“You were able to show in less than 20 minutes what took us multiple meetings with the manager.”
A change in portfolio manager and increase in portfolio turnover meant additional due diligence and monitoring of our client’s mandate.
We analysed the buying style of the manager, in particular the pre-trade analysis. At our quarterly meetings with the client, we presented evidence of a change in buying style, with the incoming manager displaying a more contrarian style. Historically, the manager had displayed a very successful momentum oriented buying style.
The asset owner put the portfolio under review and after discussions with the manager, subsequently terminated the mandate. Although the manager had an attractive long-term track record, the strategy underperformed under the new manager’s responsibility.
An endowment client required analysis that went beyond typical style and exposure analysis and improve the due diligence and monitoring of managers.
We worked with the client, using daily transaction data, to examine the biases within the decision making process for each portfolio and across the overall fund. We identified specific areas of the investment process that were successful and where the managers could improve.
Our analysis gave the client a differentiated approach to due diligence, enabling them to pinpoint problematic positions, identify trading biases and gather the evidence they needed to ask the questions that matter in meetings.
A pension fund client asked us to analyse the transactions and track record of a shortlist of managers in a US manager selection.
Our daily transaction analysis showed that the outgoing manager had generated the majority of alpha in up markets; however the six shortlisted managers had a more downmarket bias.
Our client re-examined the selection criteria to ensure they had sufficient diversification and upmarket bias in the portfolio.
A client wanted to research whether the highest conviction positions in their global portfolios were generating alpha.
Working with the client, we dissected the portfolio into higher and lower conviction positions to determine the success of sizing in the portfolios. This revealed that in four of the five portfolios, the highest conviction positions outperformed the overall portfolios and equity portfolio more broadly.
Off the back of our research, the client invested in a portfolio of best ideas, combining the higher conviction positions of each of the managers. The resulting portfolio generated additional valuable alpha for the client.
A client wanted to know how their managers’ decision making ranked against our Peer Group to identify strengths and weaknesses.
We compared each aspect of decision making in the investment process across all of their managers against our Peer Group.
The client developed a custom set of indicators that identified the strengths and weaknesses of each manager in the portfolio.
A UK pension fund client questioned the underweight position in a strongly performing portfolio. The investment committee wanted to understand the impact of holding this position.
We reconstituted the portfolio on a daily basis excluding this position, running our timing and attribution analysis. We quantified, on a daily basis, the impact of holding this position underweight over time, which had significantly detracted from performance.
A UK pension fund client wanted to hire a global equity manager for their portfolio, and engaged with us to run an analysis on the shortlist.
We examined the managers’ track records and decision making process and showed that the preferred manager had a narrow skillset. The manager was very successful and skilful at identifying outperforming stocks and generating alpha in emerging markets.
When we presented our findings to the client, it was clear that they wanted a manager with skill in a wider variety of market environments, leading to a different selection.
The portfolio manager wanted to understand which parts of the decision making process could be improved, particularly buying and selling decisions.
We pointed out that the portfolio manager was losing alpha when buying contrarian positions in the portfolio. Furthermore, the portfolio manager was trimming winning positions in the portfolio too early that subsequently continued to outperform.
The portfolio manager improved the decision making process by heavily reducing the contrarian trades in the portfolio. Furthermore, the portfolio manager adjusted the sell discipline to extend the time horizon for winning positions to capture more alpha in the process.
We were engaged by the CIO of a European asset manager to review the process and identify strengths and weaknesses.
After reviewing the portfolio and process with the portfolio manager, we identified sizing and adding to losing positions as areas of weakness. At the same time, we showed that the Research Process was a key strength that successfully generated alpha.
The portfolio manager retained the decision process making that was generating alpha. In areas of weakness, the portfolio manager put in place rules to limit the alpha lost when adding to losing positions in the portfolio. To improve conviction, the portfolio manager increased the number of positions in the portfolio to make alpha less dependent on a small number of positions.
The portfolio manager wanted to use data analytics and review and improve the investment process.
We identified selling as a clear weakness in the investment process. Specifically, the portfolio manager was particularly poor at selling winning positions –they were being sold too early.
The portfolio manager recognised this behavioural bias and corrected it by putting selling decisions under broader scrutiny by the whole team. There was a tangible improvement in selling winning positions, with post-trade relative return increasing by 2.5% on average.
We were engaged by the portfolio manager who wanted to improve decision making, and in particular the buying process.
We pointed out that 35% of buying decisions were made into prior strength as opposed to weakness. However, these momentum decisions were the most successful in terms of timing.
Engagement with the client is ongoing, however early indications are that the portfolio manager is more focused on momentum buying and the improved focus in buying has resulted in positive alpha.
The portfolio manager was unaware that they were losing alpha in the selling process. They routinely sold positions that went on to outperform.
We identified a trend where the portfolio manager sold positions that had outperformed in the medium term (-6 months), though showed some very strong short term weakness (-1 month). These decisions were consistently losing alpha on our post-trade analysis.
The portfolio manager improved the timing of the selling process and alpha generation by not using short-term signals and now focuses more on medium-term signals in the selling process.
A period of poor performance put this portfolio manager under pressure. We were approached to help identify the issues and coach the portfolio manager.
The pressure of poor performance had resulted in higher turnover and more reactive decision making. We pinpointed the panicked trades and highlighted that these were poorly timed and losing alpha for the strategy.
Working with both the analysts and the portfolio manager, we coached the team to help build resistance under pressure. The more consistent approach to decision making proved highly beneficial to both the portfolio manager and the team.
The portfolio manager wanted to improve the process and forensically analyse decision making using data.
We classified positions as quality and special situations and used this classification to analyse the investment process from start to finish. Selling was an area for improvement, in particular for special situations which were sold too early.
With our analysis, the portfolio manager implemented a control and rule in place to extend the time horizon of special situations positions in the portfolio.
A longstanding client and portfolio manager was looking for deeper insights to “iron out the unconscious biases and understand the mistakes we’ve been making”.
Our initial analysis indicated that selling winning positions in the portfolio had been poorly timed. To provide full analysis of this decision, we measured the direct impact on alpha on an ongoing basis.
The portfolio manager now routinely reviews the effectiveness of these decisions by tracking sells to see if the outcomes are improving and if the short term results are promising.