Consultants cross-check the performance numbers and other data in your RFP responses and pitch books against what they have stored in manager databases. Manually induced inconsistencies can automatically bounce you out of qualified searches and/or open your firm up to additional operational due-diligence scrutiny.
Even if discrepancies are easily explained and corrected, the very fact that they slipped through can hurt your firm’s reputation for operational best practices.
Manager databases play a crucial role in institutional searches. Consultants and asset owners rely on manager databases to make allocation decisions.
Having up-to-date, timely, complete and accurate information about your firm in databases is a must-have to win institutional business.
While eVestment Omni does a great job of populating multiple databases for you, you must still prepare input files about your firm and strategies Read more…
Last week, we proposed three criteria you can use to assess your investment philosophy statement:
- It should be a statement of belief as opposed to process, objectives, etc.
- It should avoid logical fallacies, such as non sequiturs and mythology presented as fact.
- It should provide enough content about the philosophy itself to constitute a starting place for in-depth exploration.
Consultants and asset owners who evaluate your firm need to understand your investment philosophy. A good investment philosophy statement can help them do that by providing starting points for further conversation.
Finding out whether your investment philosophy is truly defensible requires an in-depth conversation, perhaps many conversations, as well as observation of the investment process in action. In our experience, few investment professionals can cut to the chase in these conversations. The more likely situation is that the evaluator must work to uncover the professional’s tacit knowledge, something the professional may not be able to identify or articulate without thoughtful questioning and dialogue.
One of the biggest challenges an investment firm faces is maintaining conceptual and process continuity when a key person such a founding partner or CIO leaves the firm. One of the most powerful—and least recognized—team transition tools available to investment firms is their investment philosophy. A genuinely shared investment philosophy transcends the tenure of any one individual and can be a source of stability during times of transition.
Automating the last mile of your client reporting and marketing presentation process is our recommended course of action. But if your firm isn’t there yet, here are some steps you can take to help identify and correct manual errors in the meantime:
1. Use checklists.
Having a checklist of all the tasks that must be completed is a best practice for any manual process.
- Keep the checklist long enough to be meaningful, but short enough to be manageable.
- Have people sign and date the checklist.
- Keep checklist in a central location — not an email thread.
- Save the checklist with the materials produced.
We have heard both investment managers and evaluators of managers grappling with the question: How many investment philosophies should an investment firm have?
We believe a firm should be able to articulate a sound investment philosophy for every investment strategy it offers, regardless of whether that strategy is packaged as one product or several related products. An investment strategy is the application of a set of beliefs to a specific set of opportunities. A strategy is an approach for practicing a philosophy, including beliefs about internal skills, portfolio construction and risk management.
It goes without saying that the beliefs behind an investment philosophy are, by definition, deeply held. But should they be cast in stone, even when new information challenges those beliefs?
We don’t think so.
Investment and marketing professionals often say that their philosophy is what makes their firm unique. And some investment consultants and other evaluators also expect each manager to have a unique philosophy. Perhaps they don’t really mean “unique.” Maybe what they expect is “distinctive.” But if they actually mean one-of-a-kind unique, we think this is a mistake.
In today’s high-tech world, saying you’re “data-driven” has become something of a mandatory for businesses and financial managers. But should your investment philosophy be data-driven? We think “What do the data say?” and “What data would I need to confirm an intuition- or experience-derived belief?” are good questions, and ones that should be asked in order for an investment philosophy to remain vital and grounded in reality. But we do not think that an investment philosophy should be driven by data.
To say an investment philosophy must be data-driven asks more of data than it can deliver. Intuition and personal experience are key ingredients in the development of any belief system, and an investment philosophy is no different. Not all convictions about the markets—or good investment decisions—can be backed up with verifiable data. The nature of investing is to act now on the expectation of future events, and investors are rewarded for being correct ahead of the competition. Sometimes the data don’t reveal themselves until the future has become the past.