I’m currently advising two former clients, both sovereign funds overseas, on their asset allocation & investment strategy. This has been my gig last few months, but not full time.

For asset owners, selecting a fund manager is a part of the asset allocation process. It’s as important as identifying the right investment idea. More importance should be given here

External fund managers are hired to plug the gap in skill set which may not exist within the firm. Essentially that portion of the asset allocation is outsourced.

The method of identifying fund managers has been rather academic unfortunately. Been in many meetings where less was asked about managers compensation, alignment, philosophy & motivation.

One European client stood out, toughest one (but fair) I’ve ever had. Well prepared, played devil’s advocate & always asked the right questions. No doubt, they continue being the benchmark many aspire to be.

Many have asked what to to look out for when selecting external fund managers. I’ve made a thread with 10 points. https://twitter.com/iqbalrofficial/status/1329302170156482560

(1) Investment Philosophy - not much time spent on this. Ask the managers what they believe in and not. What will they invest in and not. This will help you determine if they practice what they preach

(2) Investment Strategy - at what point can investors expect out / under performance. How are investments selected / exited? My former boss famously tells clients they should always expect underperformance at some point. Refreshing honest my sales hated

(3) Risk Management - how is this measured. How is this applied to the fund without being restrictive but able to pick up risk pro-actively? What are the risk system being used here

(4) Trading & Execution- how is this done? What systems are being used? How are orders aggregated and allocated fairly to all clients? Redemption - how is this managed?

(5) Team - who are the team members. What are their individual responsibilities? Who has the accountability? How are ideas discussed?

(6) Remuneration - How are the managers paid? In cash or in units of the fund they manage (preferred as it aligns interest with fellow investors). Are these bonuses staggered?

(7) Succession - if it’s a star manager approach, what happens if the manager leaves? Never a good thing to trust everything in one person’s hand. If it’s a team, who takes over? How prepared are they to take over immediately?

(8) Knowledge Transfer - often never discussed but wasted opportunity if not. Fund managers have built very good database of research, process, systems. Clients should learn from it. Have your staff seconded for few weeks / months to learn. Get access to literature that is public

(9) Corporate Strategy - what is the firm’s vision of growth? Be wary of firms that chase AUM only. How much investment has been put in for client servicing and distribution?

(10) Culture - I love it when firms can articulate their culture effortlessly. Means they have given thought to what makes them tick. Why is this important? It’s a people business. You are investing in people. You must understand what binds them together

There are other things too, but these are the ones top of my mind. Clearly the ones that I get a lot, or feel that it should be asked / focused more on