Risk management and transparency are key

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Transparency, excellent risk management and humility are key attributes in a fund manager says Iris Grümm, senior fund selector at Vienna-based Erste Bank.

Iris Grümm is senior fund selector for Erste Bank based in Austria. With €45bn AUM as of 2013, it is one of the largest asset managers in Central and Eastern Europe.

The majority of Grümm’s clients are classified as retail or private banking, which restricts her mainly to traditional asset classes. And although, since the economic crisis, she has been increasingly looking for alternative investment strategies in order to ensure sufficient returns, most of the funds she invests in are onshore. Absolute return funds and other offshore products remain an exception in her portfolio construction.

When it comes to tracking down new funds, Grümm relies on a combination of databases such as Morningstar and networking events. “We are currently using Morningstar Direct to obtain underlying data, but we are also attending events such as the InvestmentEurope Pan European Fund Selector Summit in Lausanne.

“The advantage of events is the opportunity to exchange ideas with other fund selectors, to observe the latest trends on the market and to examine a selection of the best fund managers worldwide, who wouldn’t otherwise come to Vienna.”

Her team analyses up to 100 peer groups, out of which it then provides one to three recommendations. At the moment, she is actively looking for European and US small caps, as well as European and global value funds.

The personality of fund managers can play a key role in investment decisions. “The right personality depends on the investment strategy. When it comes to quant managers, I quite like it if someone is a bit of a nerd, who is completely wrapped up in the world of numbers.

Qualitative managers are a completely different category. I like it if they maintain a sense of humility. There is nothing worse than a portfolio manager who thinks he is infallible,” Grümm stresses. For Grümm, automatic red flags for fund managers include a lack of transparency in performance management, and if a fund manager is unable to provide sufficient explanations.

“It doesn’t even have to be the case that the fund is underperforming; failure to explain performance sets my alarm bells ringing and the breakdown of trust generally can’t be restored.”

Another key aspect in creating trust is risk management.”The cooperation between fund manager and risk department is very important to us and one of the aspects we emphasise during our on-sites.

“The better the level of risk management, the better the long term performance of a fund, a few leading asset management companies had to learn that the hard way during the last recession. A portfolio manager who can’t fully comprehend the risk levels of their individual positions is a deal breaker for us.”

Looking ahead, what changes does she predict for HNWI funds? According to Grümm “the financial crisis has left severe damage to the image of the financial industry.It is nowadays no longer possible to simply sell a fund and to expect a client to retain it in the portfolio for the coming years if the performance is insufficient. Our task of qualitative fund selection will therefore become increasingly important.

“The financial crisis has also contributed to growing sophistication among clients, which increases the demand for tailor made investment solutions,” Grümm concludes.

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