What Does The "New Normal" Mean For Asset Owners And The Evaluation Of Their External Partners And Suppliers?

Simone Lavelle, Feb 24, 2021 11:09:44 AM

It has been almost a year now since our lives were thrown into turmoil by Covid-19. Almost all organisations have had to adjust significantly to keep things running. The most visible and arguably most important change was the transition from office to home working. This has led to major adjustments for both working in teams and individual work.

One of the major challenges for all organisations is customer interaction, now not physically possible, in all segments, from supermarkets and restaurants to hair salons and car showrooms. Almost all business processes were converted to virtual meetings and online shopping.

PRIORITIES 

Pension funds and their service providers also adjusted their working methods to ensure that business operations could continue as well as possible. Priority was given to the more essential tasks, and it was generally assumed that this crisis, like all others before it, would pass quickly. Certain non-essential decisions were therefore postponed, particularly in the case of the evaluation and selection processes of external service providers. Personal meetings between asset owners and service providers still cannot take place. This leads to pension funds putting off evaluations of service providers or limiting them to a paper exercise. Suspending these procedures would be justified if we could be sure that the "old normal" will return, but the question is whether this will ever happen.

“KEEP ON PUTTING IT OFF UNTIL TOMORROW…..”

One of this year's findings is that existing relationships are pretty easy to maintain virtually, but that it is more difficult to form new relationships and build trust. In particular, this has meant that reallocations have been given to existing managers and mandates rather than thinking fresh about whether they are the most appropriate party. But can the evaluation and selection of service providers be postponed without neglecting fiduciary duties?

….. WHERE THERE IS A WILL .....

The past few months have shown that we are resourceful and can find solutions to ensure that these processes are well executed and continue in the present day. Just as many other business processes now take place virtually, so too can the evaluation or selection of a fiduciary manager, asset manager or advisor. One of the advantages of virtual meetings is that there is more flexibility and availability since no one has to travel.

In tender processes, questionnaires can be sent to a long-list of candidates and a short-list can be selected from them. Face-to-face meetings in pre-selection can be converted to virtual 'Meet and Greet sessions', followed by workshops with case studies by the selected candidates, also virtual. Interviews with customer references can also be conducted via video and supported by short electronic questionnaires.

The final stage in a selection process is often an on-site visit, to assess how an organisation really functions, and to gain insight into team dynamics and personal interactions. But what will this mean when a majority of the employees continue to work from home? Is there another way to elicit the same information, and what will this hybrid way of working look like?

VIRTUAL DUE DILIGENCE

Avida International has proven in recent months that there are other ways to accomplish a due diligence or review. Part of an on-site due diligence can also be done virtually; a virtual data room can be set up with the important documents via a checklist. The selection team is given access to the virtual data room. Through Zoom or Teams, key players can be interviewed, and real-life demonstrations of systems and models can be shared with the selection team.

Background checks are done through public sources, and reference checks can be done virtually. Trust between teams can be built through informal virtual get-to-know-you sessions. Negotiations can also be conducted virtually.

Avida provides concrete tools to keep an eye on and intervene where needed. We can:

Electronically check whether service providers still meet minimum requirements including ‘business continuity’.

Check that contracts and service agreements are still competitive.

Carry out peer group comparisons of the purchasing power of service providers.

Conduct peer group comparisons of the resilience and potential for innovation of service providers.

 


THE NEW REALITY

We have proven over the past few months that we are resourceful in finding solutions to continue day-to-day operations. This includes evaluating and selecting new or existing relationships through the new virtual way of working. There is no end in sight yet to the pandemic, and waiting for better times may get in the way of fulfilling our fiduciary duties. There are, however, alternative ways to carry out selection processes in this new era.

 

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