Because each manager search is unique, we employ a rigorous four-level process for each assignment. We recognize all these elements are necessary to develop an appropriate short-list of candidates that offer not only superior risk adjusted returns but also have demonstrated consistency of style in a repeatable process.
Our process begins with outside software and databases purchased to perform the quantitative screens necessary to narrow the field of potential candidates. The screening criteria come from both client and consultant discussion and recommendations.
After initial performance screens we identify sources of risk. These evaluations include, but are not limited to: bear market performance, sector exposure, style drift analysis and benchmark optimization. The end result is a clear picture of how each manager adds value and the risk taken to achieve this value. This level of our process identifies those managers who have demonstrated a consistent history of alpha generation while remaining within their stated process and style.
The next step involves the application of qualitative screens. These screens include but are not limited to: the evaluation of the ownership structure, compensation of key personnel, depth of research staff, portfolio trading/turnover, fees, etc. Through the application of our qualitative screening, we endeavor to identify those managers with the greatest probability of repeating their past success. Those managers who make it through this level of our process have demonstrated consistent, efficient alpha generation. themes, emerging asset classes and situations where a manager may not have a long track record of statistical data for evaluation. These situations include small cap managers, team lift outs, etc. The knowledge gained in our due diligence of investment managers is then applied as an overlay to our statistical processes, screens, and qualitative assessments.
As the final step in our process, we analyze whether the candidates would fit well with your existing managers from the standpoint of improving the risk/reward ratio and increasing diversification. We seek to assure that additional managers would complement and not duplicate the managers who have already been retained. Our rigorous manager research effort involves the application of both quantitative and qualitative criteria relevant to each assignment. This bottom up approach is labor intensive but it delivers what we believe to be the most appropriate candidates who offer the greatest potential return within policy guidelines.
The time frame for our generation of a short list of candidates (from start to finish) is approximately 30 days. If a search for the same asset class, client type and similar risk assumptions has recently been completed for another client, it may not be necessary to go through the entire process. If a short list of managers has already been identified this may allow our time frame to be shortened. We recommend that clients take the time to interview candidates to fully understand their approach and process. We personally attend these interviews and are there to assist clients in their decisions.
If you have knowledge of or interest in a particular manager, we will evaluate them upon request. We will also include any “client requested” manager(s) in our evaluation process and compare them to our list of candidates. We also endorse the use of passive strategies and remind clients that they have this option for traditional asset classes.
The next step of our process involves due diligence. The in-house due diligence meetings and the conference calls, webcasts, and industry mailings allow us to stay apprised of changes in personnel or strategy for our client’s incumbent managers. It provides a mechanism to evaluate investment managers’ performance and organizational issues.