Going beyond numbers in search for best managers
Statistics never lie, but fund allocators say numbers are not enough to tell if a manager is up to the job.
Early last month, Europe’s equity fund managers breathed a sigh of relief. Why? Because at long last, their three-year performance statistics did not include the effects of the global financial crisis.
More bad times for equities followed that 2008-09 crisis, of course – not least the 10.1% fall last year as the eurozone’s debt crisis intensified from mid-2011.
But last month, the almost relentless drop of 53% in the MSCI World Index (in euro terms) from 9 October 2007 to 9 March 2009 finally became history – at least in terms of the three-year analysis period so often mentioned.
Instead of including that halving in value of the global market, managers’ three-year numbers now begin to reflect how much they could make as global shares jumped by 84% over the 13 months after March 2009.
But portfolio managers are not out of the woods yet, as Europe’s allocators all agree the recent crises show that fund analysis must encompass more than just numbers.
Allocators stress they must meet and understand a manager and their process – especially from times of crisis. Statistical analysis might help in the early stages of examining who to pick and reject, as well as to assess if a marketing pitch is supported by concrete facts.
But it is not the be-all and end-all of putting managers on the spot. Andreas Bichler from SEB Asset Management’s multi-manager team in Frankfurt, says he “did a lot more quantitative analysis in the past” than now.
The role of quant
‘Quant’ has its role, Bichler says. “But with a manager, you need to build up interviews, and meet them at different times and in different climates. You cannot do that with quant analysis. You need to look people in the eye and, if you have asked a question, ensure you get an honest answer to know what kind of reliable communication you get. Just making teleconference calls is not worth it.”
His words are mirrored by the approach of houses such as Sauren, which emphasises it is paramount to know and understand the manager, not just their fund or employer.
Bichler acknowledges that quant analysis can help in knowing whether a manager’s claims are supported by the statistics. But even here, he highlights some significant limitations of pure numbers.
“If the statistics are for less than 12 months, how can I see if the manager truly has good performance? For quant analysis, you need a longer time frame, but then you must also know if the same process and the same team were in place. That is about more than just numbers.