With a number of different investment managers out there, where should you start with your selection process? Selecting
an investment manager can be time consuming for all those involved, so you will
want to ensure that you get the most out of the exercise. Most charities will
undertake a tendering process including a written proposal and presentation
stage, before selecting an investment manager. Taking a structured approach like
this can make the task easier and more efficient, and can help demonstrate
fiduciary responsibility to the wider board and regulators.
Preparing your long list of investment
managers
When
considering your initial ‘long list’, it is important that you identify firms that
can accommodate your investment policy. Some will be more suited to your needs
than others. For example, if you are seeking a pooled product, you will want to
seek out managers with a suitable array of funds, including managers that offer
Charity Authorised Investment Funds (CAIFs). You’ll also want to understand the
level of service provided, and whether or not the manager is providing
investment advice or not.
Other
things to consider are:
-
Whether
you are seeking a discretionary or non-discretionary agreement
-
Whether
you are looking to take an active or passive approach
-
If
you are looking to invest through a pooled product or on a segregated basis
-
How
much you are looking to invest, and the minimum investment requirements for
particular products offered by managers
-
Your
responsible investment requirements / restrictions and if the products offered
by the manager are suitable for your charity
Tip: It can be worth having
an informal chat with the firm/s you are considering to ensure they can offer
products that are suited to your organisation’s needs. This could save you a
significant amount of time in the future.
Sending out requests for proposals (RFPs)
Having
put together a long list of managers, charities will typically ask each manager
to complete a proposal document before meeting with a ‘short list’ who will
present their proposition.
It
can be useful to ask prospective managers specific questions in your review
process. While this isn’t essential, it helps you to make fair comparisons
between managers. Remember that past performance is important however, it is
not necessarily an indicator of future performance. You should therefore also
consider factors such as corporate background, experience, relationships, service
levels and fees. Below are some points that may help to guide you when putting
together a list of questions for an RFP:
1. Corporate history and
background to the firm
2. Experience managing
similar mandates
3. Investment philosophy
and process
4. Investment team and
points of contact
5. Recommendations for
managing the mandate
6. Past performance and
any necessary benchmarking
7. Reporting and services
8. Costs and charges –
look out for the total expense ratio and the manager’s service fee
You
may want to ask for examples of reporting documents so that you can ensure they
fit with your charity’s requirements. Each charity will have different needs
and priorities; when sending out an RFP, consider what is particularly
important to your organisation.
Tip: Remember to include an
outline of your requirements, a deadline, and whether you would like the
prospective manager to submit their proposal as a soft or hard copy.
Interviews with a shortlist of
managers
Having
reviewed the proposals, you may want to invite a shortlist of investment
managers (typically 3-4) to present their propositions in person, and offer an
opportunity to ask you questions. If there are any specific topics that you
want to know more about, you should ensure your interviewees are aware of
these. Again, this can be useful for comparisons. This stage can be time
consuming for Trustees, so it is a good idea to provide a time limit for each
presentation.
The decision
This
part of the process is not always black and white, but it is important that you
feel at ease with the investment managers that you entrust with your assets,
particularly given the long term nature of investing. They should truly
understand your charity’s needs and requirements, and be able to offer
investment solutions that align with these. Remember to bring the decision back
to the priorities of your charity.
Tip: There are legal
requirements that you will have to meet if appointing an external investment
manager – this includes a written agreement which will detail the remit and
relationship.
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