Investment Manager Analysis A Comprehensive Guide to Portfolio Selection, Monitoring and Optimization

by Travers, Frank J.

• ISBN13: 9780471478867
• ISBN10: 0471478865
• Edition: 1st
• Format: Hardcover
• Copyright: 2004-08-02
• Publisher: WILEY

Summary

Praise for Investment Manager Analysis "This is a book that should have been written years ago. It provides a practical, thorough, and completely objective method to analyze and select an investment manager. It takes the mystery (and the consultants) out of the equation. Without question, this book belongs on every Plan Sponsor's desk." -Dave Davenport, Assistant Treasurer, Lord Corporation, author of The Equity Manager Search "An insightful compendium of the issues that challenge those responsible for hiring and firing investment managers. Frank Travers does a good job of taking complicated analytical tools and methodologies and explaining them in a simple, yet practical manner. Anyone responsible for conducting investment manager due diligence should have a copy on their bookshelf." -Leon G. Cooperman, Chairman and CEO, Omega Advisors, Inc. "Investment Manager Analysis provides a good overview of the important areas that purchasers of institutional investment management services need to consider. It is a good instructional guide, from which search policies and procedures can be developed, as well as a handy reference guide." -David Spaulding, President, The Spaulding Group, Inc. "This book is the definitive work on the investment manager selection process. It is comprehensive in scope and well organized for both the layman and the professional. It should be required reading for any organization or individual seeking talent to manage their assets." -Scott Johnston, Chairman and Chief Investment Officer, Sterling Johnston Capital Management, LP "Investment Manager Analysis is a much-needed, comprehensive review of the manager selection process. While the industry is riddled with information about selecting individual stocks, comparatively little has been written on the important subject of manager selection for fund sponsors. This is a particularly useful guide for the less experienced practitioner and offers considerable value to the veteran decisionmaker as well." -Dennis J. Trittin, CFA, Portfolio Manager, Russell Investment Group

Author Biography

Frank J. Travers, CFA, is a Principal and Senior Portfolio Manager at Pine Street Advisors, LLC, where he is responsible for co-managing a diversified hedge fund-of-funds product. Previously, he was a managing director and director of research at CIC Group, Inc., where he managed a family of eight fund-of-funds, and acted as the portfolio manager for the firm’s U.S. small-cap equity portfolio. Frank was also the director of manager research at CIBC World Markets, where he was responsible for investment manager due diligence for the firm’s North American wrap program. His research papers and articles have been published in the Journal of Investing, Institutional Investor’s Guide to Small Cap Investing, and Plan Sponsor.

Table of Contents

Dedication.

Introduction .

SECTION ONE: BEFORE THE ANALYSIS.

Chapter One:  Investment Guidelines.

Investment Policy Statement.

Investment Objectives.

Responsibilities.

Asset Allocation.

Investment Restrictions.

Portfolio/Performance Evaluation.

Operational Issues.

Chapter Two:  Investment Manager Sourcing.

Industry Changes.

Non-Linear Process.

Third Party Databases.

Sample Screening Criteria and Techniques.

Internal Databases.       

Media/Internet.

Investment Consultants.

Industry Contacts.

Modifying the Search.

Chapter Three:  Request For Information.

Formal Questionnaire.

Simple Questionnaire.

Sample Request for Information (RFI).

SECTION TWO: EQUITY & FIXED INCOME MANAGER ANALYSIS.

Chapter Four:  Performance Analysis.                       

Dollar Weighted Return.

Chain Linking Returns.

Cumulative Returns.

Annualized Returns.

Adjusting for Cash Flows.  

Modified Dietz.

Time Weighted Rate of Return.

Equity Benchmarks.

Up/Down Market Analysis.

Peer Group Comparisons.

AIMR Provisions.

Composite Analysis

Chapter Five:  Risk Analysis.

Defining Risk.

Return Histogram.

Standard Deviation.

Risk/Return Graph.

Sharpe Ratio.

M2 Ratio.

Information Ratio.

Treynor Ratio.

Jensen’s Alpha.

Downside Deviation.

Sortino Ratio.

Regression-Based Risk Statistics.

Value at Risk.

Chapter Six:  Portfolio Analysis.

Sector Weights.

Industry Weights.

Market Cap Analysis.

Portfolio Weights.

Fundamental Analysis.

Valuation-Based Fundamental Characteristics.

Growth-Based Fundamental Characteristics.

Liquidity-Based Fundamental Characteristics.

Chapter Seven:  Information Gathering.

Questionnaire.

Section One – Organization.

Section Two – Firmwide Professional Staff.

Section Three – Operations.

Section Four – Product Information.

Form ADV.

Data from the Manager.

News Searches.

Chapter Eight:  Initial Interview.

Initial Meeting.

Transcript of Sample Conference Call.

Meeting Memo.

Sample of the Meeting Memo.

Chapter Nine:  Attribution Analysis.

Absolute Attribution.

Sector Attribution.

Industry Attribution.

Market-Cap Attribution.

Fundamental Characteristics Attribution.

Regional/Country Attribution.

Relative Attribution.

Sector Attribution.

Asset Allocation Effect.

Selection Effect.

Interaction Effect.

Sample Relative Attribution Results.

Historical Attribution Analysis.

Currency Effect.

Multi-Currency Attribution.

Chapter Ten:  Style Analysis.

Returns-Based Style Analysis.

Style Analysis Worksheet.

Style Analysis Explained.

Evaluation of Style Analysis Results.

Style Graph.

Rolling Style Graph.

Attribution Analysis Using Style Analysis.

Chapter Eleven:  Onsite Meeting.

Questions for Investment Professionals.

Questions for Marketing Professionals.

Questions for Client Service Professionals.

Questions for Technical Staff.

Questions for Legal & Compliance Professionals.

Onsite Meeting Memo.

Sample Onsite Meeting Memo.

Chapter Twelve:  Manager Scoring Model.

The Model.

Scoring Methodology.

Section One – Investment Professionals.

Section Two – Process.

Section Three – Performance-Related Risk/Reward.

Section Four – Portfolio Risk.

Section One – Organization.

Section One – Operations.

Model Interpretation.

Chapter Thirteen:  Background Checks & Contracts.

References.

Questions for Personal References.

Questions for Former Co-Workers.

Questions for current & Former Clients.

Background Checks.

Credit Checks.

Investment Contracts.

Guidelines for Separate Accounts.

Sample Investment Manager Contract.

Chapter Fourteen:  Fixed Income Manager Analysis.

Performance Analysis.

Risk Analysis.

Portfolio Analysis.

Information Gathering.

Interviewing Process.

Attribution/Style Analysis.

Style Analysis Example.

SECTION THREE: ALTERNATIVE INVESTMENT MANAGER ANALYSIS.

Chapter Fifteen: Hedge Fund Manager Analysis.

Chapter Sixteen: Private Equity Fund Analysis.