OVERVIEW
MANAGER ANALYTICS
DUE DILIGENCE
MANAGER PROFILES
The Good, the Bad and the Lucky
When it comes to investment managers for hire, the Bad and Lucky far outnumber the Good, and telling them a is no easy task. The inherent
variability of markets provides ample camouflage for inferior managers. A few good investment decisions can easily eclipse a raft of bad ones and land a manager in the top quartile in a given performance period. So how do you tell the difference?
Insanely Skilled or Crazy Lucky
Step one: strip away the haze of randomness surrounding a manager’s track record. Here’s where our lawyers say, “Past performance is no guarantee of future results!” Well, they’re right, but past performance can tell you a lot about a manager’s ability to perform in a particular market. Our Performance Analytics Report (PAR) is designed to do just that. The PAR subjects a manager’s performance track record to a host of statistical and probabilistic measures that help us separate those with skill from those that just got lucky.
Checking Under the Hood
One of the main reasons that you can’t rely on past performance as a reliable indicator of future performance is that ability is temporary. We live in a temporal world where nothing is static. Skilled players may not remain so for a host of reasons:
- Strategies may not work forever
- Great teams disintegrate
- Incentives change
- Star players lose focus
That’s why we perform extensive due diligence regarding a manager’s people, investment processes, and company structure. We look for organizations with the characteristics of long-term investors rather than asset-gathering profit centers. 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 our level of confidence regarding whether a manager’s past performance is 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.