Selecting Investment Managers

Our core strength is a thoughtful, systematic approach to evaluating and selecting our external investment managers. We follow a defined process to identify, assess and monitor the practices and performance of the managers we choose to work with – and we’re constantly looking for ways to improve this process.

Active vs. Passive

An important part of our manager selection process is determining whether to invest with an active manager or to invest passively. Our default position is to invest passively at the lowest possible cost. In other words, we only pursue active management when we have a high level of conviction that a specific investment manager’s approach will outperform passive investment alternatives (net of all fees and expenses) over time. As a consequence of this view, we have a significant amount of passive exposure in certain asset classes.

Sourcing and Assessing Managers

Our primary methods for sourcing investment managers include drawing on the knowledge and experience of the UTAM investment team, proactively reaching out to managers and networking with other investors. Secondary methods include attending industry conferences and events, responding to inbound inquiries from managers and searching industry databases. The initial screening process consists of reviewing the manager’s marketing materials, and in some cases running a quantitative analysis of returns, to quickly determine if there is a potential fit. If there’s still interest after the first pass, we request a call or meeting with the manager to better understand the organization and investment team, their investment philosophy and strategy, their investment performance, the level of transparency they are willing to provide and the terms of the investment (including the fee structure). When a manager seems potentially well matched to our investment beliefs and objectives, we conduct more in-depth research and analysis.

Investment Due Diligence

For managers who make it to this stage of the process, we focus on the five P’s: people, philosophy, process, performance and portfolio fit. We also evaluate the alignment of interests between the investment manager and our client and take into account ESG considerations. This analysis includes both a qualitative assessment of the manager’s organization and its people, and a quantitative review of historical portfolio holdings and/or returns.

As an institutional investor, we expect a great deal of transparency from potential and current managers – far more than a typical individual investor would receive. This level of transparency is necessary for us to effectively evaluate active managers. For example, in reviewing public equity strategies, managers typically provide historical month-end holdings, which we analyze using sophisticated third-party tools to produce reports detailing performance attribution; factor exposures (e.g., value, growth, momentum) and their contributions to risk and return; risk exposures; ESG scores, including carbon footprints; sector and country exposures; the trading history of each position; and more. This information helps us better understand the manager’s investment process and enables us to ask more informed questions when interviewing the manager’s investment team about their strategies.

At UTAM, we believe that leveraging quantitative tools, while essential for a best-in-class manager selection process, is not sufficient on its own. We therefore complement our rigorous quantitative insights with qualitative judgment and experience, working as a team to make optimal manager choices that we expect will benefit our client over the long term.

Operational Due Diligence

Once there is a reasonable probability that the Investment team will recommend allocating to a manager, we conduct a similarly rigorous review of the firm’s business operations. Factors we examine and assess include ownership and management structure; the experience and competence of key operational personnel; the soundness of operational processes; the manager’s compliance and control environment, including conflicts of interest; other formal policies and procedures; and relationships with external service providers. We also look at the firm’s cash management practices, compliance track record, information systems, cybersecurity measures and business continuity planning, among other operational dimensions.

In short, we must be confident that a manager not only offers a promising investment opportunity but also operates a sound, well-run business. This is crucial for us: should a prospective manager’s operations not meet our standards, our Operational Due Diligence team has a right of veto over the investment.

Risk Analysis

As part of our due diligence process, our Risk and Research team calculates the expected risk contribution of the potential new investment. Armed with this comprehensive analysis, we can make more informed decisions about prospective managers and strategies, focusing on those that offer the highest expected return for the amount of risk being taken.

Manager Recommendation

All material allocations must be approved by UTAM’s Management Investment Committee. To help this Committee evaluate potential allocations, formal Investment Due Diligence (IDD) and Operational Due Diligence (ODD) reports are prepared. In addition, a risk report, a legal review and a tax review are also submitted to this Committee. The IDD report consists of a detailed account of the IDD process and findings, including a section on ESG considerations. The ODD report describes the review undertaken and its findings, and includes a detailed account of key operational risks and mitigations (if any). It provides a conclusion on whether the manager’s operations are sufficiently sound and includes a discussion on any operational improvements that were identified as necessary conditions for investment. After reviewing and discussing each of the reports, the voting members of the Committee decide whether to approve the allocation.

Ongoing Monitoring

After an investment has been made, the Investment and Operational Due Diligence teams follow a rigorous monitoring and reporting process. The Investment team typically has touchpoints at least quarterly with each manager. The focus of the monitoring process remains on the five P’s and responsible investing considerations. The process includes an assessment of realized performance, taking into account the market environment and how we expected the manager to perform in that environment. We also conduct regular reassessments of operational risk to consider any relevant changes.

For UTAM, choosing to work with an investment manager is not a one-time decision – it’s a continuous process of analysis, evaluation, dialogue and renewal.

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