Mussie Kidane of Pictet Wealth Management says the evolving nature of selection means there must be scope to consider funds of different size and age.
Kidane acknowledges that selectors still have to conduct thorough due diligence, especially on the operational level, on known managers who set up their own funds.
So would he opt for a fund of funds or manager of managers? “There are pros and cons to both. The manager of managers is attractive because it allows for more control and transparency, and inflows and outflows from other investors wouldn’t adversely affect the underlying portfolios. However, this comes with a bigger commitment to a manager.”
The way the Pictet Wealth team monitors opportunities is to track every publicly available fund in major databases, through quantitative models and screening. In-house quant analysts then create proper peer groups to sort, compare and rank these funds for consideration by fund selectors. Pictet also has a hedge fund team that is actively sourcing opportunities. The team taps a network of funds that may not be publicly available.
“As analysts, we are checking our respective peer-groups continuously. Something may pop up to draw our attention,” Kidane explains. “We then take a closer look: what is going on? How is that compelling performance being achieved? We then set off on fact finding mission via conference calls first and ultimately face-to-face meetings.
“Our role is to play the devil’s advocate. It becomes a very engaging process to discuss these issues with knowledgeable people to match up the decision making process and the results. Most of the research is geared towards discretionary mandates, although the team also caters for the advisory side.
Is it essential for funds to be able to demonstrate a track record? “Often times, yes. But we will look at funds with no track record but for our watch list. We are equally interested in track record and the size of the funds. We are not comfortable holding a huge portion of a given fund.”
Passion is key
Negative factors for Kidane are centred very much on the character of a manager. “We like managers that have an absolute passion for what they do. I highly value such an attitude in a fund manager. They are paid to have conviction and to take decisions. If and when the decisions turn out to be wrong, I appreciate the egoless-ness to admit the mistake and move, instead of going for the blame-game. I hardly ever select fund managers I would not give my own money to.”
As one of four founding members of the Association for Professional Investors, Kidane is also dedicated to promoting and professionalising further a critical part of the industry. “The task is immense. We have to build network and establish a formal dialogue between producers and users of investment products. The discussion and feedback would help establish best business practices along the value-chain for the benefit of the end clients.”
But he believes that some of the structural and regulatory changes being proposed at the moment are leading the industry, and clients, into uncharted terrain. The heavy-handed and brisk regulations underway are likely to have unintended consequences and might end-up restricting investor choice, he explains.
The proposed Europe-wide pay cap on asset managers may have been an understandable response to regulators’ concerns. “Sure, there has been excesses,” says Kidane. “But I am afraid that the proposes remedy might finish up causing more trouble that the disorder it was supposed to cure.”
APFI Champions and fund selectors
The Association for Professional Fund Investors was formed in 2011 by Luca Di Biasi, Carlos Fernandez, Mussie Kidane and Roland Merketeer to be a forum and ‘collective voice’ for fund selectors; a way to share ideas and best practice.
There are some ‘simple truths’ that APFI members see as central to their Association’s philosophy:
• Funds are bought, not sold;
• Hot concepts are the basis for short-lived bubbles. APFI members seek to isolate funds and their managers that have sustainable investment merit;
• A strong competitive environment for funds is crucial, of which open architecture is a key component;
• A well thought out, sophisticated approach to fund research is forward looking, and past performance is only a limited aspect of the selection process;
• There is no ‘right way’ to analyse and select funds. APFI members use a broad range of techniques and methodologies;
• Professional investors work most effectively in an environment of independence and objectivity.