Home : Our Services : Manager Selection How does Greycourt identify managers?We begin by avoiding a key mistake many firms make when evaluating managers: a dependency upon quantitative metrics. They do this because such metrics are objective, cheap, and easy to obtain; and they do not require much in the way of judgment. As noted above, however, a good near-term track record can often be misleading. At Greycourt, we feel that it is critical for our senior Managing Directors to remain integrally involved in screening, evaluating and ultimately the selection of managers for our clients. As a result, each Managing Director is assigned responsibility for overseeing the integrity of the firm’s pool of managers for one or more asset classes. Specifically, we have developed a three-tiered manager evaluation process that blends both quantitative and qualitative measures. Our initial (Level I) process requires managers to pass a rigorous six-criteria screen simply to ensure they have demonstrated highly competitive risk and return characteristics over at least the past 5 years. While Greycourt analysts are responsible for running the Level I screens, Greycourt’s Managing Directors work closely with them to ensure that the nature and tolerances of the screens remain appropriate for each asset class. Second, managers are asked to complete Greycourt’s detailed investment questionnaire and to submit to a review of their marketing and SEC ADV documents in order to ensure that their products are structurally appropriate for Greycourt clients (Level II screen). At the conclusion of our Level II process the Greycourt Managing Director and analyst will formulate an initial investment thesis describing why they think a manager has been able to outperform its peers in the past. Finally, each manager candidate is interviewed directly by a Greycourt Managing Director who seeks to validate the initial investment thesis established earlier. This involves evaluating a manager’s investment philosophy; investment disciplines; risk controls; experience; ownership structure; incentives; organizational stability; the quality of the manager’s client base; the manager’s personal integrity; and any other relevant characteristics the manager may possess. Once satisfied as to the validity of the manager and of the initial thesis, the Managing Director in question will present and defend the manager before other Greycourt Managing Directors prior to formal approval. Hiring good managers is just the first stepOnce a manager has been hired, Greycourt typically will develop a detailed set of written investment guidelines for them to follow. In addition, on a monthly basis, Greycourt reviews each manager’s returns relative to its benchmark, proactively contacting managers whose returns vary above or below that benchmark by more than average so that they can explain their performance variance. Absent other considerations, we usually speak with our managers regarding their portfolio performance at least four times per year. Optimizing manager selectionAs challenging as it is to identify good managers, it is also important to optimally combine managers within client portfolios. For example, many high-alpha1 managers also exhibit
high levels of volatility. However, by combining high alpha managers having low correlations with one other, it is often possible to have the best of both worlds: high alpha and low volatility.
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