5P+R is the formula used by A&G Banca Privada’s head of fund selection Diego Fernández and his colleagues to select funds for clients of the
private bank based in Madrid.
People, Process, Philosophy, Performance, Portfolio and Risk. That’s all you need for a selection process that properly meets clients’ needs, according to Diego Fernández, who does selection at A&G Banca Privada.
Founded in Spain in 1987 with the support of local wealthy families and entrepreneurs who were seeking for independent advice for capital growth and preservation, the bank today holds some €5bn of AUM, of which €1.2bn is held in third party funds.
It is this latter part where Fernández is active with colleagues.
QUALITATIVE ANALYSIS FOR ACTIVE MANAGEMENT
Fernández’ way to fund-picking seems a clear, straightforward one, which bets on qualitative screening to hunt out the best actively managed funds.
“We are definitely qualitative when we analyse funds. In a perfect world, analysts should not even have to look at performance in their due diligence process until the very last stage to make sure numbers reflect the analysed factors.
“In reality, we need to optimise limited resources, there we look at performance while still avoiding investing with the rearview mirror,” he says.
Although 90% of the funds selected by Fernández and his team are actively managed, the company has nothing against trackers and is ready to use them for the relevant asset classes and regions. “Our exposure to passive strategies has increased and we think that there are certain asset classes or regions in which passive can be better than active.”
“The trend is to differentiate alpha from beta strategies and try to avoid those in the middle, which tend to disappoint in the long run and hardly justify their fees,” the selector explains.
When looking around for the best sources, Fernández says that managers and sales teams are the first touch point.
However, competitors, specialized magazines and events are a valuable source, while the traditional databases tend to be less of an option.
“We do not try to have different portfolios just for the sake of it. In some cases, we invest in the funds most people invest in. However, we have found that selectors in the same country tend to buy similar funds; so, in order to avoid clashing with them too much, we attend many European
events trying to share ideas with people we are not normally in touch with,” he adds.
CONSISTENT MANAGERS WANTED
To pursue flexible multi-asset strategies, currently on the list of the most wanted ones for A&G, Fernández says he would favour consistent managers, who seem to be difficult to get hold of.
“I am struggling to find consistent managers not being too correlated with the equity markets and neither too conservative,” he says.
In general, Fernández says he likes to see an investment process when he is assessing a manager’s qualities. “Having a defined investment
process is probably the only thing successful managers have in common. There are many good processes, but no consistent managers without one.
“On top of that, we try to make sure that managers are committed to their funds and have the proper resources to implement their process. What we seriously hate is the obsession with the Information Ratio, which ends in indexation and conformity,” he says.
Talking about red flags to be wary of, Fernández points to style drift and lack of transparency as key ones.
“We only accept underperformance if the manager can explain it. Manager changes mean style drifts 99% of the time, therefore it is essential to identify the decision-maker, which is not always as easy as it may seem, as some star managers are not the real manager,” he concludes.