Ciaran Mulligan, Head of Investment Manager Oversight, M&GPrudential T&IO, explains why great manager oversight takes both qualitative and quantitative approaches
What is the Management Oversight Team?
Manager selection and oversight represents a key tenet of the investment process which underpins the PruFolio Risk Managed range.
The investment activity within the 15-strong multi-asset risk managed fund range falls to three teams within T&IO. The Long Term Investment Strategy team (LTIS) formulates the strategic asset allocation and identifies the right asset classes to invest in. The Manager Oversight team brings the theoretical portfolio to life by finding the best fund managers to achieve the desired risk-return characteristics for different portfolios.
Finally the Multi-Asset Portfolio Management Team manage the day to day activity of the portfolios. "The symbiotic relationship between both these teams delivers the end-portfolios for the client," explains Ciaran Mulligan, Head of Manager Oversight at T&IO. "None of these activities is carried out in isolation," he adds.
Who forms a part of the Management Oversight Team and why is it so important?
The Manager Oversight team identifies and selects the most appropriate funds, internally within the Prudential group and externally, to deliver the right risk-return characteristics across the range. The managers are then monitored on an ongoing basis to ensure they perform in line with expectations and the fund objectives.
"Everything we do is to improve the return experience for our clients. One way we can do this is by employing skilful, successful managers within our strategies. We need to ensure the client experience lives up to their expectations."
How does the team actively ‘monitor' managers?
The team splits its time between quantitative and qualitative analysis - and Mulligan believes the marriage between the two is essential. "It's about trying to understand performance streams and different risk statistics in the context of how they have been generated from a qualitative standpoint. This allows you to have confidence in your selections going forward - confidence in the probability of producing positive returns for clients," Mulligan explains.
On the quantitative side, they focus on the performance generated by fund managers in absolute terms and relative to benchmarks and peer groups over different time periods.
"We're cognisant that short-term performance can be an unpredictable indicator of future performance, but looking at longer-term performance over different market cycles can alert you to when a fund manager is likely to outperform and underperform," he says.
The team's quantitative work considers investment style, as well as the types of market environments the manager is likely to generate performance in. They analyse whether performance is down to market conditions or manager skill.
What role does qualitative research play in assessing manager output?
Qualitative research comes into play alongside the quantitative process. Continual access to managers, particularly internally, allows the team to build a strong understanding of what those managers are trying to do. Qualitative research is built up over time and takes two forms. Firstly formal meetings with each underlying manager, which allows them to get to know the business, investment team, process, philosophy, approach to risk management and secondly the quality of research they draw on.
"This gives us a good understanding of what performance should be like in different market environments," he adds.
