When’s the right time to fire an underperforming manager?
Most if not all Institutional Investors have asked themselves this question at least once. It’s hard to keep an underperforming manager in the roster after several quarters of underperformance despite all the reassurances that the manager may put forward for why things are about to pick up.
There is also a modern myth that once you decide to sack them, their performance will start to pick up. So what can be done to make this kind of decision as objective as possible?
It’s possible to use quantitative methods to determine whether the manager is just having a bad patch or if there is something more profound going on.
bfinance has developed statistical techniques to help decide whether a manager is just in a cyclical losing streak or whether their investment process is broken.
This analysis is particularly powerful in deciding whether to keep the manager in the portfolio when we combine it with recently conducted qualitative analysis of the manager.