Craig Baker, chief investment officer at WTW, which manages £150bn in multi-manager funds on behalf of pension funds and advised clients’, has revealed what he looks for when choosing a fund manager.
The principle way in which advised clients can access WTW’s strategies is via the £3bn Alliance Trust - a long established fund of which Baker and WTW became manager’s of around six years ago.
Over the past five years, the trust has returned 47 per cent, compared with 11 per cent for the average trust in the AIC Global sector.
Alliance Trust’s portfolio mirrors that of the institutional strategies they operate, and Baker said he uses the buying power that comes from buying for the institutional mandates to get lower fees for clients of the investment trust.
In terms of what he looks for when choosing firms and individuals to manage the £150bn funds, he told FTAdviser: “The first thing we look for is investors who view risk as being the permanent loss of capital, and so are willing to tolerate volatility and deviate from the benchmark.
"We also want the fund managers to be comfortable running concentrated portfolios of around 20 stocks for us in segregated portfolios. There are lots of good managers out there who like to build big portfolios, but that won’t work for us.”
Baker said he only allocates to individuals that are experienced and have managed money across multiple market conditions.
The fund-picker said: “We want those managers to be aware of the behavioural biases that cause people to make bad investment decisions, and to be able to tell us how they can mitigate those when investing our client’s money.”
When it comes to choosing firms, rather than individuals, Baker said: “All other things being equal, lower fees are better than higher fees, and we use our investment footprint to negotiate on that, but we do want the fee to be high enough to enable the firms to attract and retain talent.
"The second thing we want to ensure is that the funds haven’t got so big the individual managers are no longer able to replicate the approach that made them successful in the first place.
"And linked to that is we want to ensure that the fund house is investment led, with an alignment of interests between us and the manager, and they need to show they can retain talent.”
One recent change made to the Alliance Trust portfolio has been to add Dalton Investments to its roster, with the task of running Japanese equities.
Baker believes corporate governance changes in Japan make the stock market there more attractive, and has tasked Dalton with creating a fund.
The allocation came from trimming investments in other generalist funds that had substantial, but not dedicated investments in Japan.
david.thorpe@ft.com
