Face-to-face meetings with fund managers give selectors the opportunity to get beneath the veneer of expertly designed pitchbooks, well structured questionnaire responses and marketing spin.
Over the past couple of months, I have been re-evaluating many common tenets of the manager selection process. My goal has been to separate what is done out of convention, habit and convenience from what is actually meaningful when identifying great managers.
‘Risk’ is everywhere but impossible to pinpoint. For investors, the term is often used in a generalised manner to mean ‘something to be exposed to when times are perceived as good to make money, and to avoid when times are bad and exposure is likely to lead to losses.’
As fund strategies become increasingly complex, selection processes must continuously innovate to stay ahead of the curve. Traditional methods of style analysis are helpful in understanding the drivers of performance and the historic positioning of funds.
In the recent history of the asset management industry, few topics have been as strongly contested as style analysis. The uses and misuses of the concept and tools associated with it continue to have serious implications for how managers are rated and selected.
Give one chef a kitchen stocked with exotic ingredients, advanced appliances and the newest culinary theory and you may end up with a dish worthy of a few stars. Give another the same tools and you end up with a disastrous meal and very upset diners.
I have interviewed more than a thousand investment managers in my career as an analyst. I can still remember the excited nervousness of the first – well, to be honest, the first 50 of these encounters.