DNB’s head of manager selector, Fredrik Wilander, is putting ESG at the top of his agenda this year.
‘We are currently looking at how we can integrate ESG more deeply into our selection process. In addition to comparing a manager’s holdings with our exclusion lists, we want to bring this focus into the quantitative part of the selection process to see how funds are changing.
‘We also need to make this a more formal part of the qualitative side and within due diligence meetings.
‘These changes will be implemented in the coming searches we do in 2019,’ he says.
Elsewhere, Wilander says fund selectors face a variety of other challenges, depending on the asset class they are focused on.
‘For the broad asset classes, the key task is dealing with the huge universe of fund managers. It’s important to have a good understanding of all the relevant investors early on in the selection process and not to leave anybody out.’
Then you need to identify the truly skilful players, which can be far from obvious, he says.
‘There are bound to be quite a few managers that have strong track records for reasons other than skill. If you start with 1,000 managers, even in a completely random process, 10 years from now there will still be some that have a good record even though little skill was used.’
Wilander says that selectors also need to be prepared for the f act that when looking at specialised asset classes, the fund managers will often know a lot more about the area than they will.
‘For example, if we do a search on US leveraged loans, it’s very likely the manager I am evaluating has much more expertise than I do.
‘However, you should not be led astray or blinded by the fact that the manager knows a lot about the asset class because that investor’s peers will have similar specialist knowledge, so this isn’t a differentiating factor,’ he says.
This article originally appeared in Citywire Selector's, Selector 100. For more articles click here.