Finding ‘The One’



Liam du Plessis, CEO

During the countless investment conferences that take place each year, retail investors get the chance to speed date various investment houses to find the perfect match, but they are slowly starting to find out that she doesn’t look as good as her profile picture. Retail investors therefore need to look for certain important characteristics in each investment house to ensure a long-lasting relationship is achievable:

Investment houses come in all different shapes and sizes: Funds of funds; hedge funds and private equity firms to name a few. In evaluating investible funds, an adequate understanding of what each retail investor is looking to achieve, whether that is long-term or short-term is important when considering your investment options.

Once you’ve made your choice there are however variables to consider:

Track Record/Past Performance

In reviewing a fund’s past performance, you can discern a fund’s capability from two angles: risk controls against difficult market conditions and returns over time (considering longer term growth rates from competing funds).

A fund’s track record serves to outline the effectiveness of a firm’s investment strategy and their fund performance success rate with particular types of investments. Many investors often don’t avail themselves of the opportunity to ask the manager questions relating to the fund’s performance over and above the brochure material which the manager will usually not hesitate to explain. This can help to contextualise the investment opportunity from one’s perspective as an investor and enable one to gain a comprehensive understanding of what the investment will or will not be able to do for you against the backdrop of your investment goals.

Fund Objectives

The effectiveness of the fund’s corporate policies and practices is a key consideration to ensure that focus on objectives is maintained by the fund manager and its investment team.

There is a growing trend of fund managers investing alongside their investors to align the interests of all parties and as a show of confidence in the fund’s abilities. The fund’s performance should generally be correlated to the level of risk inherent in the portfolio. The level of risk that managers will take is based predominantly on the needs of investors. So, in choosing a fund be cognisant of your risk appetite and investment goals.

Risk Management

Each investment house must have capable risk frameworks encrypted within their investment strategy:

Reassurance is key when reviewing your given investment and an effective risk framework can help reassure investors of the plan of action. The following components make up an efficient risk mitigation strategy:

– Accurate identification of each risk category

Due diligence on review of risks make the continuous process of managing risk systematic within each investor’s portfolio which in turn allows fund managers to group possible occurrences in terms of likelihood, impact and severity. Once grouped, fund managers can then measure the degree of each of those variables and develop the second phase of action when managing risk:

– Deviation strategies (Risk Mitigation Strategies)

Deviation plans are merely the action plans you have detailing how you will offset the identified risks within your risk category. Some of these may be built into the investment as is the case with smooth bonus products which aim to appropriate returns in a more stable manner during periods of under-performance. Risk mitigation plans should be congruent with the investment strategy to be efficient because then the last part of the strategy can take shape which are:

– Control measures & monitoring

Risk management is not a fixed component but a dynamic process which requires an active approach if successful management of risks is want you want to achieve. For this to be successful constant control measures and monitoring is needed.

Lastly retail investors need a flexible investment policy to accompany their full package:

Investment Policy

The Investment Policy Statement must detail all specifics to investors in a clear and concise format. The policy can be tailored to fit each investor separately, depending on their needs and preferences. These preferences can include any liquidity needs for the investor, projected investment horizon (planned holding time for the investment), as well as other unique needs and preferences.

The information stipulated not only informs investors on variables to consider but constitutes a road-map to work from when investment season is on the rise.


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