A Short List of My Favorite Questions to ask a Fund Manager
Also, new fund launches, and moves from Balyasny, Citadel, Millennium
A Short List of My Favorite Questions to ask a Fund Manager
Written with hedge fund PMs in mind, but can apply to PE and long-only as well.
Anyone who is remotely familiar with manager selection likely understands that identifying successful managers ahead of time, especially with any degree of regularity, is immensely challenging. Manager selection decisions are made with far from perfect information.
I find it helpful to frame the bases of knowledge:
What the allocator knows
What the allocator doesn't that the manager does
What the manager can teach the allocator in a reasonable amount of time
Unknown unknowns
Managers may neglect to share without a prompting question, and other times prefer that certain topics not be brought up. In an effort to reduce this asymmetry, here is a brief list of questions that have the ability to spark conversation that otherwise may be left unsaid.
1. What question haven’t I asked yet, but should?
This is a respectful yet probing question to wrap up with, and can often provide some unlikely responses. If they answer the question logically, you have more information to work with. If they comes across as cagey, it may be worth inquiring further.
2. What is your best idea … what would have to be true for this not to work out?
Once the manager walks through a likely well-rehearsed response, inquiring about what would need to be true for their highest conviction idea to fail can shed light on a manager’s consideration of the bear case, risk assessment, and perhaps show signs of being wedded to a position.
3. When you first meet people, what do they misperceive about you?
To answer this question accurately, the manager must have a high degree of self-awareness. This question provides a window into the manager’s EQ, especially if given the opportunity to interview other team members and corroborate the manager’s response. A lack of consistency can be a strong indicator that the manager is not a good manager of people or has notable blind spots in how others view them.
This question came from the Capital Allocators podcast with Randall Stutman.
4. What keeps you up at night?
This helps illustrate how the manager is thinking about risk, and what they believe to be a potential catalyst to a major fund drawdown. Follow-up questions around the managing of these risks, be it a reduction of exposure, mere acceptance, or a real inefficiency can be useful in determining the downside risk of the fund.
5. What is one mistake that you look back on and believe you are smarter because of it?
Not only will you better understand the manager’s approach to learning from mistakes, there is also the opportunity to gauge the manager’s humility. Responding with a mistake that did not have a meaningful consequence may indicate that the manager would rather not share his real mistakes, or the manager has not yet truly been humbled market.
6. Can you walk me through your idea generation process?
Tried and true, this can help assess the durability of the investment process and whether there is a sustained opportunity set. If you believe their sandbox is shrinking, understanding the sourcing process may confirm this, or shed light on a broader range of opportunities available to the manager. It is also an excellent way to better understand the investment process generally, and how a manager compares value versus price, or which trends to ride if it’s a momentum strategy.
7. Can you walk me through your process of existing a position?
There is an enormous amount of attention put towards the investment process whereas divesting can often be treated as an afterthought, especially in public markets. Some believe that the adage “nobody ever went broke taking a profit” can be the largest source of opportunity cost, letting their winners run. Others embody it. This question can help clarify whereabouts the manager falls on this spectrum.
8. What are three ideas you passed on for reasons outside of valuation, and why?
Originally posed by S-Curve Capital with analysts in mind, this can spark an insightful conversation around rejection criteria and rationale. As he/she notes, this can speak to “errors of omission and avoiding blowups”.
Of course, there is no silver bullet, and every manager is different. However, phasing certain questions, or knowing which questions to ask and when, can be the difference maker to engage in a meaningful conversation, and better inform the allocation decision.
Arrivals / Departures
Public
Colin Lancaster, former Citadel Macro Head to build $1bn multi-manager fund Matador Investment Management (LinkedIn)
Vivek Gulati leaves BNP Paribas to join Astignes Capital in Singapore as Portfolio Manager (HFObserver)
Kepler Partners have hired Ed Butchart, along with three research analysts. Butchart was previously the CIO at Sloane Robinson since 2011 (Investment Week)
Matthew Husar joins Balyasny as Head of PM Integration and Services from Schonfeld (HFObserver)
Dimitre Genov departs from Magnetar Capital to join Balyasny as Portfolio Manager, SPACs (HFObserver)
Former Ruffer quant Christian Schmidiger launches SQS Capital, a Swiss macro fund (HFM Global)
James Salter and David Mitchinson leave Polar Capital and TT International prepare to launch Japan-focused special sits fund (HFM Global)
Ex-Millennium PM Yuying Gao launches systematic hedge fund Banyan Alpha Investments in San Francisco (HFM Global)
Balgo Baychev's Chicago-based ParVision is set to debut in Q1 2021 (HFM Global)
James Piachaud joins East Point to launch pan-Asia long/short equity fund (HFM Global)
Private
Ben Prior joins Tikehau Capital in Paris as Chief Risk Officer after fifteen years at AXA (Linkedin)
ICG hires former Palamon partner Philippe Arbour to bolster private debt strategy (PE News)
Jeff Cohen leaves Southpaw Asset Management to join Contingency Capital as a new partner and managing director (PE Hub)
ECI appoints three new partners, Michael Butler, Duncan Ramsay and Stephen Roberts (PE News)
Ardian head of fund of funds and private debt Vincent Gombault steps down (PE News)
Growth equity firm Silversmith Capital Partners has promoted Brian Peterson to general partner (Business Wire)
Alex Albert steps down from partner role in Ares healthcare group (PE Hub)
Nordic Capital promotes Pär Norberg and Philippe Neuschäfer to partner (Nordic Capital)
Onex Corp appoints Conor Daly from Blackrock to lead European CLO platform (PE Hub)
Vivo Capital has named Dr. Hongbo Lu, Jack Bech Nielsen and Michael Chang to managing partners (PE Hub)
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