People over processes
Aviva Investors has a specific process for adding holdings to its fund of fund vehicles, according to Peter Fitzgerald, co-head of the multi-manager team.
Called the ‘Seven P Process’ it looks equally at the parent company’s strength; the people; the ‘philosophy’; the investment process; the performance; the positioning and the product itself. Of all of them, Mr Fitzgerald highlights the importance of ‘people’.
He notes: “Regarding people we look at who are the people managing the portfolio, are they experienced, how many of them are there and are they sufficiently resourced? That for us is absolutely essential.
“Many firms will say it’s the process that is important, and that is one of our P’s, but we think it is the people that effectively make the process, so the people for us is very important and we like to see experienced individuals.”
Mr Fitzgerald adds the product part of the process has recently expanded. “The reason we’ve expanded on this is that our funds of funds are ‘Nurs’ [Non-Ucits Retail Funds] so we can invest up to 20 per cent into non-UK regulated funds.
“So it is very important to understand the product structure, not just for the offshore funds but also the onshore funds. It is understanding what are the costs? What are the fees associated with this fund? How much money is the manager running? Is it at capacity or is the manager running enough money to make it viable?
“We also look at the prospectus and the annual report and accounts really to understand the detailed working of the actual product.”
Selling out
But while deciding on an initial investment takes time and research, selling out of a holding requires just as much work, especially when dealing with portfolios that are carefully balanced.
Ms Shah notes: “Changes in the portfolio depend on the opportunity set of the asset classes we invest in and whether or not we have conviction in the managers.
“We would not necessarily sell a manager because they had underperformed; instead, we would review performance over several quarters to understand the reasons for this - if the investment case remains robust we would continue to hold.
“We may sell a fund if we feel it is quite large and there is another more nimble fund that is better able to take advantage of the opportunity in that asset class.”
Mr Fitzgerald notes a further part of the ‘Seven P Process’ includes writing a detailed research report on every manager before they are used in the funds. These are then updated every six months at a minimum, following a meeting with the manager.
He adds: “We update each of those seven sections in our report, and if anything has changed substantially and we’re not necessarily happy with those changes that would most likely trigger an exit from the fund. What tends to trigger sells prior to those six month reviews is a manager departure or a significant departure from the team.”
