SERVICE: MANAGER SELECTION

Asking the Tough Questions

Whenever Compass identifies a manager with an acceptable level of consistent premium generation, we conduct personal interviews with firm management with the goal of understanding the firm's ownership, culture, manager compensation, stability, investment methodology, growth of assets, and adherence to investment approach. Each of these variables contributes to the level of confidence as to whether a manager’s past premiums are repeatable and sustainable. In this regard, there is no substitute for onsite visits. That’s why Compass personnel travel thousands of miles each year visiting current and prospective investment managers.

Knowing When to Leave

Our selection process identifies managers with the talent and organization to generate market beating performance for the foreseeable future. However, it is the unforeseeable future that we worry about. Waiting until a problem manifests itself through poor performance can render years of excess returns worthless. With so many potential partners to choose from and so much at stake, there is no reason to risk a “wait and see” attitude.

That is why Critical Assessment does not end with the completion of our initial due diligence and on-site review. Our due diligence process is on-going, and we are constantly reviewing the health of our current troupe of managers, vigilant for those factors that may jeopardize future premiums.

Putting it All Together

Compass believes strongly in recommending manager termination as a result of a change in a manager’s circumstances or organization that significantly reduces our confidence in the likelihood of future premiums, even if the manager under review is currently generating premiums. Some of these factors include:

• Change in firm ownership
• Change in investment process and/or philosophy
• Significant growth in assets above our view of capacity limitations
• Changes in personnel
• Violation of Investment Policy Statement constraints
• Lifestyle or life changes of key personnel

Needing More Leg Room

In addition, we are constantly auditioning new talent. In our experience, the premiums of many strategies are inversely proportional to size assets under management. Having an “understudy” in a market space can provide needed capacity as well groom the manager to take over should the need arise.