Consulting Services

Manager Search/Selection & Analysis

Manager Search/Selection and Analysis consists of a qualitative and quantitative screening process. Our goal is to identify and evaluate investment managers demonstrating superior overall qualities. Qualitative factors such as people, process and investment philosophy are more challenging to assess than quantitative information, but just as important in the overall review. For example, turnover of key people and an ill-defined investment philosophy bring into question whether an investment manager is able to replicate its past performance:

 

 

After a manager has been selected, we actively monitor that manager through due diligence visits and ongoing communication. We currently maintain qualitative and quantitative data on over 200 active managers. However, we have information on over 3000 managers covering every asset class, including both traditional and alternative investment managers.

 

The Stages of a Manager Search

The investment management search and selection process can be broken down into related stages.

Stage I : Set Objectives

The search for investment managers begins with the identification of the objectives, preferences and constraints associated with a particular search assignment. The objective might be to fulfill a mandate for small cap growth, large cap value, international emerging markets, market completion fund or any asset class, subclass or style.

Numerous preferences outlined by the client pertaining to the types of investment management firms and their qualifications, along with various constraints specific to the fund's policies or mandated by the regulatory environment, further define Stage I of the search process.

Stage II : Determine Scope

Stage II represents the initial screen in each search that identifies the potential candidates for inclusion in the formal search. These candidates are examined as to whether their inclusion in the client portfolio is appropriate given the overall structure of the plan.

This stage also includes practical issues such as how many managers are invited to respond to the inquiry and what time frame is appropriate. We also identify any special considerations at this point which would include or exclude a particular manager.

Stage III : Qualitative Analysis

Stage III requires the development of a framework for evaluating the investment managers that meet the objectives, preferences, and constraints discussed in Stages I and II. The framework provides a disciplined approach to evaluating the qualitative information of each manager. This evaluation process requires a subjective overlay which allows ACG to apply it's expertise on the search process. Our evaluation process includes the following qualitative factors.

• Firm Specific Information: Employee ownership, ownership/management consistency, business focus on investment management, litigation, responsiveness, firm size and growth plan.
• Personnel: Size/depth of staff, experience, stability of investment management group, compensation package, analyst/portfolio manager stature.
• Investment Management Experience: Dedicated management group, current level of assets, internally developed diagnostics/tools, similar mandates, assignments gained/lost.
• Investment Philosophy/Process: Clearly defined and achievable philosophy, consistently applied over time, risk/reward, appropriateness for client, purchase/sell discipline, risk control measures, portfolio characteristics, style consistency.

Stage IV : Quantitative Analysis

Stage IV includes what is usually considered to be the core of manager search and selection: quantitative review. ACG evaluates several factors including:

• Performance: Risk, return, risk-adjusted measures, benchmark analysis, universe comparisons, attribution analysis, cumulative performance for different time periods, consistency through varying markets.
• Composite Information: AIMR compliance, audited, percentage of assets within compliance, back-tested/simulated data.

Each of the qualitative and quantitative factors outlined above are assigned weights based on their relative importance. These weights are applied after consideration of the objectives, preferences and constraints discussed in Stage I.

ACG utilizes multiple tools to thoroughly analyze a manager, including:

• Style Analysis: Determine a manager's style through performance based attribution work.
• BARRA Factor Model: ACG utilizes BARRA factor models to measure a manager's exposures with respect to a multitude of factors (such as style, capitalization, risk, etc.)
• ACG Manager Analyzer: ACG has developed a quantitative application which analyzes a manager based on historical experience. The analysis includes regression statistics such as alpha, beta, sharpe ratio, treynor ratio, tracking error and information ratio. Also, the program allows us to look at rolling period returns, both absolute and relative, r-square data and other performance metrics. The entire program is graphically structured and can incorporate multiple managers to build portfolios and analyze total fund structures. Other capabilities of the system include the following:
  
  
  • Up/Down Market Capture Analysis
  • Market Risk Factors
  • Rolling Period Returns: Relative Performance vs. Benchmark
  • Regression Analysis vs. Benchmark
  • Tracking Error vs. Benchmark
    
    
• Composite Portfolio Characteristics ACG's system can analyze individual managers and composite portfolio data.
• Custom Universe Construction ACG's system can customize manager universes based on predefined characteristics.

Based on this complete analysis along with the qualitative screening in Stage III, we assign values that measure a manager's ability in each category. Each value is considered to be mutually exclusive in that a firm's ranking on owner/manager consistency will not influence the ranking on risk-adjusted performance measures. This evaluation stage is time consuming and critically important as it identifies the managers most suitable and appropriate for the client.

Stage V : Manager Selection

During Stage V, ACG selects the finalists to be interviewed with the client. Once the top candidates have been established, a second look analysis is performed to be sure all issues are addressed. The final selection is typically made by the client with ACG's assistance.