A strategy designed to score
Roxane McMeeken describes how Frank Russell plays the role of ‘football manager’ with its funds. The latest revamp of Frank Russell’s European equity multi manager line-up has seen the addition of London-based Thames River Capital. Steve Wiltshire, Russell’s chief investment officer, Europe & Asia Pacific, says that his firm puts funds together in the manner of a football team manager. Each investment house in Russell’s multi-manager products serves its own, complementary purpose and works for the good of the whole. Thames River will handle segments of three Russell funds totalling E2bn and was selected based on the experience and quality of its staff. Russell’s funds are exclusively multi-manager vehicles. The firm manages no assets directly. Founded in Tacoma, Washington State, in the 1960s as an investment consulting firm, Russell went into the manager of manager business in 1980. Today it has E70bn assets under management from private banks, wealth managers, insurance companies and institutional investors worldwide. Each Russell fund is managed by a group of different asset management firms commissioned to run a portion of the assets in their own style. Mr Wiltshire explains the process of building the multi-manager funds: “It’s like a football team, because you’ll have your superstar strikers who take the risks, and then there are other, more defensive players.” He says that a fund will not necessarily be comprised of all the top performers. Rather, “we put managers together in an intelligent way so that they diversify away unrewarded areas of risk. One manager might have strong performance potential, but we might hire another one because it would do a better job as part of the team.” Russell has agreements with more than 30 managers, including JP Morgan Fleming and Fidelity. Together, the Russell funds span multiple asset classes, geographical regions, sectors and styles. “We are in the forecasting business just like all active managers,” says Mr Wiltshire. “But we are not forecasting market direction or performance but rather the performance of particular managers and products.” The average turnover of managers in the Russell funds is 10–15 per cent. Mr Wiltshire believes this is low. “If we have done our homework properly turnover should be kept to a minimum.” He adds that Russell is keen to minimise turnover because of the expense of changing managers. The firm will drop managers in a number of situations. “There are no hard and fast rules, but overwhelmingly the reason we tend to drop managers will be their performance against the benchmark,” Mr Wiltshire says. Beyond poor performance, Russell might also pull the plug on an investment house if a key portfolio manager leaves or if “a new organisational structure will be less effective in supporting fast decision making.” Mr Wiltshire adds that Russell also looks out for “managers’ processes failing to respond to secular, permanent changes in the market.”
3 ways to pick a manager Steve Wiltshire outlines his company’s three-pronged approach for choosing asset managers:
- Capital markets research: “We have a team of 20 econometricians worldwide. They help us understand the way markets behave, the sources of risk and return, benchmarks and how well different types of investment strategy are likely to perform.”
- Onsite evaluation: “We visit managers and find out what makes the key decision-makers tick and how they think the market works.” Russell has a team of 200 people across the globe in its investment division devoted to onsite evaluation.
- Quantitative analysis: “We use sophisticated analysis tools to understand the risk position of a particular manager and reconcile this with their investment process.” Russell’s worldwide quant research analyst team is 50-strong.
