Many investors react to poor performance from their investment managers with one thought – the firing line.
But that is not always the the way to go, especially in credit crunch conditions where lack of liquidity, forced de-leveraging and government intervention have made it difficult for investment managers to move fast enough to avoid losses, say consultants Watson Wyatt.
Investors should take a look at the bigger picture and do some analysis before firing. Bad delivery mainly boils down to four reasons they say. Poor manager skills top the list, followed by poor decisions. OK, everyone makes some bad judgements but as long as good decisions outweigh the bad calls then that should be taken into consideration.
Luck also comes into the equation. A manager may have made some sensible decisions that proved unsuccessful because of unexpected events.
And then there’s the little matter of market timing. Should managers be given the benefit of the doubt over holding positions that have been unsuccessful so far but might just turn out to be good in the future?
In the case of poor skills, Watson Wyatt argues firing is likely to be the right move but for the other scenarios then it’s better to keep invesment managers under review.
Er – but isn’t making the right call in difficult markets at the right time the reason investors pay high fees to investment managers?