By Dr. Allaudeen Hameed, Tang Peng Yeu Professor of Finance, National University of Singapore (NUS) Business School; Dr. Massimo Massa, Rothschild Chaired Professor of Banking and Finance, INSEAD; and Dr. Zhenghui Ni, Assistant Professor of Finance, Renmin Business School, Renmin University of China
Asset management is often described as an increasingly digital business. Portfolio managers receive market prices in real-time; macroeconomic releases are distributed globally within seconds; and research, trading, compliance and client communication can be coordinated seamlessly across platforms. This raises a natural question: Why do the largest international asset-management firms still maintain costly physical offices across financial centers and major investment markets?
The question has become more important as global equity markets have changed. Over the last two decades, the share of the most developed countries in global equity-market capitalization has fallen sharply, from 86.1 percent in 2000 to 57.6 percent in 2020. Investment opportunities have migrated toward markets that are less familiar, less transparent and more heterogeneous in their institutions and policy regimes. At the same time, leading asset-management firms have expanded their physical investment operations across countries. If portfolio diversification can be achieved from a central office, and if public information is available everywhere, the persistence of this brick-and-mortar network is puzzling.
Macro knowledge is the scarce resource
Our research suggests that the puzzle has a simple but underappreciated answer: Physical presence helps asset managers acquire and share macroeconomic information.
Our research suggests that the puzzle has a simple but underappreciated answer: Physical presence helps asset managers acquire and share macroeconomic information. Local offices are valuable not only because they put analysts closer to individual companies. They also place investment teams closer to policymakers, regulators, market participants and clients who collectively shape the macroeconomic environment. Repeated interactions with these actors can produce soft signals about policy reaction functions, market frictions, investor sentiment and country-level risks that are difficult to infer from public data alone.
This type of information is different from stock-specific research. A local insight into a company’s prospects may be difficult to scale across a global fund family because the opportunity is tied to one security and may be competed away quickly. A macro signal, by contrast, can be useful across many portfolios. If an office in London, Frankfurt, Tokyo or Hong Kong improves the firm’s understanding of local policy uncertainty or market-wide risk, that information can inform systematic exposure, country allocation, beta positioning and risk management across affiliated funds. In economic terms, macro information enjoys economies of scale inside the firm: It is expensive to produce but nearly costless to reuse. That property makes a network of local offices look less like a distribution expense and more like an information platform.
Measuring the footprint
To study this mechanism, we construct a measure we call Geographic Presence. For each asset-management firm, it captures the fraction of global equity-market capitalization located in countries where the firm has local investment operations. A firm with offices in markets that represent a large share of global capitalization has high Geographic Presence; a firm with investment teams concentrated in a small or less systemically important set of markets ranks lower. The measure is deliberately defined at the level of the asset-management firm rather than the fund. The hypothesis is that information gathered anywhere in the organization can benefit portfolios managed everywhere in it.
Using global mutual-fund holdings from 2000 to 2021—covering more than 15,000 equity funds, 2,565 managing institutions and 1,840 asset-management firms—we examine whether this footprint predicts performance, and if so, when and how.
Timing, not stock picking
Funds managed by firms with broader Geographic Presence earn higher returns precisely during periods when policy uncertainty in the markets in which they invest is elevated.
Two features of the evidence stand out.
First, the value of Geographic Presence is state-dependent. We measure the macroeconomic environment using country-level indices of economic-policy uncertainty that track the intensity of policy-related uncertainty reflected in the news. Funds managed by firms with broader Geographic Presence earn higher returns precisely during periods when policy uncertainty in the markets in which they invest is elevated. When public signals are noisiest and softest, locally sourced information should be most valuable. In calm periods, the footprint confers little measurable advantage.
Second, the outperformance comes from market timing rather than stock selection. Decomposing active returns into a timing component (adjusting a portfolio’s exposure to a market before that market moves) and a selectivity component (holding stocks that beat their own market), we find that the gains associated with Geographic Presence load almost entirely on timing. This is exactly the pattern one would expect if the underlying advantage is macroeconomic: Knowing how a country’s policy environment is likely to evolve says little about which local stock will win, but a great deal about when to dial country exposure up or down.
There is a further twist. The benefit is concentrated in funds’ non-local holdings—i.e., positions in markets outside their home country. This is notable because a long literature documents that foreign investors typically underperform locals—handicapped by distance, language, institutions and networks. Our results suggest that a firm-level physical network can offset, and in uncertain times even reverse, this classic foreign-investor disadvantage, but only for the systematic, market-wide component of returns. Physical presence does not appear to turn outsiders into better stock pickers; it turns them into better macro timers.
Information or just organization?
A natural objection is that Geographic Presence may simply proxy for being a large, sophisticated organization. Firms with global footprints also tend to have deeper research budgets, better risk systems and stronger talent, and perhaps such firms would time markets well even without any locally sourced information.
Several features of the evidence push against this interpretation. The advantage is specific in both place and time: Performance improves in the markets—and during the particular periods—in which policy uncertainty spikes, rather than uniformly across all markets and dates, as generic sophistication would predict. The results survive demanding statistical specifications that absorb differences across funds, firms, countries and time, so they are not driven by some firms simply being better on average. And when we exploit a European regulatory reform (Undertakings for Collective Investment in Transferable Securities Directive IV [UCITS IV]) that changed where asset managers could locate their management operations, thereby reshaping physical footprints for reasons unrelated to any single market’s information environment, shifts in presence are followed by corresponding shifts in timing performance.
None of this implies that organizational quality is irrelevant. Rather, the evidence indicates that part of what a global physical network delivers is genuine informational content about local macroeconomic conditions—content that flows through the organization and shows up exactly where theory says it should: in timing rather than selection, in uncertain rather than calm periods and in foreign rather than home markets.
What it means for the industry
The findings speak to several live debates.
For asset-management firms, they reframe the economics of the office network. Physical presence is usually justified through distribution and client relationships, and it is questioned as a cost line whenever margins compress. Our results suggest that investment offices also function as macro-information infrastructure. Decisions to consolidate operations into fewer hubs or to substitute local presence with remote coverage may quietly sacrifice an input to performance that is hardest to replace exactly when it matters most: during episodes of elevated policy uncertainty. The post-pandemic enthusiasm for remote and centralized operating models should be weighed against this consideration.
For investors and fund selectors, the firm behind a fund matters in a specific, measurable way. Two funds with similar mandates, fees and track records may differ in the geographic reach of the organizations that manage them. For global and international mandates in particular, and especially for allocations to markets prone to policy turbulence, a manager’s physical footprint is a legitimate due-diligence question. The right question is not “How many offices do you have?” but “Do you have investment professionals on the ground in the markets where my money will be invested, and how does what they learn travel through your organization?”
For the industry structure, the results identify an underappreciated economy of scale. Because macro information is reusable across portfolios, the value of a marginal office rises with the number of funds that can draw on it. This favors large, integrated global firms over boutiques precisely in those strategies, multi-country equity and other macro-sensitive mandates, where policy uncertainty is a recurring feature. And it offers one more explanation for the continuing consolidation in the asset-management industry.
Two caveats are in order. Physical presence is costly, and our evidence does not imply that every firm should open offices everywhere; the benefits we document are concentrated in uncertain times and in non-local holdings, and they must be weighed against the substantial fixed costs of local operations. And presence is not a substitute for skill: An office is a conduit for information, not a guarantee that the information will be used well.
The paradox resolved
The digitization of finance has commoditized hard data. Prices, filings and macroeconomic releases now reach every market participant almost simultaneously, eroding the advantages they once conferred. What has become scarcer, and therefore more valuable, is the soft knowledge that never makes it into a data feed: how a regulator is leaning, how local institutions will absorb a shock, how domestic investors are positioned. That knowledge is still produced the old-fashioned way—by people on the ground who are embedded in local networks—and it pays off in those moments when public information is least reliable.
Seen this way, the persistence of brick-and-mortar networks in an industry that could, in principle, be run from a single screen is not a puzzle at all. It is what an information business looks like when the most valuable information cannot be downloaded.
Dr. Allaudeen Hameed is the Tang Peng Yeu Professor of Finance at the National University of Singapore (NUS) Business School and a Senior Fellow of the Asian Bureau of Finance and Economic Research (ABFER). His research focuses on international financial markets, trading strategies and liquidity, and he serves on the editorial board of the Journal of Financial and Quantitative Analysis (JFQA).
Dr. Massimo Massa is the Rothschild Chaired Professor of Banking and Finance at INSEAD and a Co-Director of the Hoffmann Research Fund. His research and advisory work focuses on corporate finance, governance and ownership structures, examining how they influence value creation, risk management, growth and strategic decision-making by chief executives, boards and business owners.
Dr. Zhenghui Ni is an Assistant Professor at Renmin Business School, Renmin University of China (RUC). He holds a Ph.D. in Finance from the National University of Singapore (NUS) Business School and was a visiting scholar at INSEAD. His research focuses on asset pricing, investments and artificial intelligence in financial markets, with his work published in leading finance and accounting journals.