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Investor Series – Parent

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The company overseeing a particular fund should also have certain characteristics that are appealing to investors. The “Parent” should have relative stability and attractive profitability. One of the questions posed in this segment is does this firm’s suite of funds provide strong returns and overall value to its investors? While it’s great if the fund being analyzed is doing well, it’s seen as much more appealing if across the board a firm’s fund offerings are outperforming peers. If they aren’t, a deeper dive into the details is needed. Some other areas looked at is how is technology incorporated? Has the firm run into legal or financial troubles? Does the company foster collaboration? What’s the overall personnel turnover? As mentioned in last week’s “P” (People), one of the interesting supplements is if managers invest in their own funds. Taken one step further, is looking at how they are incentivized to stick around and provide for that consistent management. For example, the company that oversees one of the fixed income funds we utilize has better aligned their managers’ incentives with those of fundholders recently. About 20% of its managers have at least $1 million invested in their own funds. This number is up from virtually zero as of five years ago and performance has ticked up across its full suite of offerings due to more consistent management tenure. The parent firm is qualitatively crucial because the philosophy for its management and staff starts here. A firm that has a grasp of what its identity is generally has a positive spillover effect into its funds… just as the opposite can pose negative externalities for fund performance.
Griffin Sheehy, Financial Analyst

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