Manager Selection – fixed income
27. november 2014
Nordea Investment Management AB
Nordea Alternatives & Manager Selection
Alternatives & Manager Selection is based on Nordea Asset
Management’s production strategy to broaden and complement
the product range.
Key Highlights
• Nordea Alternatives & Manager
Selection - a centralised
competence centre for search,
selection and monitoring of
external managed products
• Responsible for negotiations and
for entering of strategic partnership
with external managers
• A&MS has a team of 20
investment professionals located in
Finland, Sweden, Denmark and
Luxembourg
• The team is divided into Portfolio
Managers (with regional
responsibility) and Product
Managers (product responsibility)
• A&MS has three product-lines:
• White labeling products
• Guided funds
• Managed portfolios
2•
The search process in a single slide
Mandate
Initial
deselection
Quantitative
analysis
Qualitative
assessment
Definition of
“searchmandate”
Investigate
and describe
the universe
Initial –
de-selection
of obvious
”no gos”
- basic
statistical
key
measures
2nd
quantitative
screening –
more
advanced
risk and
performance
measures
based on
proprietary
models
Qualitative
assessment–
The 5
factors,
Telcos,
”Q&A
sessions”
with all
managers
based on RFP
Long List
Short List
Mandate
Universe
On site
Selection
Monitoring
On site visits
– one full
day with
each
manager.
Compliance
& business
due diligence
The final
selection is
based on all
the
information
gathered
throughout
the whole
process
Actively
monitored
and replaced
if needed
Final 3
Preferred
3•
• 14/04/2011
Composite returns vs fund returns
• Pro’s and con’s with both but there’s fundamental differences
• We (in fixed income) prefer composite returns
• Why I don’t like fund returns?
•
Cut off point for pricing – NAV calculated at different times, causes volatility
•
Dilution levy (swing pricing) – causes volatility
•
Dilution levy vs non levy – penalizes some funds
•
Funds with massive growth in AuM will be penalized compared to steady AuM funds
given bid-ask spreads etc.
• GIPS composites are not completely free of issues
•
Cherry picking of mandates included in the composite
•
Dispersion in underlying strategy returns
•
AuM in composite vs. AuM in strategy (representative account)
4•
• 14/04/2011
The 1st number crunching
• We calculate a variety of numbers based on the monthly returns
Caywood
YTD 2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
3Y
5Y
7Y
10Y
RET
8.01% (56)
2.60% (40)
8.89% (50)
45.59% (23)
-26.48% (30)
2.71% (18)
7.96% (8)
3.68% (26)
6.46% (52)
5.25% (34)
5.27% (23)
BM RET
REL RET
RISK
9,43% -1.43% (58) 2.05% (38)
1,82%
0.78% (45) 5.40% (43)
9,97% -1.08% (49) 4.18% (21)
44,87% 0.73% (17) 9.44% (17)
-28,75% 2.27% (28) 16.64% (11)
1,88%
0.82% (18) 4.34% (20)
7,34%
0.62% (16) 0.78% (10)
3,83% -0.15% (21) 1.46% (5)
7,01%
4,81%
4,74%
-0.55% (52) 4.07% (31)
0.44% (32) 10.81% (19)
0.52% (19) 9.26% (14)
BM RISK
REL RISK
SHARPE
2,00%
5,61%
3,94%
8,53%
15,20%
4,40%
0,45%
0,63%
0,05%
-0,21%
0,24%
0,91%
1,44%
-0,06%
0,34%
0,84%
3.84 (52)
0.48 (37)
2.10 (49)
4.80 (35)
-1.66 (16)
-0.46 (23)
3.55 (17)
1.02 (26)
0.94 (37) -0.76% (54) 2.00% (43) -0.71 (58)
0.95 (38) 0.86% (43) 5.38% (46) 0.15 (45)
1.04 (18) -1.34% (48) 3.97% (25) -0.27 (48)
1.01 (13) 0.34% (30) 8.80% (26) 0.08 (18)
1.07 (9)
5.84% (6) 15.51% (19) 0.15 (26)
0.98 (15) 0.75% (16) 4.28% (22) 0.19 (17)
1.08 (13) 0.41% (16) 0.65% (10) 0.95 (14)
1.51 (3) -1.65% (26) 1.14% (5) -0.13 (21)
BETA
ALPHA
T.E
I.R
4,13%
10,44%
8,95%
-0,06%
0,37%
0,31%
1.57 (49)
0.45 (38)
0.38 (24)
0.96 (28) -0.24% (50) 0.94% (33) -0.58 (52)
1.01 (15) 0.43% (35) 2.49% (21) 0.18 (31)
1.01 (8) 0.51% (23) 2.12% (14) 0.25 (19)
• We remove the managers we don’t like one by one
•
Too low tracking error, massive swings in performance etc.
5•
• 14/04/2011
The 2nd number crunching
• Various rolling metrics such as
•
Rolling tracking error, beta, alpha, information ratio, Sharpe ratio etc.
•
Return distribution absolute & relative to benchmark
•
Various up/down market graphs (up-side capture/downside protection etc)
•
Drawdown
• Again, managers are deselected one by one based on
•
Too significant variation in metrics over time
•
Dependency of outperformance on a few observations (months)
•
Too dependent on market directionality for outperformance
6•
• 14/04/2011
Qualitative Assessment
on long listed managers based on:
People, Philosophy & Style




Quality and experience of Portfolio Managers
True management tenure of track record
Key Individuals for process
Strength of research
People,
Philosophy &
Style
Process & performance





Credibility of process
Repeatability of process
Transparency of process
Performance in relation to style
Trading skills
Business
Management
Manager
Evaluation
Process &
Performance
Risk management



Managers view on risk
Risk management process
Risk management team
Business Management




Risk
Management
Incentive structure
Strategic importance of strategy at firm level
Capacity management
Retention of key individuals
7
Qualitative Assessment
The 4 factors – conference call process
1.
Prior to conference calls

Prepare questions based on all the information gathered from the manager (RFP, DDQ, presentation etc.) and
the quantitative analyses of the track record
2.
3.
During the conference calls (duration typically between 1.5 and 2.5 hours)

Short presentation by the manager, but outspoken focus on Q & A

Looking for the ”red line” between philosophy and investment performance

Always focus on uncovering biases in the investment strategy

Always talking to lead portfolio manager
After conference calls

Assessing the manager and writing a memo on each manager
Compliance is not discussed at the conference call

This is handled separately by Nordea Investment Management’s Compliance department
8
The role of performance in the qualitative process
•
Once we initiate the qualitative part, the returns are “good enough” – the data
might however not be
•
•
•
•
In the RFP we enquire about/look into:
Dispersion within the composite
lack of AuM in the composite – can the manager perform with higher AuM?
AuM in composite vs strategy
9•
• 14/04/2011
On site visits
• Always on-site at the asset manager and more than one participant from AMS present
•
Agenda of the on-site meetings:
•
Presentation of investment company by CEO, CIO, Head of Global Sales or partner
•
Presentation of investment strategy
•
•
By the lead portfolio manager (other team members might be present)
•
Then interview with other team members (without the presence of the lead portfolio manager)
Presentation of risk management and of the systems utilized by the team
•
1 full day for each on-site visit
•
Minutes and input to Investment memo is written before visiting the next manager
* Compliance on-site separately conducted by Nordea compliance department
A manager meeting is considered crucial, we never recommend a manager without having
done onsite due diligence
10
Monitoring
•
•
Once selected we look at
Managers own composite, our GIPS calculated returns and the fund returns
•
Always dispersion between GIPS and fund NAV (our clients experience the
NAV return, so we have to pay attention to it)
•
Often dispersion between manager GIPS and our GIPS
•
Difference in guidelines, ramp up period of mandate, flows, price sources
11 •
• 14/04/2011
For Professionals Only
Kun for professionelle investorer*
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* som investerer for egen regning – i henhold til definitionen i MiFID