CFASS President, Teresa Cutter writes article for Fundfire.com
MoneyVoices: Manager Research Must Improve
Column published on Jul 31, 2008
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Guest Columnist: Terésa Cutter is president of the CFA Society of Sacramento and handles external managers within the fixed income division of the California State Teachers’ Retirement System.
Many pension plans are hiring managers-of-managers to run their external manager programs. These plans seek to diversify internally managed strategies, as well as to add alternate sources of alpha to address funding-liability mismatches. Manager-of-manager programs require a breadth of knowledge spanning several asset classes, as well as the ability to integrate individual manager return-risk characteristics within an overall portfolio’s objectives. As more institutions use this type of program, we need to remember that manager research and evaluation is as much of an art as it is a science.
The CFA Society of Sacramento, whose membership comprises several individuals who run or administer external manager programs, has encouraged several discussions regarding how to conduct such evaluations. CFASS members question whether it is possible to quantify the qualitative. If so, then there may be a need for standardization of the measures employed to rank qualitative events, such as the departure of a key investment professional, negative changes in asset flow, or some subtle and potentially deleterious change to a firm’s culture.
CFASS members agree: it is difficult to assign hard values to such events. These events are idiosyncratic and are subject to interpretation on a firm-by-firm, or even strategy-by-strategy, basis. Even if it were possible to establish a point or quartile system for certain commonly occurring events, there isn’t a method for deriving a standardized Z-score across all the various, qualitative issues. [A Z-score is a common statistical way of standardizing data on one scale for comparison, like a common yard stick for all types of data.] Some feel such standardization is not even necessary.
As CFASS members grapple with the question of whether -- and how -- to standardize and/or quantify the qualitative, managers-of-managers continue to reconcile the oftentimes conflicting demands of their roles. As investment anthropologists, they study lagging indicators such as performance and modern portfolio theory statistics, building a profile based on historical tendencies and batting averages. Then, as cultural psychologists, they deconstruct that effort. Neither activity alone, nor together for that matter, can be used to forecast with certainty a manager’s performance.
We need more discussion on whether there ought to be a standardized way to account for “life events” within a manager-of-managers’ firm or strategy. With that, it might be possible to extract one overall “hire” or “terminate/de-fund” signal, which could then be used to evaluate with more certainty the manager or strategy in question.
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2008 CFASS 3rd Annual Golf Tournament
Winners:
Lowest Overall Score (1st Place) -- Each player in foursome won a trophy and a free round of golf at Teal Bend Golf Course
Second Lowest Overall Score (2nd Place) -- Each player in foursome won a trophy
Third Lowest Overall Score (3rd Place) -- Each player in foursome won a trophy
HIGHEST Overall Score = LAST PLACE -- Each player in foursome won a Bobble-head trophy (booby prize)
Individual Awards:
Longest Drive -- Player won a Taylor Made Driver
Closest to the Pin -- Player won an Odyssey Putter
2008 Market Forecast Luncheon
The 2008 Market Forecast Luncheon was a success! Over 100 members and guests were in attendance. Both Dr. Ked Hogan, Managing Director at Barclays Global Investors, and Mrs. Rachel Golder, Managing Director of Goldman Sachs presented their views on the recent sub-prime and credit market melt-downs.
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Teresa Cutter of CalSTRS, Christopher J. Ailman, CIO of CalSTRS, Candace Ronan of Wells Fargo, Charles Tyler of CalSTRS, Geraldine Jimenez of CalPERS