May 2009

FUND SELECTION: Nordic pressure to lower tracking error

Niklas Tell reports on a recent roundtable discussion in Stockholm on Funds Selection... We recently held a roundtable discussion with fund selectors and product developers in Stockholm for the second annual Nordic Fund Selection Forum. Delegates networked with industry peers and listened to some excellent speakers from sponsoring fund groups. The discussion highlighted some of the topics that are found high on the agendas for fund selectors in the Nordic region.

Jonas Arsjö, a senior consultant at Mercer, stated: “The relationship between fund providers and fund selectors is even more important in stressful times and it is important to understand what fund managers are doing, [such as] intentional and unintentional style drifts. Clients need to fully understand their exposures.”

Mattias Hagen, a fund analyst at SEB, focused on an issue highlighted in last month’s column where I discussed an article by Mohamed El-Erian, the chief executive of Pimco, who reviewed the major structural challenges ahead for the investment management industry. In the article he stated: “The implications go well beyond another phase of pressure on asset prices. As difficult as it already is, it is no longer sufficient for investors just to come up with the right asset allocation and responsive risk management; they must also undertake more rigorous assessment of investor managers to ensure investment and business models are sustainable.”

Hagen apparently agreed with this when he told the audience that they currently focus a lot on organisational issues and stability, and on internal pressures for managers to lower tracking errors etc.

Susan Douse, a managing partner at Douse Associates and chairman of the panel session, asked if fund selectors are able to ask the right questions and if they have the right knowledge when it comes to back-office questions and operational due diligence.

We also heard that despite the trend towards increased indexing, active managers should have reason to be optimistic – at least if you share the analysis provided by Nordea’s head of fund and manager selection Jauri Häkkä, who stated that the dispersion between good and bad companies will increase and that this means truly active managers will come back with force. He also warned the audience of putting too much emphasis on style consistency. “If you look at your investment universe through nine small keyholes you reduce your opportunity set,” he said.

Häkkä concluded by saying: “I hope the fee debate does not kill the active story.”  Hagen, of SEB, answered when he dryly observed: “It’s the index huggers who are destroying the market and they are the reason for the fee debate.”
What is your take?
  • Will increased dispersion between good and bad companies mean that active managers will be more successful?
  • Will the fee debate kill the market for active managers?
You can discuss this at:

Niklas Tell is a partner at Tell Media Group AB

©2009 funds europe

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