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Tue, 22 Jun 2010 - 20:30

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Daily Equity Report

*Manager research*

With thousands of professional investment management firms around the world, selection becomes a very important process. Multi managers have tried to identify key drivers and in so doing develop manager research processes.

Russell investments, an international fund manager in investment funds, put out a recent presentation on their manager research process. This is something that they started in 1969 and so over the years have refined their methodology of selecting money management firms around the world.

Naturally in making selections, the idea is to try and identify the key success factors. Their original focus was on what they now term the old 4 P's, being people, process / philosophy, portfolio and performance, which is typically used in due diligence processes.

While they have developed the New 4 P's they still consider the old 4 P's an important part of manager selection. I will cover the New P's in a later article, but what most multi managers focus on is:

. People

Because investment management is a people business, it is important to gain a good understanding of the teams and or individuals behind the business that are expected to generate the returns that clients expect.

One must understand who these people are, background, qualifications, and track records etc. Are they team driven, or does the business revolve around one person?

. Process / philosophy

Having a defined investment philosophy is critical to long term sustainable results. Because philosophies can vary from firm to firm, a properly defined investment process will see that the philosophy is implemented. A multi manager should gain a clear understanding of the philosophy and processes involved and also how this matches up with the characteristics of the people in the organisation.

. Portfolios

This is an important step that Russell Investments identified, which is to analyse the portfolios going back over time and to assess how these have matched the firms adopted philosophy. For example where a manager espouses a value philosophy but in the past had the bulk of the portfolio invested in growth shares, this could be indicative of an unclear investment process.

. Performance

This is often mistakenly used as the first step in manager selection, but should come near the end. Clearly one should be looking for superior past performance, but its more important that all aspects of the due diligence line up. For example a value firm displaying 3 year poor outperformance against the market, may still be in the running if the past 3 years was a growth market, where value investors tend to underperform.

I will look at some of the other factors that one should consider tomorrow.

Go bafana bafana!

Kind regards

Ian de Lange info@seedinvestments.co.za www.seedinvestments.co.za 021 9144 966

Tue, 22 Jun 2010- 17:13

--------------020303040305010205050304 Content-Type: text/html; charset=ISO-8859-1 Content-Transfer-Encoding: 7bit

Daily Equity Report

Manager research

With thousands of professional investment management firms around the world, selection becomes a very important process. Multi managers have tried to identify key drivers and in so doing develop manager research processes.

Russell investments, an international fund manager in investment funds, put out a recent presentation on their manager research process. This is something that they started in 1969 and so over the years have refined their methodology of selecting money management firms around the world.

Naturally in making selections, the idea is to try and identify the key success factors. Their original focus was on what they now term the old 4 P’s, being people, process / philosophy, portfolio and performance, which is typically used in due diligence processes.

While they have developed the New 4 P’s they still consider the old 4 P’s an important part of manager selection. I will cover the New P’s in a later article, but what most multi managers focus on is:

• People

Because investment management is a people business, it is important to gain a good understanding of the teams and or individuals behind the business that are expected to generate the returns that clients expect.

One must understand who these people are, background, qualifications, and track records etc. Are they team driven, or does the business revolve around one person?

• Process / philosophy

Having a defined investment philosophy is critical to long term sustainable results. Because philosophies can vary from firm to firm, a properly defined investment process will see that the philosophy is implemented. A multi manager should gain a clear understanding of the philosophy and processes involved and also how this matches up with the characteristics of the people in the organisation.

• Portfolios

This is an important step that Russell Investments identified, which is to analyse the portfolios going back over time and to assess how these have matched the firms adopted philosophy. For example where a manager espouses a value philosophy but in the past had the bulk of the portfolio invested in growth shares, this could be indicative of an unclear investment process.

• Performance

This is often mistakenly used as the first step in manager selection, but should come near the end. Clearly one should be looking for superior past performance, but its more important that all aspects of the due diligence line up. For example a value firm displaying 3 year poor outperformance against the market, may still be in the running if the past 3 years was a growth market, where value investors tend to underperform.

I will look at some of the other factors that one should consider tomorrow.

Go bafana bafana!

Kind regards

Ian de Lange
info@seedinvestments.co.za
www.seedinvestments.co.za
021 9144 966

Tue, 22 Jun 2010- 17:13

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