Equity Manager Selection and Portfolio Formation: Interviews with Investment Staff
March 12, 2013 Leave a comment
F. Douglas Foster
University of Technology, Sydney
Geoff Warren
Australian National University (ANU) – School of Finance & Applied Statistics; Financial Research Network (FIRN)
We interview professional institutional investors to generate insights into how they choose between active and passive management, select active equity managers and construct multi-manager portfolios. We find that subjective judgment plays a central role in decision-making. Particularly important is the evaluation of people when selecting managers, the role of confidence in retaining managers, and self-perceptions about capability to identify skilled managers. Key evaluations are often made conditionally, notably including the response to past performance where the aim is to understand return sources. Stated reasons for preferring active management relate to whether a handful of skilled active managers can be identified and combined to generate a better expected portfolio outcome; and are only vaguely associated with the performance of the average manager.
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