The Investment Advisor Body of Knowledge + Test Bank

CHAPTER 20 Manager Search, Selection, and Monitoring

Manager search and selection is important to investment advisors and consultants who integrate active management into the portfolios they manage. This process of evaluation and analysis is, however, also important for those who use smart-beta strategies (strategies that intersect active and passive management) as well. The first reading in this chapter will review a more traditional, formal method for reviewing and choosing investment managers including an analysis of the manager's philosophy, people, plans, processes, progress, price, and performance. The second reading dives into the challenging task of measuring alpha and determining which managers have created it and whether or not they can be expected to outperform consistently going forward.

Part I Strategic Risk Management: Manager Selection

Learning Objectives

• Discuss the importance of asset class structure as it relates to choosing investment managers.
• List and describe the various methods of collecting information from prospective investment managers.
• Describe manager evaluation techniques including analysis of the organization, people, process, portfolio, and performance.
• Discuss the advantages and disadvantages of and the process of firing managers.
• Discuss the importance of fees in the manager selection process including performance or incentive–based management fees.

Part II The New Science of Asset Allocation: Alpha and Beta, and the Search for a True ...