In my last article I highlighted the evolution in the way that assets have been managed and the growth in closet indexing in the investment industry. As I noted, assets managed by the closet index group increased from under 2% in 1980 to more than 30% in 2009. At the end of the study period […]
In a previous article, I focused on the decline of active management, arguing not that the potential for active management has declined over the past few decades, but that the practice of active management has declined. Put another way, empirical evidence demonstrated that the nature of the investment industry has changed immensely over the years, as an increasing number of assets became managed in a way that made it increasingly unlikely for so-called active investors to outperform.
In my last article I introduced the concept of active share and noted its power as a potential screen for selecting high performing active equity managers.
My previous article discussed techniques for monitoring an investment manger’s track record to avoid making poor (and expensive) hire/fire decisions. In that article I also promised to introduce a tool investors can use to avoid hiring investment managers who are likely to underperform.
In my previous articles I demonstrated the benefits of investors extending their time horizon when evaluating an investment manager’s performance because it’s almost certain that even the ‘best’ managers will underperform at some point in time.
Manager performance is often monitored by committees over a quarterly or monthly basis, and while investment oversight is a necessary and prudent function of fiduciaries, it can also be dangerous.
While most investors employ active management in an attempt to achieve market beating performance, I don’t believe investors fully realize just how likely it is that they will have to endure bouts of short to longer term underperformance in order to achieve superior results.
Pension plan sponsors require higher income to pay pension promises and higher returns to close the gap between their assets and liabilities. It’s not surprise that investors are increasingly focusing on investments that provide a higher yield (or current income return) due to the historically low interest rates on government bonds.
Based solely on the amount invested by institutions in Canadian equity mandates, it would appear that most Canadian institutional investors still prefer active management to passive benchmark replication in this particular asset class.
My previous article examined three themes—investment consultant expertise, service models/service delivery and retention of professional staff—in the context of questions to include when creating a request for proposal (RFP) for institutional investment consulting services.