Was your manager hit by a bus?

I have always found the ongoing monitoring of asset managers to be very difficult to do well.  It has always been too hard to gather and keep track of qualitative information.

Outside of the first-hand experience of a manager/fund analyst, there is little appreciation for the complexity and challenges faced.  Choosing a new manager is (forgive me) the sexy bit of the job.  Compared to what comes next, it’s also relatively easy.  Keeping track of a selected manager and continuously verifying one’s thesis for having hired the manager is a daunting task.  

Running periodic analytics of performance numbers is a far cry from proper monitoring.

Not enough is focus is paid to the process and importance of monitoring managers.  Reams are written on ‘manager selection’ but snippets on monitoring and ongoing due diligence.  All the while, requirements from regulators, compliance officers and business management are putting increasing pressure on analysts to cover more products, more thoroughly.  

In reality, manager research analysts are spending more and more time on the monitoring process.  It's proving to be difficult. Alternatively, some are opting to outsource the oversight of a portion of their client’s investments at great cost and a reduction of control and transparency.  

The range of products continues to grow.   Think ETFs are a nice, simple, transparent vehicle that doesn’t require due diligence? – think again, there are more potential conflicts and complexities hiding in plain sight than most can imagine. The required oversight is underestimated. But I have digressed.

Ongoing monitoring has long been done through periodic performance reviews– particularly as the volumes of products requiring oversight has grown. If the manager is above the bogey (e.g, 50th percentile, a Sharpe ratio of X or a vol of Y) than everything is fine and the recommendation remains intact.  

I don’t mean to suggest that analysts are not diving into the heart of the matter and assessing qualitative information.  The impacts of changing people and processes, risk controls, firm ownership structure, etc. are deemed important by the vast majority of the manager research community. In fact, a growing number of manager research teams distribute quarterly update due diligence questionnaires seeking to identify changes that may point to problems.  Gathering and organizing the core information required for this process is not the value-add of a research analyst.  More time should be allotted for analysis and diving into the nuances not sending out and collecting questionnaires.

Unlike performance, the qualitative information required for making ongoing assessments of managers and their investment is challenging to get in a format that is both useful and comparable.  Until now, qualitative analysis and ongoing monitoring has been harder to do than it should be.  In a standardized format with modern workflow tools, the basic task of adding a robust layer of qualitative oversight has become straightforward and easy.

At Door, we are equipping manager research analysts to more efficiently gather and organize key qualitative information on the managers and products they cover. We’ll leave the analysis and selection of managers to you.  

Let us help with the gathering of the information crucial to ensure that the full scope of the managers and products you cover.

Door is available for UCITS funds and will be available for 40 Act in a few weeks. ETFs are next. We have reimagined the due diligence questionnaire.  Robust, secure, standardized and digital. It’s free for use by research analysts.

www.guidetodoor.com