The Hidden Revenue Stream Investment Managers are Leaving on the Table

Investment managers spend enormous amounts of time and money pursuing alpha through sophisticated trading strategies, advanced technology and increasingly complex operating models. Yet one potential source of income continues to be overlooked by many firms. Not because it is difficult to access, but because the proposition seems almost too good to be true.

This source of revenue was the focus of a fireside chat between Michael McCreesh, Head of Class Action Services at SS&C Battea, and Trevor Li, CFO of Nine Masts Capital at a recent invitation-only event in Hong Kong. Battea helps investment managers recover funds that would otherwise go unclaimed by managing securities class action claims on their behalf. What makes this service particularly appealing is that there are no upfront costs and little day-to-day involvement required from the client.

Li acknowledged that he was initially skeptical when he first heard about the service. For Nine Masts, the question was less about whether there were recoveries to be made, and more about whether pursuing them would introduce new operational or data-management concerns.

Data security was one of those initial concerns, as like any investment manager, Nine Masts was cautious about sharing sensitive information with another organization. Li wanted to understand exactly how that information would be handled before moving forward. Over time, those concerns became easier to weigh against the rapidly emerging upside. If there was money sitting unclaimed, and recovering it required little effort from him and his firm, the biggest question was whether the firm could justify leaving money on the table by not taking part in the many recovery opportunities available.

Beyond authorizing Battea to access the necessary data and responding to requests for additional information from the various claims administration firms, Li said that Nine Masts had virtually no ongoing involvement in the process. Claims are managed on the firm's behalf, while a custom, online client portal allows the firm to review cases and follow their progress without having to engage in constant dialogue with Battea.

For managers already juggling investment decisions, regulatory obligations and investor reporting, outsourcing claims recoveries to a specialist provider creates an additional source of value, without creating another operational burden.

What to Consider Before Pursuing Recoveries

The discussion also provided useful guidance for firms considering claims recovery for the first time, with Li arguing that managers should look beyond headline promises and assess the breadth of a provider's capabilities. Geographic coverage is an obvious consideration, particularly for firms investing globally, but so too is expertise across different asset classes. A provider specializing in only part of the market may still leave valuable recovery opportunities undiscovered.

Commercial arrangements should receive the same level of scrutiny, and Li pointed to the importance of contingency-based fee structures, where providers are only paid when they successfully recover funds. From a client's perspective, a straightforward proposition is presented—if no money is recovered, no fees are paid.

The investment sector has never lacked ingenuity when it comes to identifying new sources of return, yet the conversation in Hong Kong suggests that one opportunity continues to be overlooked for one remarkably simple reason. It seems too good to be true.

Skepticism about data security, operational effort and a proposition that seemed almost too good to be true is entirely understandable. But once those concerns have been addressed, investment managers may conclude that one of the simplest opportunities to improve returns has been sitting in front of them all along.

Watch the full fireside chat today.