What is the systematic manager search and selection process for institutional portfolios?

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AcadiFi · Accepted Answer

The institutional manager selection process has four sequential stages: Stage 1 — Universe definition: build the opportunity set. Screen databases (eVestment, Morningstar Direct, Mercer Insight) for managers in the target asset class/style. Typical initial universe: 200-600 managers. Stage 2 — Quantitative screening: filter using performance metrics (rolling-period returns, information ratio, batting average, capture ratios), AUM ranges (not too small = risk, not too big = capacity issues), tenure, and fees. Narrow to ~30-50 managers. Stage 3 — Qualitative due diligence: deep assessment of people (team stability, experience, ownership), process (investment philosophy, repeatability), portfolio (holdings, turnover, concentration), and performance attribution (source of alpha). Narrow to 5-10 finalists. Stage 4 — Final selection and implementation: on-site visits, reference checks, fee negotiation, legal/operational due diligence, IMA execution. Select 1-3 managers. Example: Wavecrest University Endowment seeking small-cap value manager. Screened 220 managers → 38 on 5-yr IR > 0.5 → 8 finalists after qualitative review → on-sites for 4 → hired Quarryline Capital based on repeatable bottom-up process and team alignment. ```mermaid flowchart TD A[Universe
200-600 mgrs] --> B[Quant Screen
30-50] B --> C[Qual DD
5-10] C --> D[Finalists
1-3] D --> E[Hire] ``` Key principle: performance is necessary but not sufficient. The process emphasizes repeatability and alignment over past returns — many top-quartile managers revert.

What is the systematic manager search and selection process for institutional portfolios?

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