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Multi-Manager is it worth the hassle?

Multi-Manager is it worth the hassle?. Peter Fitzgerald CFA. Index. What is Multi-Manager The Challenges Active v Passive Asset Allocation v Manager Selection Manager Selection Blending Costs/Benefit. What is Multi-Manger. Overall Portfolio. Manager Z Institution A. Manager Y

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Multi-Manager is it worth the hassle?

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  1. Multi-Manageris it worth the hassle? Peter Fitzgerald CFA

  2. Index • What is Multi-Manager • The Challenges • Active v Passive • Asset Allocation v Manager Selection • Manager Selection • Blending • Costs/Benefit

  3. What is Multi-Manger • Overall Portfolio • Manager Z • Institution A • Manager Y • Institution B • Manager X • Institution C

  4. Why Multi-Manger Fund/Manager selection is not easy Monitoring is time consuming Blending is not straightforward Regulatory pressures Retail Distribution Review (RDR)

  5. The Challenges Quoted stocks: 624 in UK Funds: 27000+ Source: Morningstar & Bloomberg

  6. Active Management can work

  7. Asset Allocation v Manager Selection 90% of relative returns do not come from asset allocation

  8. Manager Selection:Can’t do it on the cheap

  9. The sources of manager selection risk Quantitative Qualitative Risk Exposure Style Bias Luck Skill Financial Leverage Beta Leverage Concentration of Returns Growth / Value Bias Small Cap Bias Sector Bets Manager Interviews Unique Insights Team / Process Success Going Forward Team Continuity

  10. Quant/Historical Performance

  11. Rolling alpha Rolling 12 Month Alpha vs MSCI EM NR (3 yr to end of 2011) 12.50 10.00 7.50 5.00 2.50 0.00 -2.50 -5.00 2010 2011 Investment Name Source: Morningstar Direct

  12. Quant/Historical Performance

  13. Rolling Alpha Rolling 12 Month Alpha vs MSCI EM NR (3 yr to end of Sep 12) 0.75 0.00 -0.75 -1.50 -2.25 -3.00 -3.75 -4.50 2010 2011 2012 Investment Name Source: Morningstar Direct

  14. Manager Selection • Robust framework for: • Selecting • Monitoring • Replacing The 6Ps

  15. Blending Mangers

  16. Blending Mangers

  17. Large Cap Growth Large Cap Value Small Cap Value Traditional Blending Small Cap Growth

  18. Alternative Blending Allocation Effect / Selection Effect LT macro rotation Turnover LT stock picking stock trading 150% 200% 100% 50%

  19. Cost/Benefit

  20. Some Examples

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