mat for direct mailing/fax or for e-mail format (which I generally prefer). I also generally post an RFI to a web site and invite investment firms that feel they meet the criteria to contact me. This is another way to find new investment products that are not listed in the databases.
To: Manager Contact From: Frank J. Travers, CFA
Re: Small-cap value search—request for information Greetings,
The Investment Committee of the U.S. Equity Market Leaders Fund is currently gathering information on U.S. small-cap value managers for a search we are working on. An initial screen has identified your orga- nization as a potential candidate for this search. For your information, I have included important information relating to this search:
Reason for Search:
■Investment professional turnover at one of the Fund’s existing small- cap value managers led to their termination and subsequent search for a replacement.
Mandate/Timing:
■The manager selected will take over the existing manager’s portfo- lio, which has a current market value of approximately $20 million.
Responses to this RFI are expected no later than December 15th.
The Fund’s investment committee will review all responses and con- tact you within two weeks of receiving your responses.
Search Criteria:
■U.S. small-cap equity manager with value orientation.
■Minimum of $50 million assets in product.
■Minimum three-year track record.
■Because the Fund’s theme is to provide its clients access to leaders in the field of investment management, your lead portfolio manager must have greater than 10 years’ experience managing small cap portfolios (over career, not just product in question)
Information Requested:
1. Historical performance—Provide monthly performance history net of fees. In addition, please include performance disclosures. The disclosures must include composite information.
2. Current portfolio—Provide the following information on the port- folio for the most recent month end in Microsoft Excel format:
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stock tickers, stock names, number of shares held for each stock.
Please include the amount of cash and cash equivalents.
3. Professional biographies—Provide bios for all firm members who have responsibilities for this product. This includes portfolio man- agers, analysts, traders, strategists, marketers, and client service professionals. Separately, please include the names of any profes- sionals who worked on this product but left the firm within the past three years.
4. Marketing presentation—Please include a copy of your off-the-shelf marketing presentation.
5. Form ADV—If you are an investment advisory firm registered in the United States, provide a copy of the latest Form ADV submitted to the SEC.
Contact Information:
Frank J. Travers, CFA, is leading this search, so please address all re- sponses to him and contact him directly if you have any questions. Infor- mation will be accepted via e-mail, which is preferred, or standard mail at the following addresses (faxed information will not be accepted):
E-mail: [email protected] Address: 111 Bridge Street, 1st Floor
New York, NY 10022
If you have any questions or require any additional information, feel free to contact me anytime. Thank you for your time and effort.
Sincerely,
Frank J. Travers, CFA
Investment Committee Member
The letter’s format is important because it represents your organiza- tion’s first impression with the investment management community and with the managers in the distribution list. A poorly written letter or one where the objectives are confusing does not reflect well on you or your or- ganization. Additionally, a confusing letter will prolong the information- gathering process, as some of the investment firms will need to contact you to clarify information, while others will misinterpret the request and send the wrong information. In the latter case, you will need to contact the man- ager and ask for the information a second time. The bottom line is that the process will not be an efficient one.
The sample letter was designed to be informative and to the point. I have seen RFIs that are up to 10 pages in length, containing pages of un- necessary text. While some searches do require more explanation, I have
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found that most can be effectively communicated on one or two pages. The sample letter defines the search parameters, clearly indicates what is re- quired of the investment managers, and states the formats that will be ac- cepted. The last, and quite important, section states who is in charge of the search and provides detail on how to communicate with that person. Too many firms conducting searches are intentionally vague about this, leading to some degree of confusion. Despite how well written the letter is, some managers will require clarification and others will want to call just to set up a dialogue.
CONCLUSION
Let’s review the process thus far. We have identified our investment objec- tives and used those objectives to develop a series of criteria to perform an efficient screen of our databases. We culled the initial universe of 150 prod- ucts down to a mere 6 products. Once we identified the products in our mostly quantitative screening process, we reviewed the results and added a manager and deleted a manager based on some qualitative information and assessments.
The final list of candidates was then contacted to request some basic in- formation for our review. When the responses start to come back to us, then the real fun begins. Once that information is received, we can start the ac- tual investment manager analysis process. Chapter 4 will review the basics of performance analysis and explain each formula and concept with exam- ples based on the information that we receive from the RFIs we sent out.
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Two PART
Equity and Fixed Income Manager Analysis
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CHAPTER 4
Performance Analysis
A
t the end of the preceding chapter, we e-mailed out a request for infor- mation to a list of fictitious investment managers. CAM Asset Man- agement was the first of these to e-mail back to us all of the information we requested, so we start the due diligence process by evaluating this manager. We use the information from CAM’s RFI as a case study throughout the equity manager analysis part of this book. Each chapter highlights the formulas, methods, and concepts behind the due diligence process and uses CAM’s small-cap value product as an example. In addi- tion, the book evaluates, explains, and interprets each example given. The goal is to be both academic and practical.As part of the package of information that CAM sent to us, we re- ceived a spreadsheet with the monthly returns and some annualized num- bers for comparative purposes. Exhibit 4.1 shows the feedback from CAM regarding their historical performance as requested in the RFI.