Asset Managers Can Justify Active Fund Fees Through Activism On Governance

At a time when cyber is rising in prominence as a critical business risk, asset managers as a group are coming off another year of shrinking fees and stock underperformance. However, active investor engagement on technology and cyber risk presents an opportunity for asset managers to benefit from the scale of influence they can impose on improving returns due to improved governance — an area where even leading technology companies struggle.

The Marriott data breach announced in November provided a fitting end to a year that showcased the impact data security and privacy risks can have on shareholder value. In January, the World Economic Forum (WEF) released its Global Risks Report, and once again, cybersecurity featured near the top of the list, twice. An important, but recent subtle shift in understanding is that an overwhelming majority of executives surveyed in the WEF report recognize how breaches can disrupt business operations — not just loss of customer data — an important step in accounting for the full financial cost. Awareness among companies and investors is increasing (thanks in part to more disclosures), and data is emerging that demonstrates companies that manage technology risks better than peers outperform the broader market, according to a recently published analysis by my company. Herein lies the opportunity for asset managers in need of ways to demonstrate value to customers after a difficult 2018.

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What are the Cyberhedge Cyber Governance Indices?

These first ever benchmarks prove good cyber governance matters to shareholder value. They measure stock market performance of companies with good and with bad cyber governance scores. Scores are based on Cyberhedge’s proprietary cyber governance rating methodology. Market performance is tracked by an independent firm. The results show that companies with good cyber governance outperform their peers in US, UK, and EU markets.

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