Fund selection principles

  1. Good fund managers exist and can be found
    There is no correct or incorrect approach to active management. Different approaches suite different skill sets. It is crucial to align a manager’s skill to the mandate.

  2. Beating the market is difficult, especially over short-term; therefore, evaluate managers over full market cycle
    It is not possible to consistently outperform the market over shorter periods of time. Long-term outperformance will almost always come with shorter periods of underperformance. The greater the degree of long-term performance, the greater the possibility of severe shorter-term underperformance.

  3. Investment philosophy and process of fund manager must be bought into
    It is crucial to identify, understand and buy into a manager’s particular ‘edge’ and why this is likely to add value over the longer term. Equally important is the understanding of the manager’s circle of competence, so that it is possible to determine when they stray from their core competency.

  4. Ensure stability and strength in the fund manager and team
    Continuity of key people and the investment philosophy is crucial for replicating past successes.

  5. Access to and transparency of fund manager/team is crucial
    It is critical to be able to have face to face time with one’s chosen fund manager and team. This allows one to make a true assessment of their character and personality.

  6. Alignment of interests
    Ideally, fund managers should own the businesses they work for, or at least be significantly invested in the funds they manage. This ensures long-term alignment between fund manager and investor.

  7. Act as stewards of capital
    There is evidence of a positive correlation between the stewardship ‘score’ of a fund manager and their performance track record.

  8. Size is a consideration
    In certain asset classes and markets, there is an advantage to managing a smaller pool of assets. The more concentrated/top heavy the asset class, the bigger the advantage of managing fewer assets.

  9. Separate operational due diligence
    Separate operational due diligence, with veto rights, is important to ensure the investment due diligence does not override operational issues.

  10. If in doubt, don’t choose

Twitter facebook Facebook youtube YouTube linkedin LinkedIn
Legal Privacy PAIA Manual Cookies Manage Cookies