Author: Chris

Investors Prioritize Outsourced CIO Exit Strategies

Posted on by Chris in News Excerpts

FundFire, by Aziza Kasumov 

Institutional investors are increasingly paying attention to how they might unwind their outsourced CIO (OCIO) relationship – even as they’re just getting started with a new provider. The heightened focus comes after a generation of early OCIO adopters realized that it can take years to get out of some holdings, and they can still incur high fees for “legacy funds” that their old OCIO administered, search consultants tell FundFire.

“It’s very easy to sign up a new OCIO, but the exit strategy is a very critical deficiency,” Tom Donahoe, Managing Director of OCIO search and governance at Manager Analysis Services, said at an OCIO Solutions Summit last week  Donahoe said that often institutional investors don’t discuss exit language “when they jump into an OCIO agreement.” But once a provider is terminated, it’s “pencils down.” That creates “slippage where you can lose real value over a two or three week transition period simply because people are taking their eye off the ball,” Donahoe explained. (shortened for brevity) (6/17/19)

EMERGING MANAGER (EM) DUE DILIGENCE & ANALYSIS

Posted on by Chris in Briefings

MAS’s Comprehensive Process for Evaluating Emerging Managers

Manager Analysis Services’ (MAS) Emerging Manager selection process has been distilled from hundreds of searches conducted globally across asset classes and investment strategies. MAS’s EM searches have the following parameters: Manager AUM of no more than $ 2 billion at time of hire and include minority, women, veterans and disability certified managers. Our process focuses on 4 key areas of analysis:

1) “WHO” IS THE MANAGER?

MAS carries out a comprehensive line of inquiry which includes:

  • Background research of managers’ key personnel; both to validate their talents and to detect any warning signs from previously in their careers,
  • Analyzing a manager’s prior track record, both quantitatively and qualitatively,
  • Evaluating business risk; e.g. does the manager have a sustainable business model, what is the ownership structure of the manager and are their incentives aligned with that of the client?
  • Does the manager have appropriate talent and expertise to be successful?
  • Have there been any legal or ethical violations on part of the organization or its personnel?

2) “WHAT” IS THE INVESTMENT STRATEGY?

MAS believes picking the right strategy is as important as picking the right manager, diligence involves:

  • Assessing which strategies are most attractive and compelling in the current macro environment and what fits well with client’s investment objectives,
  • Evaluating the manager’s execution of the investment strategy to understand if a manager’s strategy has a “material edge”,
  • Modelling a manager’s performance versus benchmarks to understand the manager’s risk profile and alpha/beta characteristics over different market cycles.

3) “HOW” IS RISK MANAGED?

MAS prefers managers who exhibit strong portfolio construction skills with respect to risk management. Diligence focuses on:

  • Establishing risk and return expectations specific to the manager’s investment strategy and asset class,
  • Conducting stress tests, analysis of leverage, liquidity, betas, alphas, volatilities, correlations, sector and regional exposures,
  • Review of ISDA agreements, usage of any financial instruments and margin to assess counterparty risks,
  • Identifying the risks embedded in a manager’s investment process helps MAS guide clients on how best a manager fits in their portfolios.

4) OPERATIONS/ADMINISTRATION:

MAS’s objective is to understand a manager’s unique business risks which include operational, financial and personnel not only at time of initial investment but on an ongoing basis. MAS reviews:

  • Arrangements with administrators, prime brokers, auditors and other service providers to help ensure that appropriate safeguards are in place,
  • Valuation policies and practices to help clients assess the quality of their portfolio’s market values,
  • Fees and any redemption terms to assess liquidity considerations/needs of clients,
  • Manager’s business, investment and operational processes on an ongoing basis to ensure any changes have not eroded a manager’s “material edge” or affected their business sustainability.

Manager diligence lies at the heart of MAS’s consulting business, and MAS’s principals have reviewed
over 2,000 managers since 2003. Our experience includes manager diligence in both traditional and
alternative asset classes. We have evaluated core and specialist managers who invest with a specific
focus on sector, industry, market cap or geographic factors. We help investors source, analyze, assess,
invest in, monitor, and terminate investments in managers.

Want to learn more? Please contact Chris Cutler, Tom Donahoe or Safia Mehta at 917 287 9551.

What Family Offices Should Never Miss!

Posted on by Chris in Briefings, Family Office

Many Family Offices place a premium on discretion and refrain from engaging expertise that does not emanate from a “close(d) circle” of advisers. The downside to this approach is that a Family Office exposes itself to the pernicious practice of being exploited, which occurs all too frequently across the wealth management industry. Families who are most comfortable with their “close(d) circle” of advisers are often the most exposed. Few cases are as severe as the Leslie Wexner case or the myriad losses from Madoff. The most frequent cases that we encounter involve excessive fees or efforts to misdirect trust proceeds.

The parties involved with these activities may not be the usual suspects. We have seen service providers play a material role in jeopardizing families’ legacies. Some examples include:

  • Health care providers for the elderly harassing elderly family members to change their wills and trusts—we have seen losses of 25% to 90% from these misdirections.
  • Trust and estate attorneys charging fees for settling large, yet simple estates as a percentage of assets rather than using a fair hourly rate, and poorly disclosing, if at all, that practice to families when they are facing tragedy from the death of a loved one.
  • Brokers charging commissions of up to 2% on equities trades when many firms charge little or no commissions for equities trades.
  • Collaboration or collusion among law firms, brokers, and accountants to maintain high fee schedules and discredit competing service providers in the eyes of family members. Conflicts of interest may be difficult to detect but can be devastating financially to families.
  • Private bankers charging all-in fees of 3% to 5% per year, when we believe a fair fee would be in the range of 1.5% per year. Since family offices are “sophisticated investors,” they do not have many of the legal protections of a retail investor. Family offices must work harder to uncover and understand “hidden” and poorly disclosed fees, long-term lockups, and other vulnerabilities in their investing process.

It is critical that a Family Office obtain a clear understanding that their fees are reasonable and that they obtain high quality, unconflicted services. Significant conflicts of interest are often overlooked or missed, not only at brokerage firms and private banks, but also among law firms, accounting firms, brokerage firms, and private banks.

Families face this predicament since they lead busy lives and their expertise often lies in running businesses outside the realm of institutional investing. Even when a family member does understand financial markets, the breadth and depth of challenges remain substantial. Too often, navigating institutional investing strategies distills down to over-reliance on a narrow set of trusted relationships, without properly assessing the performance of legal, tax, and accounting advisers that a family may utilize.

Family Office Services Provided

Manager Analysis can help families tap into skilled expertise that could help them ensure fair treatment, enhance their service levels, and reduce fees. Given our extensive experience assessing fee levels, commitment terms, portfolio construction, and overall quality of investment managers and service providers, we can address those factors that create the greatest vulnerabilities for families, while providing timely and thoughtful counsel to your family.

Performing a comprehensive review of your portfolios typically leads to enhanced communication with all service providers, stronger levels of support, potential material changes in investment managers (as needed) and improved and timely responsiveness to portfolio changes and market conditions.

Investment Portfolio Services Offered

  • Assessment of Key Service Providers (including asset managers, private banks, custodians and
  • multifamily offices)
  • Evaluation of Fees Paid (compared to market practices and value added)
  • Portfolio Analysis (with reconciliation to your family’s investment goals)
  • Assessment of Investment Strategies
  • Operational Due Diligence
  • Reviews of Partnership Agreements
  • Assessment of Investment Managers

Portfolio Management Services

  • Analysis of All Investments
  • Portfolio Construction Review
  • Manager Selection and Monitoring
  • Complex Real Estate Strategy Analysis
  • Risk Management
  • Liquidity Planning
  • Tax Analysis for Portfolio Holdings

Integration Services

  • Trust/Estate Documents Review
  • Disinterested Trustee Services
  • Financial Education of Family Members
  • Financial Planning and Budgeting
  • Expense Management
  • Contract Review
  • Staff Review and Career Development
  • Service Provider Coordination: Audit/Administration/Tax/Investments

Want to learn more? Please contact Chris Cutler, Tom Donahoe or Safia Mehta at 917 287 9551.
© 2019 MAS, LLC

OCIOs Land More Billion-Plus Clients as Model Gains Steam

Posted on by Chris in News Excerpts

By Alyson Velati | 1/30/18

“…A CIO can essentially help the committee interpret and understand what their OCIO is advising for the portfolio,” Chris Cutler says.

“Cost is certainly one important ingredient people care about, which is one of the advantages of having an in-house investment staff,” says Chris Cutler, president of Manager Analysis Services. “But, I’m seeing a dynamic shift where some boards don’t really have the governance capital to be able to administer decisions in a way as it should be done, so they’re making the switch to an OCIO.”

Hedge Investors Flood Macro Strategies

Posted on by Chris in News Excerpts

By Mariah Summers | 10/17/18

…But the 10-largest macro funds have fared a bit better, returning .90% so far this year, though they saw performance of -1.46% in the third quarter, compared to -.90% among all macro funds.

This trend is likely to spell trouble for macro funds of all sizes if it continues, says Christopher Cutler, president of Manager Analysis Services.

“There is a high risk of disappointment if returns do not improve,” Cutler says. “I was speaking with one very large institutional allocator recently that still is a very prominent hedge fund investor. His organization is likely to make large redemptions and greatly reduce the share of hedge funds in their portfolio over the next year.”

That puts pressure on macro funds, he says.

“I would like for macro hedge funds to demonstrate sufficiently improved results to sustain the recent rally in allocations, but hedge funds seem to be slipping behind private equity and ‘real assets’ investing as perceived ways to diversify institutional portfolios,” Cutler says.

But for now, macro managers may have a short window still to work out performance issues in the near term as investor fears of a sell-off intensify.