A few years ago David Barcus, Director of Investments at Denison University, was asked about his strategy in finding the best fund managers.
In terms of what we are looking for in fund managers, I always look for managers who can demonstrate their edge in the strategy. For some, this can be driven by their investment process: do they have a very process-oriented approach? Does this process create a repeatable strategy? Other times this could come from their background: where did they learn the ropes? For example, if they’re investing in healthcare, were they previously medical doctors? Do they have that expertise? Or if they are investing in distress, do they have a legal background?
It’s also important to be mindful of the managers’ lifecycle. In certain cases, it’s great to be with a growing manager, one who is eager to create wealth. In other cases, it’s not so bad to have an investment with a very established manager especially in a strategy where capital preservation is the focus. A proper alignment of interest is key. But ultimately, I think the most important quality in a fund manager is their integrity and the relationship and trust that we can develop with them. Are we treated like a partner? Or are we treated like a client, another revenue stream? We’re really looking to be a partner with these investors, hopefully for a very long time.
Last year he elaborated on how they evaluate a fund manager.
Manager selection is one area where, quite frankly, experience matters. We have a very experienced team that has spent years conducting manager due diligence and making investment decisions. We also benefit from expertise on our Investment Committee, with some members having spent decades in and around the hedge fund industry.
Manager selection is a balance of art and science. We use data analysis as much as possible to get a sense of the manager’s qualities. Ultimately though, you need to make a judgment on the people at the firm and understand what sets that manager apart. I’m always honing that skill in myself.
To share a story, early in my career I could be easily impressed in a manager meeting. However, over time, by watching and being mentored by the senior investment professionals in my office, I developed my own investment judgment. We see this with the young folks in our office, and it’s important that we provide that same guidance and apprenticeship for them.
Read more about Denison’s endowment here.
Post by Marcelino Pantoja