During a regular review of its internally produced Portfolio Performance Analysis Reports, our Investor Services team identified a third party asset manager whose volatility was increasing at a rate not correlated to his returns. When this analysis was overlaid against external benchmarks and other asset managers operating similar mandates, it became clear that the manager was not delivering risk adjusted returns in line with his peers or the market and that further investigation was warranted.
TMF Group sent one of its Investor Services professionals to see the manager in order to present our technical findings and demand his explanations. This uncovered a series of operational and personnel changes, including the departure of senior staff members. The changes had affected morale and intellectual capital and the remaining team struggled to manage asset allocations effectively in their absence. This prompted us to approach all of our clients with investment portfolios at this particular firm to outline our concerns and suggest that we exercise our fiduciary right to appoint new managers.
We then set about arranging for the investment objectives of each trust (and related family) to be reviewed before proposing a short list of alternative managers to replace the current firm. All mandates were reallocated to new managers within three months and significant losses were avoided.
A balanced approach between quantitative and qualitative research, coupled with our total independence and a firm but fair approach to the challenge of managing managers, is central to our financial risk management process.