service providers in which data is distributed across multiple parties including fund managers, administrators, custodians and consultants.
The resulting opacity has been a persistent obstacle to uncovering hidden costs and accurately assessing fund managers' performance.
Addressing these issues has been a long-standing challenge and, since the Global Financial Crisis, some progress has been made.
The reset that is being demanded across society and business provides an opportunity to accelerate this progress.
The stakes are high. Savings are under threat and there are limits to government and central bank support. Investors are exposed to a possible correction and further volatility. The UK can scarcely afford to this to get worse.
The aggregate deficit of the UK defined-benefit pension schemes alone has increased by around £60bn, to approximately £270bn, during the first six months of 2020.
The lack of complete, accurate and timely information across the industry makes it difficult to take effective action to best invest and to protect capital.
While some may argue that they invest for the long term, that does not remove the need for active governance, close oversight and risk management in the immediate term.
An efficient system would enable investors to identify how their managers and other service providers were reacting to markets and to explore alternatives if required, armed with data about performance, fees and expenses.
However, investors tend to keep faith in their existing portfolios, even as circumstances change. In part, this is because allocation decisions are often based on reputation, perceived trustworthiness and historic performance, rather than a strategy or service that can demonstrably and systematically perform under specified conditions.
Investors frequently wait multiple years to conclude that a strategy is not working, long after that conclusion should have been readily apparent.
But the lack of access to the underlying data and clarity on performance, of both managers and other service providers, has exacerbated these tendencies.
The current crisis is an opportunity for investors to consider a new approach to their method of investing. Before allocating money to a manager or any other participant, the strategy or service should be tested to identify on what bases and assumptions it will work - and, critically, by when.
Since no strategy will persist in all markets or be appropriate to all conditions, investors need to identify when and how to change course.
There are certain prerequisites to establishing this as the 'new normal' post-crisis. Investors need precise and accurate definitions of the services being provided and how these are charged, as well as information based on a full discovery of the underlying positions and activities.
They also require improved governance to ensure that all parties in the investment management supply chain abide by their defined strategies, maintain agreed risk levels, hedge appropriately and are transparent on liquidity and counterparty risk.
Post-Covid-19, businesses will be scrutinised on, and differentiated by, their standards of information and governance.
The same expectations - transparency, accountability and the flexibility to adapt to different environments - should apply to all participants in the investment management supply chain.
It is time to build back better as an industry.
Sam Lusty is founder and CEO of Byhiras