Liontrust Responsible Capitalism Report 2024 - Flipbook - Page 85
MANAGER SELECTION
The Manager selection process contains a number of distinct steps.
STEP 1: UNIVERSE FILTERING
• Investors in funds or managers are fortunate to have tens of thousands
of potential investments available to them. The potential downside of
such an abundance of choice is that, without effective filtering, it is
possible for a research process to become overwhelmed.
• The Liontrust Multi-Asset team has access to a number of industry
recognised databases which enable effective, proprietary,
universe definition and filtering.
STEP 2: QUANTITATIVE AND QUALITATIVE RESEARCH
• The overall manager selection process cannot rely solely on
quantitative or qualitative inputs. Rather it is a blend of both
forms of analysis that underpin the Liontrust Multi-Asset team’s
investment manager choices.
• Managers are subjected to significant levels of quantitative
analysis to ensure that the Multi-Asset team understands current
and past positioning in detail.
STEP 3: OPERATIONAL DUE DILIGENCE AND
SECURITY SET UP
• Operational Due Diligence (ODD) is an often overlooked element
of the manager selection process. In fact, it is an essential part of
taking on managers to ensure that the funds are appropriate from
non-investment related considerations and to ensure that trading
and implementation take place seamlessly.
• ODD matters because without it the ability of the Multi-Asset team
to efficiently trade and rebalance the funds and portfolios would
be reduced.
• ODD is split into two main areas – initial DD and ongoing
DD – and the purpose is to ensure that the selected funds are
suitable not just from an investment perspective but also from an
operational and compliance perspective.
• Dealing information and specific questions are answered to
ensure the investment is possible and also suitable for the MultiAsset funds and portfolios, such as whether the Fund is a UCITS
regulated scheme and is there a minimum investment.
• Once invested, ongoing DD is performed.
• This aids the team in interpreting the manager’s true investment
style and whether that style has been expressed persistently in
the past.
Implementation
• The implementation process varies slightly between Liontrust
Multi-Asset funds and portfolios.
• Past performance is a useful indicator of past success but it cannot
be relied upon as an indicator of future performance.
• The principles behind the implementation of either are the same,
however, ensuring the Multi-Asset team implements in a manner
that treats customers fairly, creates consistency across the ranges
wherever possible, finding an optimal balance between trading
and portfolio turnover, and ensuring the implemented holdings
reflect the Liontrust Multi-Asset team’s views generated through
the investment process.
• Indeed, analysis of past performance is less about the outright level
of performance – although serial underperformers would not be
attractive to the team – but most important are the characteristics
within performance. This relates to the stylistic exposure of
managers, which is assessed through holdings-based style
analysis. Performance is also considered on a disaggregated
basis to identify the attributed drivers of performance.
• Underpinning all of this is the need to remain suitable for investors
from a risk and mandate perspective.
• Active managers should demonstrate skilful stock picking over
and above other factors which can be more akin to luck. The
qualitative side of fund manager research is extremely helpful in
this regard.
• While the Liontrust Multi-Asset team takes its fiduciary duty to
investors extremely seriously, they also ensure there are effective
checks and balances internally. These include pre and post-trade
compliance checks and regular performance reviews.
• The sorts of areas that the Liontrust Multi-Asset team will consider
are manager philosophy and process, team structure, business
structure and incentivisation, stock selection process, portfolio
construction, historical and current positioning.
• This ensures the Liontrust Multi-Asset funds and portfolios are
scrutinised and reviewed to verify that the team is fulfilling its
commitment to investors.
Responsible Capitalism Report 2023 - 85