Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 255

10 hints for selecting a good fund manager

There are a plethora of boutique and specialist funds vying for the investor dollar, complete with glossy marketing materials, up-trending graphs, Warren Buffet quotes and conflicting claims to fame.

There are long-only funds, long/short funds, credit funds and private equity funds. However, as the fine print invariably says, past performance is no guarantee of future results.

How, then, to assess the merits of competing funds? Here are 10 factors to consider.

1. Who owns the fund?

We like to see funds where the employees have substantial ‘skin in the game’ in two ways: ownership of the management firm and personal investments in the fund. Both focus the mind when it comes to the value of capital preservation rather than the sole pursuit of growth, no matter the risk. It also is likely to promote independence, which we highly value.

2. What is their special sauce?

Fund managers should be able to articulate just what sets them apart in the way they select investments. Do they collect information others don’t? Do they analyse that information using a different approach? Do they have a particular research technique to isolate important information from ‘noise’? How does their fee structure compare? How are they incentivised?

3. What is the staff turnover?

Unlike the major funds, boutique outfits tend to rely heavily on the expertise of a small group of key people and, if one or more of them has recently left the building, that can have a detrimental impact on results. LinkedIn can be a valuable tool in assessing the current and former staff.

4. What have they got to hide?

Funds should be happy to tell you their history, operations and business structure, and to respond to requests for information promptly with clear no-bull responses. If a fund is not transparent, that is a danger signal. Audited financial statements are also a must.

5. How long would it take to head for the exits?

How liquid is the fund? If the manager needed to rotate out of a large part of the portfolio, how long would it take for them to do so – days, weeks, or months?

6. Who is calling the shots?

Is it clear who in the fund makes decisions on buying and selling, what their decision-making process is and how long it takes? Funds with trading-based strategies need to be more nimble than those in private equity.

7. About that track record?

Yes, it is true that studies have shown little correlation between past and future performance, but that doesn’t mean ignoring track record altogether. Managers should be able to articulate how their process has generated returns to date, and why it can be expected to continue or change. We also analyse a raft of factors against similar strategies and benchmarks.

8. How do they manage risk?

Most fund managers have internal rules around their investment process regarding asset screening, investment size, diversification and circumstances that would prompt a sale. It is worth trying to assess not only what the guidelines are, but how well they have stuck to their own rules.

9. What is the bigger picture?

How does this particular fund fit with others we’ve invested in? Does it fill an area previously empty or provide a better solution than a competitor we’ve invested in? How well are current market conditions suited to this particular fund’s strategy?

10. How will they keep us informed if we commit funds?

Successful investment is not only about an initial decision, but about being kept ‘in the loop’ with regular updates on news both good and bad. Ongoing communication is key. We place our preferred managers directly in front our investors to capture full transparency and therefore, enhance the investment experience.


Anthony Murphy is the CEO of Lucerne Investment Partners, which offers retail and wholesale investors access to ‘funds of funds’ designed to deliver strong returns regardless of market conditions. The information in this article does not consider the unique circumstances of any investor.


Is manager selection worth the effort for financial advisers?


Most viewed in recent weeks

10 reasons wealthy homeowners shouldn't receive welfare

The RBA Governor says rising house prices are due to "the design of our taxation and social security systems". The OECD says "the prolonged boom in house prices has inflated the wealth of many pensioners without impacting their pension eligibility." What's your view?

Three all-time best tables for every adviser and investor

It's a remarkable statistic. In any year since 1875, if you had invested in the Australian stock index, turned away and come back eight years later, your average return would be 120% with no negative periods.

The looming excess of housing and why prices will fall

Never stand between Australian households and an uncapped government programme with $3 billion in ‘free money’ to build or renovate their homes. But excess supply is coming with an absence of net migration.

Five stocks that have worked well in our portfolios

Picking macro trends is difficult. What may seem logical and compelling one minute may completely change a few months later. There are better rewards from focussing on identifying the best companies at good prices.

Let's make this clear again ... franking credits are fair

Critics of franking credits are missing the main point. The taxable income of shareholders/taxpayers must also include the company tax previously paid to the ATO before the dividend was distributed. It is fair.

Welcome to Firstlinks Edition 424 with weekend update

Wet streets cause rain. The Gell-Mann Amnesia Effect is a name created by writer Michael Crichton after he realised that everything he read or heard in the media was wrong when he had direct personal knowledge or expertise on the subject. He surmised that everything else is probably wrong as well, and financial markets are no exception.

  • 9 September 2021

Latest Updates

Investment strategies

Joe Hockey on the big investment influences on Australia

Former Treasurer Joe Hockey became Australia's Ambassador to the US and he now runs an office in Washington, giving him a unique perspective on geopolitical issues. They have never been so important for investors.

Investment strategies

The tipping point for investing in decarbonisation

Throughout time, transformative technology has changed the course of human history, but it is easy to be lulled into believing new technology will also transform investment returns. Where's the tipping point?

Exchange traded products

The options to gain equity exposure with less risk

Equity investing pays off over long terms but comes with risks in the short term that many people cannot tolerate, especially retirees preserving capital. There are ways to invest in stocks with little downside.

Exchange traded products

8 ways LIC bonus options can benefit investors

Bonus options issued by Listed Investment Companies (LICs) deliver many advantages but there is a potential dilutionary impact if options are exercised well below the share price. This must be factored in.


Survey responses on pension eligibility for wealthy homeowners

The survey drew a fantastic 2,000 responses with over 1,000 comments and polar opposite views on what is good policy. Do most people believe the home should be in the age pension asset test, and what do they say?

Investment strategies

Three demographic themes shaping investments for the future

Focussing on companies that will benefit from slow moving, long duration and highly predictable demographic trends can help investors predict future opportunities. Three main themes stand out.

Fixed interest

It's not high return/risk equities versus low return/risk bonds

High-yield bonds carry more risk than investment grade but they offer higher income returns. An allocation to high-yield bonds in a portfolio - alongside equities and other bonds – is worth considering.



© 2021 Morningstar, Inc. All rights reserved.

The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. Any general advice or ‘regulated financial advice’ under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.

Website Development by Master Publisher.