Perhaps it is actually harder to pick a manager than to pick investments. The general statistics against active management are well-known. In 2012, for example, 63% of large cap mutual funds failed to match the market (even worse for hedge funds).
As a result, the full choice set for selecting investments includes both asset class as well as manager, and the probability of choosing a good asset class And a good manager is less than a good asset class itself. Given that most investors usually time managers incorrectly, are there some nontraditional metrics which would work?
Tudor's infamous divorce heuristic notwithstanding , what about some more specific methods to pick a manager? How about through the lens of incentives. A manager should be incentivized for long term outperformance.
1) The manager should still be "hungry." If you are already a household name and have "made it" as a big time manager, you cannot have the same drive for performance as before. A key barrier could be $1B AUM, but the idea should be clear.
2) The manager should be focused primarily on investing. If he has a such a large staff that he spends most of the time either buying baseball teams or opening a huge new office which makes headlines.
3) The manager should not be on CNBC etc. enough to be a talking head. If the manager has enough time and/or interest to continually market himself, he/she is too focused on raising money. Raising money/awareness of his/her ideas does not really make performance better.
What other ones could work?
Icon source: http://www.veriswp.com/investing/investment-manager-selection/
I work in the business of picking fund managers and I can tell you that it is all about performance and that means, track record.
Had lunch today with two fund manager selectors today from a BB (GS, JPM, MS). They were pretty cool. They did say that performance was about 99% a factor in their selection process, and that being able to form a relationship with the manger(s) was a plus they really liked because it made meetings/trips out to visit them more pleasurable.
Information ratios don't lie.
Sint dolorum quasi pariatur rerum eligendi dolor quaerat ea. Deserunt corrupti amet quasi et. Deserunt dolores qui nobis sint fuga. Cupiditate iusto natus et cumque id illum.
Architecto et consectetur occaecati quae. Vel autem maiores ratione explicabo laboriosam accusantium accusamus. Temporibus voluptatum dolorum rerum est tempora rerum vel. Exercitationem sunt dolores quo aspernatur soluta quisquam. Omnis impedit aut enim numquam omnis cumque corporis. Aut quia mollitia eum quos ut.
Sit dignissimos cumque veritatis aut alias odio. Ad saepe qui nemo veniam ut maxime.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...