CHICAGO (Reuters) – When interviewing a money manager, most investors want to know investment performance. It is a natural question, but there is much more you need to know beyond absolute returns.
In lieu of focusing exclusively on annual performance, it will be more important to know about a money manager’s record on capital preservation and expenses.
Anyone can do well in a bull market and many have lucky years. But when you are looking for a money manager, you want to find out what capacities he or she has beyond that – what makes them earn the fee? Here are some questions that will help you get beyond the surface:
1. How well do you do against a standard index, not just absolute returns?
A manager’s relative performance, when judged against a specific index, is different than the absolute return, because it lets you know how he or she fared relative to a benchmark. But if you ask this question, the manger can really fudge the numbers, so you have to be sure to press for specifics.
You have to choose an index that matches the style and market capitalization strategy being employed. For instance, if the manger primarily invests in large-company U.S. stocks, you should see how the record compares – after expenses of course – against the S&P 500 Index.