When presenting their investment approach, most managers throw at you a wonderfully crafted PowerPoint presentation. Usually it starts with a map of the world, highlighting their global presence, and it almost always includes a multi-stage process which filters thousands of stocks into a risk-controlled portfolio.
Everyone seems to narrow the universe with a state-of-the-art proprietary model and use in-depth fundamental research to analyse the stocks that are shortlisted and invest in the attractive ones in an index-aware, risk-controlled manner. So, why are performance patterns so different from one manager to the next?
But this is not the real issue. The problem is that very often the glossy process slides do not depict how managers really invest. Most of the time the difference is only marginal, but sometimes we are presented with pure fiction. This is why only meeting managers from time to time can result in great surprises. The killer blow comes when your long-time favourite qualitative manager, whose edge resides in his or her brain’s ability to pick winners, presents you with a ‘funnel slide’ of the four cunningly named stages of their systematic and disciplined investment process.
As they see the blood rushing to your face and your knuckles turning white, they will turn to you and whisper: “Yeah, I know it’s not really like that, but we have to. Clients want it. If you don’t have a multi-stage process, consultants will not rate you.”
Process presentations are like writing your CV at the expense of the truth. I could easily land a job as an airline pilot or a surgeon that way.
As a multi-manager, you should be comfortable with the fact that it will not always be possible to map managers’ approaches to a consultant-friendly deck of slides, and I think our edge is finding those extraordinary individuals. My real interest is to stop them pretending they are ordinary.
François Zagamé is manager of the Old Mutual Voyager Global Dynamic Equity fund