Determining the Value of the Investment Manager

Introduction

When you have to hire an investment manager, the first and foremost factor that you would look into is the previous performance of the manager. The investment manager will also present a composite presentation of his past records which complies with the Global Investment Performance Standards. This is more like a clubbing of all the portfolios that was managed by the investment manager. Potential investors check this composite data and make the decision of evaluating the manager. But there are several other factors to be considered in addition to the performance.

Composite Performance Presentation

When the investor has to choose the management agency for its investments, it is necessary to know how to read the composite presentation and understand the values mentioned. This will give a complete view of the portfolios attended by the investment manager. You can check the returns from each portfolio and the returns ratio. This will also have simple data like the fee schedule, firm asset value and the policies followed. With this composite presentation, it is possible to know the skilled managers and differentiate them from the lucky ones who have a few good turnovers to its credit.

Services like Lipper and Morningstar also publish the performance ranking of investment managers. Experienced investors understand that there is no direct correlation between the previous performance records and the expected future fund handling. A comparative study of the returns in a few years against the returns for another set of years of the same length can prove beneficial in getting an average performance information of the investment manager.

Investment Philosophy of the Manager

When you are accessing an investment firm or an individual, the philosophy followed can provide you with crucial information. A certain style may work at a time and might not prove to be that efficient at another times. But the philosophy and strategy will be consistent factors and this will help in evaluating the skill of the investment manager. On close examination, the logical reasoning capacity of the manager can be understood based on a transaction that was done to prevent risks.

Sometimes when a certain investment strategy is in trend, you will be able to see that even the average investment manager will have created a good benchmark and returns. But when the trend changes, the investments collapse. Only a skilled manager will be able to meet such a change in market trend with a quick risk free move to save the investment.

Implementation of the Investment Philosophy

Every investment manager works on the basis of a certain philosophy. This philosophy is combined with the data received from the research of the market scenario to come up with ways to implement the strategy. Investment process constitutes this implementation of the philosophy. The philosophy is mostly followed by the whole team and on examining the process, it is possible for the investor to understand if the particular investment manager moves out of track from the basic process. Sometimes this deviation from the basic philosophy might be related to the market research data provided to gain some good profits for the short term benefit factor. When you have to evaluate a certain fund process, you can either request for information from the company or check the fund prospectus.

Team that makes the Investment Decisions

As in any other business enterprise, it is the combined work of the team that decides the success of the plan. The plan is prepared and executed by the members of the team who pool in important information to help in preparing and implementing it. There will be both strong and weak professionals in the team and the managers in the top positions decide on the changes to the investment decisions so that the strong professionals are utilized and the weaker ones are succumbed or dismissed. Sometimes an investor who analyzes the performance alone will end up with an investment manager whose successful team has left the firm. Without the efficient team which had worked to produce the high performance, the manager will be left with no good feedback and employees to ensure the safety of your investment.

Factors used by Analysts to Value the Investment Manager

Statistical data are used by analysts to create complex data that evaluate the proficiency of an investment manager. These values might seem complicated to an average inexperienced investor. But with a little effort a non-professional investor can use this data to come to a conclusion regarding the investment manager. There are also softwares like Wilshire and Zephyr which allows to measure these statistical data. For example, Alpha is the comparative value of the performance of the manager against the risk taken. If the investment manager has been able to create returns using his own skills then he will have a positive Alpha value and if the returns has gone down on a good market day it will show as a negative alpha value.

Other Deciding Factors to Analyze the Investment Manager

When you have an investment requirement, it has to be researched if the manager has dealt with similar accounts. This data will help you to know if the strategy and risk analysis followed by the manager will suit your account requirement. A change in firm ownership and employee structure should also be considered as the previous performance data may be pertaining to that firm structure and the new one might not be as efficient. In case you have noted minute under performance issues, the manager should be able to provide proper reasoning. If he/she is not able to give a reasoning then it is a red flag.

Conclusion

With the current chaos in the market, all investors are looking for professional help to make sure that their investment gives proper returns. Evaluating and hiring an investment manager is a crucial decision and comparative websites like www.findawealthmanager.com can help towards this. The site can suggest the best rated and matching investment managers from their database of more than 60 finance management institutions. Performance data has to be connected and studied along with the philosophy, process and people of the firm to get the proper value of the investment  management firm.