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Manager Selection

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Manager selection is a critical step in implementing any investment program. Even though investment objectives may be finalized and targets for asset class weights set, an investment plan is not productive until it is implemented through the purchase or sale of securities, properties, commodities, and derivatives. In most cases, investors choose portfolio managers to determine the most appropriate instruments in which to place assets. Investors hire portfolio managers to act as their agents, and portfolio managers are trusted to perform to the best of their abilities and in the investors’ best interests.

Investors must practice due diligence when selecting index managers or active portfolio managers. Investors want managers who are highly skilled, diligent, and persistent, and they also want managers whose interests are aligned with their own. But investors need to do more than identify skillful managers; they need to determine the appropriate weights to assign to those managers.

The goal of this book is to help investors improve their practice of manager selection. It highlights the influence that investment policy statements have on manager selection and proposes techniques for hiring active, indexed, and alternative managers. Strategies for setting portfolio manager weights are also reviewed, along with techniques for monitoring current managers. A large part of the book is devoted to providing an in-depth look at the value of quantitative and qualitative methods for successful manager selection. Special issues for financial advisers and individual investors are also addressed. The book concludes with a summary of key recommendations.

About the Author(s)

Scott D. Stewart, CFA
Scott D. Stewart CFA

Scott D. Stewart, CFA, is a clinical professor of finance and accounting at the Samuel Curtis Johnson Graduate School of Management at Cornell University. He is also co-faculty director of Cornell’s Parker Center for Investment Research. Previously, Professor Stewart served as a research associate professor at Boston University’s School of Management and the faculty director of the school’s graduate program in investment management. Prior to his academic career, he was a portfolio manager of global long and long–short equity, fixed-income, and asset allocation strategies. Professor Stewart was founder and equity group leader of the Structured Investments Group at Fidelity Investments, senior adviser to equity research at Fidelity, and a portfolio manager at State Street Bank Asset Management Division (now State Street Global Advisors). His research interests include investments, the behavior of institutional investors, and management education. Professor Stewart is a member of the board of CFA Society Boston, associate editor of the Journal of Risk Finance, coauthor of Running Money: Professional Portfolio Management, and author of Manager Selection. He earned an MBA and a PhD in finance at Cornell University.