Investing: How to select the right fund manager How to select the right fund manager is a question that has spawned an entire industry. Increasingly, there is a counter-argument that maybe it is not so much that there is no an- swer, as the wrong question is being asked. At issue is the persistent practice by fund trustees and private investors alike of hiring and firing managers based on the latest performance outcomes against their peers. Expertd are calling for a complete change in focus away from short-term performance comparisons to what is known internationally as ‘goals-based investing’. Fund managers typically measure their worth based on the amount or return they achieve for every unit of risk they assume. ln their world, risk is measured as volatility of returns, or standard deviation of returns. But to investors, risk may mean loss of capital or purchasing power. From this perspective, goals-based investing allows investors to select their asset management solutions based on the specific financial goal they are trying to achieve. The biggest single threat to people meeting their investment goals is not the occasional under-perforinance of fund managers, but the lack of confidence by members or trustees in staying the course of an investment strategy. Not only is chopping and changing course a costly exercise, but most people are notoriously bad at getting the timing right. If the goals-based investment concept could take hold, it could be a powerful force in changing destructive investment behaviour and in aligning the interests of the investor and their investment managers. Investors would be starting with far more realistic expectations, have a higher probability of achieving them, and as such, be more inclined to ‘stick with the programme’. And from the fund manager’s perspective, what a win for them to be focusing on meeting specific client objectives in the time-frame required and not have to worry whether next quarter’s underperformance will see them to the door. According to research by investment Solutions multi-management, at the average investment manager, 74% of investment staff joined within the last five years, and 51% joined within the last three years. “You won't find many investment professionals with experience from the last bull market,” says Mark Lindhiem, investment Solutions senior manager: research analyst, ”and maybe not too many with experience of the last bear market either.” Nor should you expect to find an invest- ment house’s chief investment officer to have too many grey hairs. if these figures seem high, it’s a percentage that has not worsened in recent years, and in fact, is better than statistics in the UK. Ian van l\liekerk, chief investment officer of Citadel Private Client Wealthcare, offers some practical tips in choosing a fund manager: “You have to have made the decision that you do not want to simply invest in an lndex fund, such as Satrix. ”Secondly, look for someone who can explain what they do, who has a process and can back it up. If they can’t explain it, then they probably don’t understand it themselves. ”Thirdly, they must have the discipline to follow that process, because poor discipline is where most fund managers fall down,” explains Van Niekerk. ”Fourthly, look for consistency. Find evidence of written commentary or portfolio reports from several years ago, and see what they said then compared to what they say today. Then, the last thing you look at is past investment performance,” adds Van Niekerk.
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