How to Remove a Nonperforming Asset Manager?

Removing A Nonperforming Asset Manager

A challenging decision for those on a pension fund investment committees is when to remove a fund manager who is not performing up to expectations. When one disappointing set of quarterly numbers is followed by an equally disappointing set of numbers, doubts about a fund manager abilities begin to increase. Has this person lost their edge? Is it possible their investment style is not able to produce when faced with difficult market conditions? Is their investment style able to produce superior returns in the long run? How long is an investment committee willing to wait for the possible superior returns?Pension Fund Investment Consultants

It is easy to believe a manager has lost their skill when they take big bets that committee managers believe is heading in the wrong direction. This is when a committee member needs to think of how confident they are of their own judgment. The advice of a pension fund investment consultant may not be worth hearing. The committee manager could be thinking of research done last year by the academics at Oxford University’s Saïd Business School. The research results showed there is no evidence that a consultants’ recommendations provided any value with regards to a standard for products that were not recommended.

Easy Removal Decision

The decision of when to remove a fund manager can be made easy. This will happen when their performance appears to drift away from their style, and the fund manager is not able to fulfill their original mandate. Is the fund manager someone who now gathers assets and does not maximize the interests of beneficiaries? In this case, the decision to remove them will be easy. When a fund manager terminates their position and goes to manage another fund, it will also be easy.

Soft Factors

Stamford Associates is a London-based investment consultant. They have a unique approach to hiring and firing fund managers. Stamford Associates believes the investment industry is much too focused on historic statistical data. It is their belief that more attention should be paid to soft factors. It stands out among investment consultants for having a psychologist as part of their very intense manager selection process. This approach is based on the work of Daniel Kahneman, who was a Nobel Prize winner for behavioral economics. Satmford prefers to value managers with portfolios that contain a small number of high-conviction stocks. They require absolute transparency. Stamford Associates requires the personal finance details of their fund managers. They also expect access to their portfolios at any time.

Firing

Stamford handles under-performing fund managers by asking clients to give them more money. This is part of a process called disciplined rebalancing. This will only happen if Stamford has confidence in the fund manager. It will fire a manager with performance numbers that look good. They are also reluctant to remove a fund manager if their underlying portfolio appears to be exceptionally cheap. This approach has been successful for pension fund clients. According to Stamford, their annual average excess return against designated benchmarks was 1.6 percent of base fees as well as gross performance fees. It appears this type of active management produces positive results.

Post-Mortem Firing

An old-fashioned approach to firing decisions that could be used more often is called post-mortem. This involves asking a fund’s consultants to examine the numbers and determine if would be better to retain the fund manager. This method has a history of exposing those who have been penalized for inadequate performance for no reason.

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One response to “How to Remove a Nonperforming Asset Manager?

  1. Pingback: Future Uncertain for Swiss Private Banks | Alpha Banker·

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