Manager Research

It has been our experience that most trustees and board members typically want to dive right into selecting managers without giving much thought to the role that each manager needs to assume in order to reduce risk. It is critical to the overall success of the fund that the manager implementation process allows for full diversification among the asset classes and styles before there is any duplication of investment roles.

Here is a closer look at our search process and the criteria used to select managers. We like to think of our process as a funnel, starting at the top with a large universe of possible managers and working our way down to a few well qualified firms for our searches.

Manager Universe Creation
Starting with the total universe of 5,500 investment products available for investment, we then define a smaller universe of managers that corresponds to the style mandate for which we are searching. The databases that help us in our search are the eVestment Alliance Universe, Independent Consultants Cooperative and the PSN M-Search's Universe.

Quantitative Analysis
The next step in the manager search process is to examine the "risk/return" characteristics of the managers in our universe. Our goal here is to identify managers who have not only exceeded their respective benchmark, but are also among the top performers compared to other managers in their peer group.

Qualitative Review
Once our list of candidates has been narrowed down to between 15-20 managers, we then conduct interviews with those managers to learn more about the firm, personnel and process. PFM Advisors understands that this is a very dynamic business and that change in this industry is constant. Therefore we place a premium on having the most up-to-date and complete information on the candidate managers.

During the interview process, we want to develop a complete understanding of the manager. PFM Advisors recognizes that as much as the numbers are important, it is the people making the investment decisions along with the firm's inherent culture that are the keys to success.

Diversification Analysis
Once the qualitative review of the managers has been completed, the candidate list is then narrowed down to 5-6 managers. To arrive at a final list of three or four managers, we examine how each of the managers would "fit" in the client's portfolio. A correlation analysis is run on each of the candidate managers against the other managers in the client's portfolio to determine which managers provide the best diversification with respect to the other managers.

The goal of this exercise is to find those managers that are less correlated with the other managers in the portfolio to maintain or enhance the diversification of the portfolio. The best three or four managers that contribute to this diversification are then presented to the client for selection.

It is important to note that unlike many other investment consulting firms, PFM Advisors receives no fees or other consideration from managers who wish to be maintained in our database.