Episode 3: The Art and Science of Manager Selection
Updated: Sep 21, 2021
Today’s episode of Conviction Creates Alpha features Todd Peters, Chairman of the NS Capital Investment Committee. He joins us today to shed some light on how NS Capital identifies managers and constructs portfolios. He also discusses:
How his 25-year career in financial services has led to and influenced his role on NS Capital’s investment committee.
Characteristics NS Capital looks for in their managers.
The NS Capital research process, and how managers enter NS Capital portfolios.
Why investment managers want to be part of NS Capital portfolios.
mething worth us extending the the due diligence process on that specific manager coming through that if we have still continued to like that. This is where we spending a lot of time is sort of the next phase. The next two phases, I will say the next the next phase is just we do our own independent searching. And we'll search on the firm will search on every individual will try to slice and dice as much in as many different ways as we can to gain any information on the firm in the organization through just online resources. And we're really just trying to see if there's anything that pops up that is a really positive or more likely something that can can cause us to be shied away from extending our work. But it gives us a chance to try to see what online profile is out there, and to start giving us a chance to build a mosaic of the individuals that we're looking to partner with. At that point, if we are still looking to move forward, then we start our communication process. And what we do here is we will either do calls or video calls, with every key individual in the organization, particularly those that we think have a direct impact on the portfolio that we will be executing at ns capital. And what we're really looking for here is to try to understand each individual's path, how did they get from where they were born and raised to the investment job that they currently have. And we really want to understand that path, because that tells us a lot about the or the individual, and really tells us about how committed how bought in they are to what they're doing. And that's really an important part for us. Then, our next phase after we kind of do these individual calls where we're learning just about each individual, then we want to talk to the senior leadership. If there's a CEO or CIO, whoever's really kind of driving the path of the organization. That call is all about the firm's vision, how it evolved, where the history has been, where they think they're going, the type of client, they're looking to have the type of strategies they want to have executed, we're trying to understand that business side that business practice, then we'll talk to the CIO specifically, on the strategy, how that strategy evolve, and how it's being executed, both from research, buys, sells trading. And we try to really make sure that we understand all that goes in to executing that strategy. What we're really looking for here is, do we believe that the strategy they're executing, this individual has the expertise to do that. And so we're really looking to kind of have that balance, that we believe they have the expertise to execute what they're doing, we will then review the portfolio, stock by stock or you know, investment by investment, to make sure that what they say they are doing, they're actually doing, and we use this as a check and balance. And then we certainly speak to the Chief Compliance Officer, if there's a chief operating officer, whoever's running the operations, we want to make sure that they are taking that role seriously. We believe that those that have best practices on the operation side maximizes the efficiency on the investment side, but also shows a commitment to just being best practices in general. And that is something that's very valuable to us. So after we've completed these series of calls, here's where we either know if we're going to move forward anymore or not, that at this point, we have a pretty good idea as to whether this is a firm that meets what we're looking for it in s capital, but we will go further. We are not track record people. Our belief is unless you were there to get it a track record isn't really of any value. We're trying to think what the track record could be looking five years out, however, we do look at it just to make sure we understand how it's performed. And more importantly, because we work in a multi manager structure structure, how that track record may have worked with some of the other managers that we've had, we're looking to have complimentary approaches. So we do try to understand from that perspective, but we don't make any judgments on the manager simply based on a track record. And then lastly, and it's been a little different, certainly over the last 18 months. But we do like to do on site visits. Because we like to just have the chance to look at both groups to validate any key points. And just to check and make sure that how we're feeling through our research approach is validated by seeing the organization's offices, seeing the individuals and making sure that we have a good communication because we think that's critical going forward is to make sure that we've built the right communication path and we think seeing, you know, face to face or having an on site opportunity to do that, you know, is certainly critical.
Douglas Heikkinen 29:56
Wow, that is a process. How does a manager ultimately enter into an NSC capital portfolio.
Todd Peters 30:04
So, at the end of the day, it's a vote by the Investment Committee, which as, as you mentioned, I'm chair of. But what the way it tends to work for us is, we will determine if there's a perspective that we need. If there's a perspective that we need, we then identify, we do that process, which we just discussed. And then the Investment Committee will go through multiple layers of conversation, one, do we need the perspective to is this the right group, and ultimately, I will do my work, and Lew day will, will then come back and do his own independent conversation with the manager after I've presented our findings to the Investment Committee. If Lou comes back, equally pleased with the manager that we're looking to add, then we have the official vote, the official vote is then made, and then at that point, we will determine the proper allocation that a manager would get with inside of the alpha rank. And so really, that kind of getting in is the final vote of the Investment Committee.
Douglas Heikkinen 31:15
So let's look at it from the other side, why would an investment manager want to be part of the US capital portfolio?
Todd Peters 31:22
It's a great question. And it's one that I spend a lot of a lot of time thinking about. I believe that we are fortunate, when we get a chance to partner with the managers that we do. And we want to make sure and I'll tell you what our ultimate goal is, our ultimate goal is to be the best slash easiest client relationship that that manager has. And the the way that we kind of do that I'll break it down on the easy side is we expect to know client communication from the manager to our individual clients, the only person that that manager really has to interact with is me as chairman of the Investment Committee, so we've tried to minimize any of the communication that they would traditionally have with other organizations, we have taken over trading. So we at ns capital actually handle the implementation, Eric Hahn, who is a part of the Investment Committee with myself and Lu de, he handles the implementation. So we've made it to where the manager just has to provide us with their intellectual capital will take care of the execution. And then as ns capital develops and grows, they essentially get assets by every new offering account that we open without ever having to do any part of the sales process. So as we grow, they grow. And we hope that they see that that's certainly an easy way and an easy path of growing kind of on the best part, we try to be as supportive and understanding during the adverse times, we are very realistic and understanding that not every strategy is going to be rewarded by the investing public at a given time. And so that's when we really step up to make sure that our manager, partners know that we're there to support them, we don't beat them up, we want to make sure that they know we're committed to the long term with them. And so that's support, I hope they see. And they really appreciate that. And then we also know that particularly since we're dealing with the The Undiscovered are emerging typically then meaning smaller asset managers, they're growing themselves. And we want to support that growth, not just through Inverness capital, but we'll be willing to be a reference to them with any of their, you know, prospective clients so that those groups can see why we pick them, how we use them, and why we believe in the long term of that managers capability. So we really do try to be that easy slash best client for each individual manager. Ultimately, though, from our See, we hope that they see the value proposition we're trying to drive for our clients and ns capital, and that they want to be a part of it. So combining that best and easy client relationship with them, seeing what we're trying to do for our clients and ns capital, they're getting excited, that allows them to be a part of what we're building here. And we have been so grateful for the client or the manager relationships that we've had in this first 12 years of our life. And we're excited about continuing to grow with them, hopefully for the next 30 years of ns capital's life.
Douglas Heikkinen 34:39
Todd, I'm sure everybody heard the conviction you have towards ns capital, the managers and in your process, and we thank you so much for joining us today.
Todd Peters 34:50
It's a great pleasure. Thank you so much, Doug.
Douglas Heikkinen 34:52
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