Verbatim Discretionary Due Diligence Approach

Transcription

1 Verbatim Discretionary Due Diligence Approach Initial Due Diligence The Initial Due Diligence and recommendation for which Discretionary Fund Managers to utilise within the Verbatim Discretionary Service was undertaken by Peter Hugh Smith and Nick Lane Fox. Brief details on Peter and Nick are listed below. The initial brief was to research the Discretionary Fund Management market and identify four high quality Discretionary Fund Management Firms which would be suitable to manage portfolios within the required structures of the Verbatim advice and investment environment. The firms identified needed to exhibit the following characteristics. A robust and repeatable investment philosophy and process. The financial and human resources to implement and evolve their chosen investment approach into the future. The willingness to adopt the Verbatim Asset Allocation approach. The ability and willingness to manage and construct portfolios / models on a third party custody system. The Process Stage 1 Desk based research to identify initial long list of candidate firms. Stage 2 Initial Discretionary Fund Manager Due Diligence Questionnaire distributed to a large selection of potential candidates to identify firms willing to participate and gathering core information to facilitate an initial quantitative filtering of candidates. Stage 3 Further Due Diligence questions supplied to candidate firms where necessary and further information gathered, collated and analysed. Stage 4 Meetings held with selected managers to further develop understanding of firms capabilities. Meetings typically lasted 2 hours. Stage 5 Final questions submitted to short list of Discretionary Fund Managers to clarify further outstanding issues.

2 Peter Hugh Smith Education Ampleforth College, Yorkshire and Reading University Nick Lane Fox Education Eton College and Newcastle University Career Capel Cure Myres Fund Manager Edinburgh Financial Publishing, HK Sales Manager Seapower Asset Management, HK Fund Manager Russell Investments, LDN MD UK Wholesale Distribution WAY Investment Services Director WAY Group Limited - Director WAY Fund Managers Chief Executive Career British Army Blues and Royals Rensburg Sheppards Director and Head of Sales Bramham Park - Owner St James s Advisory Board Consultant

3 On-going Due Diligence Each selected Discretionary Manager within the Verbatim Discretionary Service undergoes regular Due Diligence undertaken by Verbatim Discretionary Managers. This process is overseen by the Verbatim Discretionary Investment Committee ( VDIC ). The VDIC comprises: Peter Hugh Smith Chief Executive of WAY Fund Managers, an experienced investment management professional with extensive experience of investment manager oversight and monitoring. Jason Britton a former funds of funds manager who has interviewed hundreds of fund managers over the last decade. Previously worked for the Regulatory Compliance Unit at Deloitte & Touche. Notes It is regrettably not possible to publish the information received from Discretionary Fund Managers as it is in most cases commercially sensitive and remains the property of the Discretionary Fund Management firm. For commercial reasons Verbatim Discretionary Managers does not publish the names of managers it researched but did not select. Verbatim Discretionary Managers is a trading style of WAY Group Limited. Brian Viney an experienced compliance professional previously with Lloyds Banking Group. Nicola Dady manages the Verbatim Discretionary Service. Previously with NM Funds Management (Europe) Limited and more recently, Wessex Asset Management Limited. The VDIC meets quarterly or more often if required, and communicates frequently between meetings as and when necessitated by their work and responsibilities. The VDIC is responsible for oversight of the Verbatim Discretionary process and in particular the monitoring of the selected managers and their on-going performance.

4 The agenda of the VDIC meetings include the following points in addition to other items as required: A thorough review of the full model portfolios for all risk levels and for all managers; Discussion of any holdings within those portfolios that warrant further investigation; A review of any holdings that have previously been identified as requiring greater monitoring (i.e. the Watch List ). Items may be placed on the Watch List by VDIC should they fall into one of the following categories, or for such other reasons at VDIC s absolute discretion: Be a concern from a compliance point of view; Be a holding held by a model portfolio manager in a fund managed by that manager or an associate of that manager (an In House Holding ). In House Holdings are not prohibited but require prior consent by VDIC and are automatically placed on the Watch List. Performance concerns holdings having a particularly damaging effect on the overall performance of a portfolio are added to the watch list. However, the VDIC mandate is restricted to issues of investment and portfolio suitability and its role is not to validate or ratify the investment rationale for an investment decision made by a Model Portfolio Manager. In addition to the work of the VDIC, Verbatim Discretionary Managers ensures that all models are continually monitored. Any change to a model, including a change of weight for an existing asset will be examined and confirmed by Verbatim Discretionary Managers before the change is implemented for any portfolios. All holdings within any Model Portfolio must meet the following criteria: Be an allowable investment for an ISA Have daily liquidity and appropriate daily volume Be regularly priced with price available through major pricing vendors, i.e. Bloomberg Any holding which does not meet any of the above requirements will be automatically excluded from any Model Portfolio. Verbatim Discretionary Managers also performs daily checks of all models to insure they are within mandated asset allocation parameters and that subsequently they remain aligned with the Verbatim Risk Profiles. The VDIC has the full authority to override a Model Portfolio Manager should there be concern that the action of the Model Portfolio Manager may cause or have a significant risk of causing an investor detriment.

5 Performance measurement Review meetings with managers Daily holdings data is uploaded into the market leading performance and attribution service Statpro Revolution, a cloud based resource that generates comprehensive risk and performance analysis of investment portfolios. Statpro can be accessed at any time by Verbatim Discretionary Managers to review performance up to the most recently available data (usually the close of business on the previous day). All portfolios are formally reviewed each month (at the end of the month). Any portfolios giving rise to particular concerns are monitored more frequently. Each portfolio is measured in both absolute terms and also by reference to the risk profiles (asset allocations) provided by Distribution Technology on behalf of Verbatim Discretionary. The value added by each of the model portfolio managers can be accurately measured as a result. Additionally Verbatim Discretionary Managers uses Financial Express Analytics to measure the performance of any funds or holdings on the Watch List. Review meetings are held at least every six months with each Model Portfolio Manager. Meetings can be held more frequently, at VDIC s/ Verbatim Discretionary Managers request. Review meetings cover, inter alia; A corporate update of the manager (funds flow, growth in business, change in personnel, resources available, performance of own funds). Any deterioration in the success or strength of the model portfolio manager is considered by the VDIC; Performance of the Verbatim Discretionary Model Portfolios (absolute terms, relative to the Distribution Technology Asset Allocations; relative to other managers within the Verbatim Discretionary process); Holdings on the Watch List, including In House Funds; Any challenges being faced by the manager (availability of products to allow the Distribution Technology Asset Allocations to be met, sectors proving unreliable for fund or stock selection and action to address this etc ).

6 Sample Initial Due Diligence Questionnaire Company Details A.1.1 Company Name A.2.1 Primary Address, 1 A.2.2 Primary Address, 2 A.2.3 Primary Address, City A.2.4 Primary Address, Post Code A.3.1 Contact Name A.3.2 Contact Title A.4.1 Telephone A.4.2 Mobile Telephone A.4.3 Fax A.4.4 E mail A.4.5 Other contact names / details A.5.1 FCA Number B Financials & Resources B.1.1 AUM (include as at date) B.1.2 3yr AUM CAGR B.2.1 Number of staff B.2.2 Number of investment professionals B.2.3 Average investment management experience of investment professionals B.3.1 Do you have a dedicated IFA sales / support team? C C.1.1 Investment Approach Briefly describe your investment approach (Max 100 words) C.1.2 List the types of assets you utilise (direct equities, direct bonds, funds, ETFs, Hedge funds etc.) C.1.3 Describe you asset allocation approach C.1.4 List your primary sources of research. (include economic, security and fund research sources if applicable)

7 D D.1.1 Sample Performance Describe a typical portfolio for a balanced investor D.1.2 What benchmark would you use for this balanced investor D.1.3 Complete the table with performance sample portfolio data for a balanced investor Performance Benchmark E E.1.1 Business Model What is you minimum client size for a bespoke portfolio? E.1.2 What is your minimum client size for a model portfolio? E.2.1 E.2.2 Can you manage bespoke portfolios on third party custody platforms? Can you manage model portfolios on third party custody platforms? E.3.1 What percentage of you current business is sourced via IFAs? F F.1.1 Fees Please give an indication of your fees (and any other costs) for bespoke portfolio management F.2.1 Please indicate your fees (and any other costs) for model portfolio management G G.1.1 G.2.1 Other Briefly describe what differentiates your firm from your competition. (Max 100 words) Please supply your corporate brochure G.2.2 Please supply a sample client report

8 G.2.3 H Feel free to supply other relevant materials. List any attached documents. Additional Information List other relevant information you would like us to be aware of.