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Rating and Ranking External Investment Managers

By October 24, 2019December 20th, 2019No Comments

Key elements for designing a scorecard to evaluate external manager performance.

Members at a recent meeting of cash investment managers discussed effective external manager evaluations, including what belongs in scorecards. 

Big picture. The presenting member runs the credit portion of her company’s portfolio and considers various criteria to score managers. She is increasingly using more qualitative metrics in addition to portfolio returns. Her team’s key elements to evaluate managers are:

  1. Investment performance 
  2. Market and credit insight 
  3. Risk management and compliance 
  4. Client service and reporting
  5. Team stability; diversity and inclusion

Evaluating the value proposition. The company’s deemphasis on performance and its decision to place greater value on the services managers provide involves evaluating:

  • Market and credit insight by way of macroeconomic interpretations, asset allocation recommendations and credit research expertise to provide valuable aid in investment decisions.
  • Risk management and compliance support via timely and accurate reporting to check off all regulatory and compliance boxes.
  • The responsiveness and reliability of client service and delivery on special requests.
  • The team itself should have a key contact in place, low turnover and diversity throughout to maximize the relationship. 

Dynamic design. Using a weighted average scoring system, the scorecard evaluates portfolio performance quantitatively by comparing a manager’s returns to market benchmarks and peers. All other categories involve subjective ratings of qualitative measures.  

Jacob Bromsey

Author Jacob Bromsey

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