Another great source of information regarding an investment firm, its prod- ucts, and its staff can be found in what I term the “news search.” Today there are literally hundreds of outlets for news, stories, articles, papers, and interviews. As a professional due diligence analyst, I conduct a news search every single working day so that I do not miss any important stories. And with the growth in the Internet as a resource, the amount of information that is available is staggering. Here are the primary news sources.
Newspapers—Print and Online
Good old-fashioned print newspapers are a wonderful source of topical news on broad topics such as the markets and the economy, but they also contain loads of information on investment firms, products, and invest- ment professionals. Some of the big-name financial papers, such as the Wall Street Journal, Financial Times, and Investor’s Business Daily, pro- vide information on investment firms and investment products and funds on a daily basis. In addition to providing information on investment prod- ucts you might be reviewing at any given time, they often provide fresh new leads. As mentioned in Chapter 2 “Investment Manager Sourcing,”
the daily newspapers often provide interviews with investment profession- als and product/fund reviews that could be of interest to you when con- ducting a search now or in the future.
In addition to the print newspapers that are available, many newspa- pers are also updated regularly on the Internet. Each of the newspapers listed previously has a web site that is updated daily. Some papers charge an annual fee for viewing content and some charge only for certain articles you might want to have access to, but most are available on the Web free of charge. This is especially the case for smaller, local newspapers. One of the great advantages that the Internet provides us in our research is the ability to access literally thousands of local newspapers via the Web.
Whenever I search news sources for information on a specific investment manager or investment professional, I start by looking at the major papers and sources Wall Street Journal, etc.); however, I also make a point of looking through the online versions of local newspapers. For example, if I am researching a firm that is located in St. Louis, Missouri, I will search through all the newspapers that are specific to that geographical area. A
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listing of local newspapers can be found by searching for the term “local newspaper links” in any of the popular search engines (such as Google) or by going to one of the following sites:
■The Internet Public Library (www.ipl.org/div/news/)—The IPL is a wonderful resource that provides thousands of links to local newspa- pers from around the world. The web site is organized according to re- gion, country, and state/province.
■News Voyager (www.newspaperlinks.com/voyager.cfm)—Click on a state and get a list of newspapers that are available online.
■NewsLink (http://newslink.org/)—This site offers a long list of U.S.- based newspapers broken into a variety of categories. Links to non- U.S. papers are also provided.
You will be surprised how often a local newspaper will include infor- mation on a local firm that adds value to your investment manager re- search. In addition, it is often possible to obtain information on specific investment professionals, both in a professional and in a personal capacity, by combing through these local resources. To save time, I skip the current news offered on these sites and go right to the archived information to per- form a variety of searches. As in any Internet-based information search, I use a specific methodology to gain the most possible hits.
Tips for Internet-Based Information Searches
■Start by searching from the top down or in the broadest manner possi- ble, and then focus the search as results come in. I usually search for information in this order: (1) company, (2) product, (3) people.
■Use quotation marks to isolate search phrases. By putting quotes around phrases (not single-word searches), you ensure that the search engine looks for the exact phrase you entered. This means the search engine will search for only the entire phrase (i.e., each word you en- tered in the same exact order in which you entered them). However, if you enter a phrase without the quotation marks around it, the search engine will search for any document that has all the words you entered anywhere in the World Wide Web. What’s the difference? Using CAM Asset Management as the search phrase with and then without quota- tion marks can yield very different results. The search with quotes will be more focused and may return just a few results but they will likely be relevant, whereas the search without quotes will be more general in na- ture and may come up with thousands and, sometimes, millions of hits (depending on the search engine) that are not what you are looking for.
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As a side note, the use of quoted phrases in conjunction with sin- gle search terms or nonquoted phrases can help to cull a long list to one that is more manageable. For example, if you were searching for a portfolio manager named John Smith, it would be inefficient to search for the name “John Smith” or the title “portfolio manager” with or without quotes because you would likely get millions of hits. However, if you search for “John Smith” and “portfolio manager” together, you might be able to come up with a more focused list.
■When using search engines, be mindful of your spelling. When you ask a search engine to search for the term “portfolio manager,” that is the exact spelling it will use in the search. However, many publica- tions use abbreviations and/or other words entirely in their stories.
So in addition to the search term “portfolio manager,” you might want to search for: “portfolio mgr,” “asset manager,” “asset mgr,”
“investment manager,” “investment mgr,” “fund manager,” “fund mgr,” and so on.
■Follow threads of information. When you conduct a search and come up with a series of hits, click into each hit and be mindful that any one of them might have links to more information.
■Use the “find” option (which is under “edit” on the toolbar) to quickly locate where your specific search term appears in a web page or Web-based document. This comes in handy when you are looking at expansive web sites and/or very long Web-based documents. The find function allows you to zero in on exactly what you are looking for in seconds.
Magazines
While published less frequently than newspapers, magazines are another good source of potential information. Industry-specific magazines, such as Fortune, Forbes, Money, and Kiplinger’s Personal Finance, often provide in-depth interviews with investment professionals as well as insightful analysis of specific investment firms and their products. As with newspa- pers, most of the print magazines are also available in some form via the Internet. Some offer all content for free, others charge a fee, while others offer some middle ground. In addition, it should be noted that most local libraries carry a wide assortment of these magazines for your review. The local branch library near my home, for example, receives hundreds of mag- azines, many of which are business or investment oriented. You can visit or call your local library or check to see if it has a web site to see what maga- zines it receives.
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Newsletters
Another great source of information can be found in industry-specific newsletters. In the investment industry, there are dozens of newsletters available that cover a variety of topics. Institutional Investor Publications alone currently produces 20 weekly/monthly newsletters that range in scope from broad marketing news to news on that focuses exclusively on the hedge fund arena.
Dedicated Investment Sites
In addition to all the news sites and magazine sites, there are many dedi- cated investment web sites, such as MarketWatch.com, Bloomberg.com, and Morningstar.com. And don’t discount sites like Yahoo!, MSN, and Ly- cos, because they often have great financial subsections as well.
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CHAPTER 8
Initial Interview
L
et’s step back and review what we have accomplished thus far and deter- mine what the next steps in the process should be (see Exhibit 8.1). After collecting data from several different small-cap value managers, we selected CAM Asset Management’s small-cap value product to review (among oth- ers). Once we received a package of information from CAM, we started the analytical process by conducting returns-based analysis (performance and risk analysis). Then we took the underlying portfolio into consideration by performing detailed portfolio analysis. Next, we sent CAM a detailed ques- tionnaire to fill out and we went on to the SEC’s web site and downloaded CAM’s Form ADV. In addition to this information, we have a copy of155 EXHIBIT 8.1 The Next Step: Set Up an Initial Interview
Step 1 Setting Guidelines Done
Step 2 Screening Database Done Background Work Step 3 Selection of Finalists Done
Step 4 Performance Analysis Done
Step 5 Risk Analysis Done
Step 6 Portfolio Analysis Done Manager Specific Step 7 Questionnaire/ADV Review Done
Step 8 Initial Interview
Step 9 Attribution/style analysis Step 10 On-site Visit
Step 11 Manager Ranking Model Step 12 Decision
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CAM’s marketing presentation (we requested this as part of the initial packet of information (Chapter 3).
If we decide that CAM’s small-cap value portfolio is worth taking to the next step, we will need to set up some kind of meeting with the in- vestment manager or one of the other decision makers for the portfolio under review. I rarely hold meetings just with marketing or client service professionals because at this stage in the process, I have done a fair amount of due diligence and have put together a list of targeted invest- ment-related questions that I feel can be answered only by the investment professionals. In addition, because the people involved in the manage- ment of the underlying portfolio are the most important piece of the puz- zle, I’m looking to gain an initial understanding of what makes the investment manager or team tick. No marketer or client service profes- sional can relay this information to me—it has to come from the prover- bial horse’s mouth.
As Exhibit 8.1 illustrates, the next logical step in the process is to set up an initial investment meeting. However, before we do so we need to de- termine if a given manager is worth the time and effort. Thus far, we have limited the level of work we have done and kept it at a minimum. We have analyzed performance data, quickly reviewed a sample portfolio, and read through some basic information about the firm and the underlying prod- uct. However, it is at this stage in the process when we start to put in some time and effort. Meetings take time to prepare for, set up, and actually sit through. In addition, we have more detailed analytical work to perform in the next few stages as well as an on-site visit. On-site visits are lengthy meetings where the investment manager analyst travels to visit the invest- ment management firm. They are time-consuming and often take some time to set up.
So that we can keep using CAM Asset Management as a case study, we will take them on to the next level and set up a meeting.