Is there such a thing as selection skill? If there is manager skill at identifying opportunities, there is also investor skill at identifying good managers. Both can represent alpha, but the skills are different. Managers produce alpha. Investors identify alpha.
Some investors are better at choosing managers than others. Other investors may be poorer alpha selectors but better portfolio builders. Manager choice may be more involved than just measuring alpha. Is there a good way to describe that skill beyond simple attribution?
All the focus is on measuring alpha for a manager, but investors have to find and allocate to these managers based on how they may fit within a portfolio. Manager selection is a different skill than picking stocks. It is macro portfolio focused not security focused.
The due diligence analysis for a manager is similar but not the same as picking a good portfolio of stocks. This difference can be formed as a question. Could an analyst that can identify alpha investment opportunities easily transfer those skills to picking managers and could a good manager picker make a good investment analyst? It seems like that these skills are transferable, but this similarity should not be viewed as a given.
Attribution and performance analysis of pension funds and investors can measure skill at building a portfolio. You are a good investor because your choices generated alpha versus a benchmark, but investor skill is more than the sum of manager alpha choices. Investor skill is also about asset allocation and manager fit - the bundling of managers to create a portfolio.
Investors have the added issue of choosing between active and passive (benchmark) investments. Their skill may include not playing the game of manager selection. Additionally, investors have the added burden of having to build a portfolio across all asset classes. Lower alpha in the right asset class may be more valuable than more alpha in the wrong asset class.
Picking managers and building an investor portfolio has a different skill set than manager skill. It is important to recognize the difference in investment skills before there is an attempt to pass judgment how portfolio performance.
Some investors are better at choosing managers than others. Other investors may be poorer alpha selectors but better portfolio builders. Manager choice may be more involved than just measuring alpha. Is there a good way to describe that skill beyond simple attribution?
All the focus is on measuring alpha for a manager, but investors have to find and allocate to these managers based on how they may fit within a portfolio. Manager selection is a different skill than picking stocks. It is macro portfolio focused not security focused.
The due diligence analysis for a manager is similar but not the same as picking a good portfolio of stocks. This difference can be formed as a question. Could an analyst that can identify alpha investment opportunities easily transfer those skills to picking managers and could a good manager picker make a good investment analyst? It seems like that these skills are transferable, but this similarity should not be viewed as a given.
Attribution and performance analysis of pension funds and investors can measure skill at building a portfolio. You are a good investor because your choices generated alpha versus a benchmark, but investor skill is more than the sum of manager alpha choices. Investor skill is also about asset allocation and manager fit - the bundling of managers to create a portfolio.
Investors have the added issue of choosing between active and passive (benchmark) investments. Their skill may include not playing the game of manager selection. Additionally, investors have the added burden of having to build a portfolio across all asset classes. Lower alpha in the right asset class may be more valuable than more alpha in the wrong asset class.
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