How to Spot Investment Risks: Insights from Fund Selectors
Unlock secrets of fund managers: Beyond performance metrics, the focus on integrity, philosophy, role in DB vs. DC, and ensuring long-term success!
In today’s dynamic financial landscape, understanding how to assess and select fund managers has become crucial for long-term success. Leading fund selector experts dive into the nuances of identifying risks before they arise.
The Foundation: Beyond Performance Metrics
When evaluating a manager, it’s not just about past successes. Key areas of evaluation include team experience, corporate culture, and a manager’s clear philosophy that guides decision-making. This comprehensive approach ensures more than mere performance — it gears towards long-lasting stability and growth. As stated in Funds Europe, responsible investing is a standard expectation.
Differentiating DB and DC Schemes
Defined Benefit (DB) and Defined Contribution (DC) schemes have distinct investment objectives and risk tolerance levels. With DB schemes, the sponsoring employer bears the risks, while in DC schemes, it’s the members who finance the risks. This difference greatly influences today’s fund selection strategies.
The Keys to Effective Oversight
Effective management oversight involves detecting early warning signs. This includes monitoring business ownership, controls, fund complexity, and risk management strategies, to ensure a manager remains fit for purpose. Regular reviews and structured monitoring can highlight potential challenges in advance.
Adapting to the Evolving Macro Environment
Increased market volatility and correlation between traditional assets have pushed fund selectors to explore diversified strategies, such as liquid alternatives and private market assets. The pivotal role of asset allocation decisions in influencing long-term returns cannot be overstressed.
Balancing Cost and Quality
Under budget constraints, particularly in DC schemes, balancing cost-efficiency with quality is vital. A blend of active and passive management is necessary; deploying active management in areas where it can add net value, while using passive management in efficient markets.
The Role of Cultural Alignment
Aligning with the culture and communication style of asset managers is key to forming a successful institutional relationship. This relationship marks asset managers as partners, ensuring aligned values that deliver desirable outcomes.
The Open-Architecture Approach with LTAF
An open-architecture structure like the upcoming LTAF from Scottish Widows allows flexibility and control in accessing private markets. Delegated managers undergo scrutinized independent and investment due diligence to ensure they align with the overarching strategy and goals.
By focusing on these core areas, fund managers can navigate complexities, ensuring robust and sustainable investing for the future.