The identification of emerging managers comes from many sources. First and foremost is the knowledge base database we have established following many years of work in this area. New candidates come primarily from updates to published databases, investment literature, industry contacts and general networking. We have screened well over 800 firms in our many years of involvement in this area and maintain a knowledge base of several hundred firms.
Once we have identified a manager of potential interest, our investment process entails a thorough evaluation of all critical aspects of that managerís organization in order for us to judge their prospects for providing value added investment performance in the future. In order to do this, we gather background information from the firm on their structure, resources, business plan, people, investment philosophy and process, and history of performance and portfolio characteristics. In-depth discussions of all of these aspects of the firm in face-to-face meetings with key individuals are critical elements of our research effort, and enable us to build our opinion of the firmís investment capabilities. Our analysis of historical portfolio characteristics, risk positioning, past performance and the impact of specific strategies in different market environments, plus conversations with client references further aid in developing our assessment.
Investment program construction begins with client objectives, focusing on return expectations, risk constraints and specified benchmark as the starting points. We test combinations of managers, each of whom we believe individually has the ability to provide value added over a full market cycle, to identify the alternative that provides the most attractive characteristics relative to the set of objectives. This entails optimization exercises using historical return data and testing the impact of different manager weightings on aggregate style positioning using a full range of fundamental characteristics. In all cases, our aim is to construct an appropriately diversified mix of managers that provides participation across all style elements inherent in the specified benchmark and meets the risk parameters specified by the client.
We continually monitor the overall program, in terms of characteristics and investment results relative to objectives, and each of the managers individually, both as to their continuing organizational strength and regarding the impact of their contribution to the investment program specifically. Manager changes may be made for a variety of reasons, including adverse organizational developments at a firm, deterioration in performance or an unwarranted shift in portfolio characteristics, or our identification of an interesting alternative manager opportunity.
C A P I T A L P R O S P E C T S L L C