Four Questions to Evaluate Your Investment Manager Relationship

Roses are red, violets are blue, is it time to bid your fund’s investment manager adieu? With Valentine’s Day upon us, you may be thinking about relationships. And an employee benefit fund’s relationship with its investment manager is an important one to assess: Do you have a long-term future, or is it time to look for other fish in the sea?

Four Questions to Evaluate Your Investment Manager Relationship

In a two-part series in the February and March issues of Benefits Magazine, author Jennifer Mink provides the “critical questions” employee benefit fund trustees should ask when hiring and monitoring and before letting go of an investment manager. Mink is partner and senior consultant at Investment Performance Services (IPS), LLC, in the Philadelphia metropolitan area and has experience as a matchmaker between employee benefit funds and investment managers.

As Mink explains in Part II of the series in the March issue, sometimes managers get put on a “watch list” when a problem arises with the manager or in the relationship. Then it’s time to hold a watch list meeting, kind of like a “where is this relationship going?” conversation.

Mink offers these guidelines for the questions to ask during a watch list meeting and ultimately determine whether it’s time to break up or make up.

  • Has the investment manager underperformed? Trustees should make sure to evaluate the investment manager’s performance over time (typically three to five years) and in context with the overall market environment. Other factors to consider include whether the manager stuck to its discipline, if the investment process changed and if there have been any changes to the investment team and how team members are compensated.
  • Has firm ownership changed? Issues to look at include changes in personnel such as the chief investment officer and investment team. Funds should look at whether the ownership change expanded the firm into new lines of business and if the investment firm is now part of a larger parent company.
  • Has the portfolio manager changed? Trustees should find out why the manager left the firm and whether it was because of a problem, a better opportunity or for personal reasons. Regardless of the reasons, trustees must evaluate the effectiveness of the manger’s replacement. Trustees also need to look at whether any other members of the team have left.
  • Has the manager violated the fund investment policy statement? Trustees are expected to monitor manager compliance with the investment policy. If the manager violated the policy, trustees should find out why and whether it was an isolated incident. If the violation occurred because of misinterpretation of policy language, trustees should consider making the policy statement more clear. Continual violation of the policy may be grounds to terminate the relationship.

All relationships need attention to stand the test of time. Having these “heart-to-heart” discussions can help trustees ensure their fund’s investment manager is still the one for them.

Kathy Bergstrom, CEBS
Editor, Publications at the International Foundation





Kathy Bergstrom, CEBS

Editor, Publications at the International Foundation Favorite Foundation service/product: Benefits Magazine and Plans & Trusts Benefits related topics that interest her most: Financial literacy, health and wellness programs Favorite Foundation conference moment: Hearing attendees sing “O, Canada” at Canadian Annual in addition to hearing the anthem sung in both French and English. Personal Insight: Whether she’s collecting information for a magazine story or hanging out with her family and friends, you know Kathy is fully engaged. Her listening ear and introspective nature provide reassuring presence to those enjoying her company.

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