Ten Lessons about Internal Asset Management

Executive Summary

Asset owners are increasingly investigating and implementing internal asset management programs. The Illinois Municipal Retirement Fund (IMRF) launched its program in 2019. My coauthors and I share as insights “Ten Lessons Learned About Internal Asset Management”:

1. Understand Your “Why”

   Flexibility, transparency, and alignment with the unique goals of your organization are at least as attractive as potential cost savings at scale.

2. Substitute or Complement?

   Both. Maintaining an internal management program can help you get the best out of your external managers.

3. Rationalize Your Alpha Expectations…

   Active management is challenging. Your expectations should be proportionate to your resources.

4. …and Your Beta Expectations, too

   Passive management is challenging. No, really, it is.

5. Hire the Right Skillset

   Asset owners may need to hire externally to find employees with relevant asset management experience.

6. Culture Fit is Important

   Buy-side transplants will bring a new dynamic to an asset owner organization. Prepare each side to make a good first impression.

7. Understand Incentives

   Shifting towards internal management exchanges one set of incentives for another through risk and reward motivations.

8. The Devil is in the (Operational) Details

   Operational missteps can scuttle a new program. Manage operational risk with comprehensive documentation and careful attention to detail.

9. Vendor Management is Key

   Thoughtfully select vendor partnerships who can champion your initiative.

10. Have a (Flexible) Long-Term Vision

    When getting started, don’t let perfect be the enemy of good.

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