José Maria Martinez-Sanjuán (pictured), head of Manager Research and Selection at Santander Asset Management, explains how the research team works within the Global Multi-Asset Solutions team and alongside Santander Bank.
Thanks to a recommended list that the company calls the “manager matrix”, José Maria Martinez-Sanjuán and his other eight team members get some 300 names covered across a full asset class range for a total of €48bn assets under influence.
The team of nine is split between three different locations: London, Madrid and Boston. Half of total assets are in advisory services while the other half is in managed accounts, with the majority of
them being in third party funds.
“We work alongside our fund managers, helping them in the portfolio construction process by telling them which are the best managers for each strategy. We also help with the open architecture proposition which is offered by our private banking team to retail clients mainly,” Martinez-Sanjuán says.
Three key characteristics make the Manager Research and Selections team work efficiently, according to Martinez-Sanjuán: experience, independence and specialisation.
“All our staff have on average over 15 years’ experience; we are truly independent as we are not managing money directly and each of us is specialised in a particular asset class, which really is the best way to go about fund selection, in my opinion.
“If one considers that there are more funds than stocks in the market, a selector cannot possibly be an expert in all of the asset classes,” he says.
QUALITY OVER QUANTITY
Although the research team goes through both a quantitative and a qualitative analysis, the latter is what really makes the difference, Martinez-Sanjuán says. To spot quality
though, the starting point needs to remain the numbers, so databases play a crucial role in the selection process.
For this reason, after going through databases such as Morningstar and Lipper and the less formal process of personal contacts as well as specialised magazines and events, Martinez-Sanjuán and his team build their peer groups from a bottom-up perspective.
“A rigorous definition of the peer groups is essential to make sure we are actually comparing comparable factors for each asset class. We do this mainly from a bottom-up perspective. It takes longer but it is the best way to do it in our opinion.
“We apply quantitative analysis to each peer group but also a filter as process need to narrow things down. Importantly, we are not necessarily always looking for best in class. Sometimes it’s about looking for a particular strategy that matches a specific client demand,” Martinez-Sanjuán says.
“Our qualitative analysis is based on four pillars: the asset management company; the fund management team, strategy and investment process and risk management. We use a 30 point ranking assessment,” he adds.
MANAGER QUALITIES AND RED FLAGS
Martinez-Sanjuán also explains that the Santander AM’s team only looks at funds with minimum size of €100m and a track record of at least three years at a strategy level.
“That doesn’t necessarily apply to the fund’s age, as long as the manager and their strategy are consistent,” he specifies.
Managers are obviously also key to Martinez-Sanjuán’s team, “unless there’s a computer running the fund!” he says.
“The manager qualities that we look for include the stability of the investment team and a robust decision making process. A sound investment experience and a proper compensation policy, as well alignment of interest between manager and the investor are also star points for us,” he says.
Whether the manager has risk control tools in place is also a very important requirement for Martinez-Sanjuán and his team.
As for red flags, Martinez-Sanjuán says that the monitoring process revolves around the same four pillars of the qualitative analysis.
“Changes in the investment teams and changes in business focus would apply here, as it might mean fewer resources. If the alpha creation is not consistent with the philosophy and objective of the manager then that would be a warning signal as well,” he concludes.