Statistics never lie, but fund allocators say numbers are not enough to tell if a manager is up to the job.
"You might identify [instead] a good manager with a good strategy, serious approach, good team and set-up, even if they do not have the best performance. The idea with active management is to stay with that manager."
For funds that are at the top of their respective category at any point in time, it is important for Thies to ask ‘why?' - which requires more qualitative investigation.
"Is it at the top of performance tables because it has a specific style? Or has it taken specific risks? And what are those risks? If it is not easy to see this over the short term, we can look over the longer term to see what has happened and verify our findings by qualitative fund analysis.
"You really need to understand how a portfolio manager structures the portfolio, and what influences that manager. Will he make big changes to the portfolio when the market changes, or remain stable? You do thorough qualitative analysis on them, and you need to figure out what are the risks the manager is taking.
"For portfolio construction purposes, we want to know where the risks are in the different books, and if those risks will go in the same direction. For example, if you have high credit risks and aggressive products on the equity side, is this what you want, and where do you cap the risks? It is important to know different aspects of risks in order to steer the portfolio."
Understanding a manager qualitatively as well should mean the multi-manager team at Allianz Global Investors faces few surprises from returns - better or worse than expected - in a given market climate.
Rene Gaertner, portfolio manager in AGI's multi-asset, multi management unit, says such pre-emptive analysis can help the team remain with a manager if underperformance is expected, or ask questions if performance deviates inexplicably from an expected path. Hedges can also be put in place.
Famous Quant Misses I - Bernard Madoff
On 11 December 2008, figures from the weekly hedge fund statistics report by HSBC Private Bank's alternative investment group showed the $7.28bn investment firm Fairfield Sentry Ltd was up 5.48% that year.
It had also made 11.23% a year since its inception in 1990, on average annual volatility of just 2.5%. It was also on the same day that police arrested the manager underlying Fairfield Sentry - Bernard Madoff - and went on to prove he had run the largest Ponzi scheme in history instead of making any trades for years. Hedge fund indices that included Madoff in them had to take performance write-downs of 40% or more shortly after his arrest and conviction.
Famous Quant Misses II - Philip Richards
The Special Situations hedge fund at RAB Capital made 2,500% in the 28 months to April 2005 under manager Philip Richards. It continued thriving while public markets and the IPO pipeline to investors remained liquid.
Then came 2008. Richards' punt on nationalised UK mortgage bank Northern Rock backfired, as did one in a racing car venture. Appetite for listings evaporated, closing one exit route Richards had from small mining companies. RAB had Lehman Brothers as one of its counterparties, and Special Situations staggered to a 70% loss - more than three times the 19% loss from its industry.
RAB offered to cut fees for investors if they committed for three years, or the fund would be run down and cash returned at NAV. When the lock period ended, investors filed to pull 79% of their money out.
Richards since moved out of illiquid assets, and RAB itself has delisted from London's Alternative Investment Market