When it comes to selecting asset managers, family offices, in particular, have been showing an increased interest in fund boutiques for years. Ownership approach, „skin in the game“ and specialisation in this manager segment often meet with a great response from this investor group in particular. Markus Hill* spoke on behalf of FONDSBOUTIQUEN.DE with the Senior Portfolio Manager Reiner Konrad from the Multi-Family Office FOCAM AG in Frankfurt about manager selection and the selection of special talents. Topics such as quantitative and qualitative criteria for the selection of portfolio managers in the boutique sector were addressed. Many of these points will also be presented and discussed in greater depth in Rainer Konrad’s presentation „Family Offices, Fund Boutiques & Manager Selection“ on 27 November 2018 in Frankfurt during an exchange of ideas.
Hill: What is the process for selecting asset managers in your company?
Konrad: First of all, a brief introduction to our philosophy. In our opinion, there are fund managers for many segments who offer added value and that is also why we like managers from specialized fund boutiques. We only invest in strategies that we can understand and that remains true to their style. When selecting managers, we have no specific minimum requirements for the fund volume. In certain exceptional cases, we also invest in strategies that have a shorter track record than three years, for example. As a rule, we start based on a quantitative pre-selection. The basis for this is the right peer group and the appropriate benchmark. This is then followed by the qualitative process, to which we attach great importance.
Hill: Which quantitative factors are important for you in the selection process?
Konrad: We look at various criteria. Historical returns over different periods, preferably over one, three, and five years. With this system, we weight shorter periods more heavily. Performance compared to the peer group and the benchmark also seems important to us. Consistency of performance is also an important factor in the selection of managers. Interesting and important with the fund is also the behaviour in different market phases, as well as the upside and downside capture. As risk indicators we use for example active share, tracking error, Sharpe, and information ratio.
Hill: Which qualitative factors are important for you when assessing asset managers?
Konrad: The investment philosophy and the actual course of the investment process. Who decides in the end? What is the reputation of the company? Who are the leading heads in the company, owners, and also managers? What are the settlement processes and the fee structure? What is the relationship between volume and fee structure? Is there a high degree of style in the management of the fund over time? Of fundamental importance to us are the persons acting, i.e. the fund management. These people are ultimately responsible for the performance of the strategy. In our analysis, we are also concerned with building up a „feeling of well-being“. This positive feeling is very important because we delegate part of our responsibility. We, therefore, look more closely at the education, background, and professional experience of the fund manager and team. How long have we been working together? How is the team made up? What is the division of roles? Who contributes their strengths and how?
Hill: Do you make a difference between large established houses and fund boutiques?
Konrad: Basically, we do not make a final, hard exclusion in the quantitative pre-selection. However, we do like boutiques, as they usually specialize in certain segments and the access and service are very good. We would like to understand the people behind the strategies. Personal contact with the manager is very important to us here. The boutiques are often backed by fund managers who have already had a successful career with a larger firm and therefore have many years of experience. However, we do always find interesting managers and management teams even in larger houses. I think it’s the mix that makes it special. Like many other family offices, we think that there are a lot of really good fund boutiques in Germany with interesting strategies and very talented fund managers.
Hill: How do you use ETFs in your company? Do they represent competition for active asset managers?
Konrad: As tactical management of equity quotas, we like to use ETFs in areas where no suitable managers appear on the radar screen. Alternatively, we use them in the transition phase until we have found an active manager for the segment that offers added value through active management. In some cases, it can already be seen as competition. Especially in the large and efficient markets. Added to this are the currently still falling costs and the price war in ETFs. In more inefficient segments, ETFs should be less competitive. We are also keeping a close eye on the „Smart Beta ETFs“ segment. There are some interesting approaches here.
Hill: Which topics are you currently working on more intensively?
Konrad: We are looking for good bond managers in an environment of rising interest rates. We are also interested in interesting strategies in the liquid alternatives segment. A special segment where we are looking for talents are managers in the area of convertible bonds. As I am very interested in the fund boutiques segment, I will accompany your event in Frankfurt am Main on November 27 with a short presentation on this topic. Thank you in advance for your invitation and the intensive exchange of ideas on this topic in the run-up to the event.