Manager Selection & Mandates

The Fund Manager Selection Process - Factors to Consider

The Fund Manager Selection Process - Factors to Consider

How should a Pension Fund or other Asset Owner approach the process of selecting an investment manager? What are the hallmarks of successful managers? What are the characteristics that trustees should be looking for?

On Savvy Investor, you'll find a whole section of the site devoted to the Fund Manager Selection process. Here is a selection of some of the best papers on the subject:

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Manager Selection - CFA Institute Research Foundation (2013)
This book by CFA Institute is designed to help investors sharpen their manager selection ability. Achieving this goal requires a detailed review of techniques employed when hiring indexed, alternative and active managers; highlighting strategies for monitoring current managers and setting portfolio manager weights; and considering the value of qualitative and quantitative methods for successful manager selection.

Not All Active Managers Are Created Equal - What To Look For And Why (2015)
The notion that active fund management acts as a negative-sum game is challenged in this paper. One potentially significant uncorrelated source of investment return is the reward for the selection of exceptional managers. The authors look into numerous key factors that create sustained active investment performance, including conviction, contrarian thinking and concentration, adherence to proven investment philosophies and processes, capacity awareness, the incorporation of ESG considerations, patient investment approaches, and possibly even gender.

Five Questions Insurers Should Ask When Hiring Asset Managers (HIMCO)
In this 2014 paper, the authors have compiled a list of five key questions insurers should consider in determining if an asset manager fully appreciates the demands of serving an insurance client. While a manager’s history of strong investment performance and broad array of investment skills may deserve consideration, is the manager fully versed in the often complex business of insurance asset management? It can be a very different environment, given the nuances of GAAP, statutory (STAT) and tax accounting, risk-based capital charges, realized and unrealized gains and the different rules for the various types of insurance companies.

Hedge Fund Investing: Manager Selection and Due Diligence (Merrill Lynch)
Hedge fund investments, which have in the past provided strong risk-adjusted returns uncorrelated to traditional investments, can potentially add significant value to an investor’s portfolio. These benefits can be gained through careful due diligence and skillful manager selection because hedge fund manager returns are so widely dispersed. To help qualified clients and Financial Advisors in making decisions on hedge fund investing, this paper reviews the challenges and importance of hedge fund manager selection, elements of effective hedge fund businesses and investment due diligence processes, and the benefits of employing a professional intermediary to select a manager.

The Science and Art of Manager Selection (Barclays)
It is difficult to identify outperforming managers consistently as persistent outperformance is not common. Barclays' manager research process has the goals of 1) identifying which traditional investment managers are able to produce returns in excess of market indexes after taxes and management fees; 2) indentifying which private equity and hedge fund managers produce positive returns, excellence among peers, and risk-adjusted results. In this 20-page document, the key qualitative and quantitative factors which can be helpful in the selection of fund managers are analysed.

Decoding Investment Consultant Alpha (2013)
This open letter follows the decisions of a newly hired investment consultant over the course of their first six years. It demonstrates how investment consultant reports are incomplete such that plan sponsors truly have no idea if and how their investment consultant is helping or hurting. Many plans have fallen into “critical” or “endangered” status precisely because of poor investment advice given by their investment consultants. This open letter clearly explains the disclosure gap and offers a blueprint for solving this serious problem.

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