In a world where active managers are under constant scrutiny, the paradigm is shifting. Investment consultants are now posing tougher questions to asset allocators, demanding transparency, and accountability like never before. Are you prepared for the challenge?
I recently had a conversation with manager selection experts Evan Frazier and Joe Wiggins. They shed light on the pressing questions being asked by investment consultants and asset allocators in today’s market landscape.
Here are some of the most thought-provoking questions being posed, along with the underlying motivations behind them:
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If you were to run your strategy systematically as an algorithm, how would you do it?
- This question delves into the core process followed by the manager. It seeks to understand how well thought out their strategy is and whether they utilize technology effectively.
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What are some mistakes you’ve made throughout the strategy’s history or your tenure? How have you reacted?
- Allocators are interested in knowing how managers handle failures and what lessons they draw from them. Demonstrating humility and a commitment to learning from mistakes can go a long way in gaining the trust of sophisticated investors.
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Assuming recent performance is not necessarily a good indicator of your actual skill level, how do you measure the success of your decision-making?
- This question focuses on the outcomes of the investment process. Fund managers need to showcase their ability to assess their own skill beyond just numerical performance metrics.
- How has your investment process evolved over time?
- Investors expect managers to adapt to changing environments while staying true to their core principles. Evolution should be driven by a thoughtful analysis of past decisions rather than knee-jerk reactions to individual instances.
As the investment landscape evolves, active managers need to move beyond simply outsmarting others. The key lies in understanding oneself better and striving for continuous improvement. This involves asking tough questions, reflecting on past mistakes, and evolving investment processes to meet the demands of a changing market.
For those caught off guard by the sophisticated questions posed by the allocator market, it’s time to step up. Transparency, dedication to improvement, and a focus on fostering true partnerships are essential in navigating the new era of active fund management. Embracing these principles can lead to better outcomes for both fund managers and end investors alike.
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