August 2009

FUND SELECTION: Selection or allocation?

In Monaco, the discussion on fund selection versus asset allocation got most attention. Can you have one without the other? Niklas Tell reflects on discussions at FundForum... niklas_tell2.jpgSenior executives from the international fund industry gathered at the FundForum International in Monaco at the end of June to discuss and decide on the future shape and direction of the industry. Even if the financial crisis, of course, meant fewer participants, less exhibitors and fewer fancy giveaways, this is still a great place to pick up on industry trends and meet senior people in the European and global asset management industry. The topics discussed and the issues people agree on are pointing in the right direction. If the industry is able to walk the walk as well as talk the talk I am certain we have a lot to look forward to.

Distribution (which had its own dedicated day on Monday 22 June) was a hot topic throughout the week and in his introductory speech on Wednesday 24 June, Jean-Baptiste de Franssu,  the CEO for Invesco Europe and recently appointed president of Efama, said that the two most important issues for the European fund industry going forward are distribution and pensions. On distribution he concluded that there are major problems which need to be solved as this is where product meets client. Mark Tennant was even more direct when he summarised the Monday sessions with the following words: if banks and advisors are now the agent of the client – who is our distributor?

A sub-set of the distribution debate is fund selection and we heard an interesting debate on what fund selection groups should focus on and what the value proposition is or should be. I personally chaired a session labelled Avoiding The Noise: Assessing The Key Criteria For Manager Selection & Sub-Advisory Mandates In The Post-Credit Crunch World and we had a great line-up of people on the panel. Luca De Biasi, head of PB mandates & multi-management at BSI, was first out with an introductory presentation where he stressed the importance of being more unorthodox in what risk management parameters to use. He argued that when markets are not normally distributed you should not use metrics based on a normally distributed reality.

For the panel session Luca was joined by Adam Niewinski (CEO at Xelion Financial Advisers in Poland), Vincent Regan (global head, Mutual Fund Research at Deutsche Bank) and Andreas Willius (director, retail sales, at Deutsche Borse). Even if several topics were raised it was the discussion on fund selection versus asset allocation which got the most attention. The panel was divided on whether you can have one without the other. De Biasi argued that the two are inseparable and that your fund selection team will do a better job if it is also working with asset allocation/portfolio construction. Regan of Deutsche Bank concluded that his team work differently when they provide the most suitable building blocks for different areas of the bank. I guess it is still open for discussion which is the preferred solution. What is your take?

Can fund/manager selection thrive on a standalone basis (as an internal team or independent external service) or is it inseparable from asset allocation/portfolio construction?

I cannot provide this brief summary of the FundForum without mentioning the presentation held by Steve Wiltshire. Wiltshire was the international director of manager research from 1995 to 2003 at Russell and from 2004 until his departure in 2009 he was one of Russell’s regional chief investment officers. He is now running SW1 Consulting, an investment consultancy boutique. In his presentation he talked about The Seven Deadly Sins of Fund Selection – one of the cleverest ways I have heard to highlight and present some of the most difficult challenges fund selectors encounter today.

I look forward to seeing your thoughts on this and please remember to keep us updated ([email protected]) on any developments in the fund and manager selection space and make sure to visit and help us create the most relevant discussion on this increasingly important area of asset management.

• Niklas Tell is a partner at Tell Media Group AB

©2009 funds europe

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