Angeles Investment Advisors LLC Manager Research Philosophy and Process
January 2008
Manager research is a core competency at Angeles Investment Advisors LLC. All the firm’s investment professionals are involved in this key function, leading to an unusual level of depth in our understanding of managers and the investment approaches they apply. In calendar year 2006 Angeles held over 700 manager meetings, and is on pace in 2007 to exceed this number.
Manager Meetings for Year Ending September 2007 (687 Meetings)
Real Assets 3%
(18 Meetings)
Other 4%
(28 Meetings)
Private Equity 3%
(24 Meetings)
US Equity 28%
(192 Meetings)
Hedge Funds 26%
(177 Meetings)
International Equity 13%
(91 Meetings)
Real Estate 9%
(62 Meetings)
Fixed Income 14%
(95 Meetings)
Angeles applies significant resources to manager research by having senior consultants responsible for this activity rather than junior analysts, who are subject to personnel turnover and resulting loss of continuity, and who often lack the judgment that comes with experience to appreciate important intangibles affecting investment firms. This qualitative understanding is key in today’s world, when databases of manager information are widely available and give any firm equal access to basic quantitative information and statistical analytics. Angeles clients can also rest assured that their primary consultant is directly familiar with the managers on their roster, and does not just rely (as some other firms do) on a separate research area for manager expertise. Angeles Investment Advisors’ clients also know that its manager picks are free of any conflicts of interest, since Angeles earns no revenue other than from providing investment advice to its clients. Other benefits of excellent manager research include:
No surprises. Angeles will only recommend a manager when we are confident we and clients will know what to expect from the manager, an expectation that is based on our deep understanding of what the manager does and how the firm accomplishes its objectives. Forward looking. Managers can be an excellent source of investment ideas, both “big picture” calls or new approaches to investments or asset classes. Continuity. Managers recognize Angeles as a capable and perceptive interlocutor that will take the time to understand what they do and how they do it. Firms that appreciate this indepth scrutiny recognize Angeles and its clients as strong long term partners. Angeles Investment Advisors’ investment manager research is an ongoing process, spearheaded by the research of individual consultants and brought to fruition through thorough vetting by our Investment Committee and implemented in client portfolios. The schematic below provides an overview of the process, which is fleshed out in further detail in the remainder of this paper.
I. Screening Managers:
• Manager Database (Performance Screening) • Manager Meetings • Referrals, word of mouth, press reports, competitors
IV. Ongoing Monitoring and Updating of Manager Performance, Personnel, Organization, Etc.
II. Angeles Due Diligence Meetings with Senior Portfolio Personnel
• Conference Calls • Onsite meetings • Meetings at Angeles • Due Diligence Questionnaire
III.
Investment Committee Determines products for “Approval,” “Hold” or “Terminate”
How Angeles Finds Investment Managers Industry Relationships: Angeles’ senior consultants have been in the industry from 16 to 23 years each, for a total of nearly 80 years combined. This experience forms the primary foundation for our firm’s deep familiarity with investment managers. Industry Sources: Angeles finds new manager ideas from contacts in the industry, press accounts, other investment managers, and clients. Database: Angeles screens its database on a regular basis to find firms that are of interest based on performance or other attributes. This ensures our knowledge of managers is comprehensive and up to date. Our primary database for traditional asset classes is
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eVestment Alliance, which has become the industry standard of Web-enabled institutional manager databases. Our primary database for hedge fund research is HedgeFund.net.
Angeles’ Philosophy of Manager Research Rigorous Process: All manager selections (as well as “hold” and termination recommendations) are approved by the Angeles Investment Advisors’ Investment Committee, which is comprised of all the firm’s investment professionals. This process ensures that manager decisions are fully vetted in a collaborative, dynamic process. No manager is approved without thorough due diligence involving meetings with senior personnel, quantitative analysis, a detailed questionnaire, on site meetings (in many but not all cases), and other research. Approved List: Angeles Investment Advisors’ Manager Approved Lists are continuously reviewed to ensure they are capturing our best ideas and the best of what’s available. The Approved List currently has 29 categories (e.g., large cap value US equity, International Small Cap Equity, Core Plus fixed income, Real Assets) each with 2-6 managers. These lists are the starting point for any manager search for most of our clients. Comprehensive: Angeles has access to the best manager databases available. Our primary data source for traditional long only managers is eVestment Alliance, which covers 1,500 firms and nearly 10,000 public market products; for hedge funds we begin with data on hedgefund.net, which covers thousands of hedge funds. We also use Pertrac for hedge fund analytics. For each type of investment we supplement these databases with our own database of meeting notes and an extensive electronic library of manager presentation materials. We also maintain files on private equity, real estate, and real assets. Qualitative Analysis Counts: The numbers game of coverage in a database is only a small part of the story. What counts is the ability to apply our experience and judgment to evaluating a firm’s culture and resources to determine how persistent investment success will be. This experience and judgment is memorialized in notes from over 16 years of manager meetings and over 4,000 investment manager meetings that are stored electronically on our system. The four primary qualitative criteria we assess are: • Ownership and compensation structure. We want to be confident the firm’s investment professionals are motivated to perform well for clients and to stay at the firm over the long haul. Culture: We seek firms with a culture that is investment- and client-focused, not driven by asset gathering. Experience and continuity of investment professionals: The investment team must have demonstrated skill and depth of insight over a meaningful period of time to inspire confidence going forward. Process: An investment process that is well tested, rigorous and sensible, as well as backed by sufficient resources and intelligent inputs. These aspects make it more likely that future performance will meet or exceed expectations.
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Risk Adjusted Performance and Consistency: Past performance is no predictor of future results. But we do analyze firms’ performance track records extensively for consistency and on a risk-adjusted basis, considering tracking error and style consistency over raw returns versus benchmarks. In addition, we scrutinize managers’ GIPS® performance disclosures to evaluate the integrity of the track record including composition and dispersion. Extensive Manager Contact: Angeles Investment Advisors conducts well approximately 700 investment manager meetings each year; in any given day 2-3 manager meetings by our investment professionals would be the norm. Each meeting (which can include conference calls, meetings in our offices, and on-site visits to the manager) is documented by extensive notes and quantitative analysis. These meetings cover US equity, international equity, fixed income, hedge funds (both direct and fund of funds), real estate, private equity fund of funds, timber, commodities, and other asset classes. These meetings are critical for keeping abreast of firms and of investment ideas. Angeles’ access to thought-leaders in our industry is outstanding, and provides direct benefits to clients. Quality Not Quantity: While we meet with many managers, we believe the investment management industry is dominated by mediocre (or worse) firms. Our goal is to ferret out the rare exceptional firms and know them top to bottom, rather than know a large number of firms superficially. This allows us to focus our attention on the firms that are most likely to perform well for clients. Angeles Investment Advisors’ manager research effort is a core strength of the firm that improves constantly.
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