Principles of Nonprofit Investment Management - Commonfund

Selecting investment specialists hasitself become a specialized skill.Candidates must be investigated indepth. Performance data alone canprove misleading, especially if theycover only a short term – less than fiveyears. Performance in less than onemarket cycle could tell more about thefirm’s luck than skill. And past performancealone has never provided areliable prediction of future success.For each specialization, the selectiongoes forward step by step:◆ Compiling an initial list of candidates◆ Gathering basic information abouteach one◆ Narrowing the list◆ Conducting preliminary due diligence◆ Selecting the finalists◆ Completing due diligence andcomprehensive portfolio attributionanalysis◆ Hearing presentations of the finalists◆ Making final selections◆ Conducting negotiationsA key resource of the manager ofmanagers is the database of theexpanding world of investmentmanagers. The information collectedon any one manager covers everyaspect of that firm’s business. In ourmanager information template atCommonfund, the questions alonetake up twenty-three pages.You must also be aware of possibleconflicts of interest. Does the firm haveany connection with any member ofyour board or management?And, after all of that, you have toconsider the “alpha” factor – the talentthe manager demonstrates within a riskparameter for achieving results beyondthe average of the market in which he- 22 -