subject: If We Were Fund Managers We'd Be 'fund Manager Of The Year 2010' [print this page] I don't normally read the newspaper (though I do read a lot on the internet so I guess that's not 100% accurate) but on my way home from 3 weeks holiday in Europe I found myself reading the Financial review on the Bangkok Sydney leg of our journey.
I read with some interest an article about the '2010 fund manager of the year'. While we do operate in the 'managed funds' space, what we offer isn't strictly speaking a managed fund, never the less I wanted to read about what it took to be fund manager of the year.
There were a number of points that struck me in the article, 1st was the amount of money that this particular manager was overseeing. The number was something in the order of $4.1 billion dollars (AUD). Considering he started his fund not long after we began our managed accounts service (late 2007) that is a huge achievement (if your goal is to have lots of FUM). The second thing that struck me was that he was outperforming the index by 5% but since inception had delivered a -5% return to his clients.
It made me wonder what criteria are used to asses fund managers, and particularly the 'fund manager of the year'. Is it the fact that he has $4.1 billion under management that makes him fund manager of the year, I would presume not since there are plenty of funds with more FUM. Is it his outperformance? Again there are funds with greater outperformance. And finally there is his overall performance; they wouldn't award you fund manager of the year for delivering a -5% return since inception would they?
Admittedly creating outperformance when you're managing such a large amount of money is a very difficult task, and I applaud him for achieving the results he has. The article left me wondering how many financial planners would be recommending their clients invest in this fund because he is the 'fund manager of the year 2010'. (He had also been lucky enough to win the title for 2009 as well).
When I compare our results against those of the manager in the article, we are ahead on all counts. Does that make me fund manager of the year as I so brashly stated in the title of this article? Hardly. If anything it brings into question the validity of the title fund manager of the year, and also advisors making recommendations to their clients based on such accolades, a good advisor will seek out the manager best suited to their clients needs.
The system of funds management and financial advice globally requires a fresh approach. How can a manager who oversees $4.1 billion (a relatively small sum by managed fund standards) be nimble in the market? Funds management has become an exercise in 're-weighting' to an index and investing using a model portfolio. Often the manager is mandated to hold certain percentages in various sectors or even specific stocks. Such restrictions don't bode well for the investor's safety or the overall returns of the funds.
Our style of trading, using cash as our base position, allows us to be nimble and move in and out of the market as opportunities present themselves. We are also able to hold 100% cash, something most funds are unable to do. Because of our trading style, there is a limit to the amount FUM we can manage before it will restrict our ability to trade freely. While we are a long way from this point, we know that an upper limit exists and will address that issue with the time comes. Perhaps if more fund managers considered what their optimal level of FUM was for the investment style they would be able to deliver better returns to their clients.
My next post will cover why small is not only beautiful; small is profitable when it comes to managed investments. Stay tuned.
