Interviews with Institutional Investors: The How and Why of Active Investing

52 Pages Posted: 25 Feb 2013 Last revised: 18 Mar 2017

See all articles by F. Douglas Foster

F. Douglas Foster

The University of Sydney - Discipline of Finance; Financial Research Network (FIRN)

Geoff Warren

Australian National University (ANU) - Research School of Finance, Actuarial Studies and Statistics

Date Written: November 18, 2013

Abstract

We interview professional institutional investors to learn how they choose between active and passive management, select active equity managers and construct multi-manager portfolios. We find that many of the aspects emphasized in the fund management literature, such as returns generated by the average manager and emphasis on past performance, play a relatively minor role in decisions. In contrast, judgment is found to play a central role, particularly the evaluation of people when selecting managers, the role of confidence in retaining managers, and self-perceptions about capability to identify skilled managers. Past performance is not taken at face value, but analyzed to understand underlying sources of returns. Stated reasons for preferring active management relate to whether a handful of skilled active managers can be identified and combined to generate a better expected portfolio outcome; and are only vaguely associated with the performance of the average manager.

Keywords: Active Management, Manager Selection, Multi-manager, Interviews

JEL Classification: G11, G23, G02

Suggested Citation

Foster, F. Douglas and Warren, Geoffrey J., Interviews with Institutional Investors: The How and Why of Active Investing (November 18, 2013). FIRN Research Paper. Available at SSRN: https://ssrn.com/abstract=2223724 or http://dx.doi.org/10.2139/ssrn.2223724

F. Douglas Foster

The University of Sydney - Discipline of Finance ( email )

P.O. Box H58
Sydney, NSW 2006
Australia

Financial Research Network (FIRN) ( email )

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

Geoffrey J. Warren (Contact Author)

Australian National University (ANU) - Research School of Finance, Actuarial Studies and Statistics ( email )

CBE Building 26C
Kingsley Sreet, Acton
Canberra, ACT 0200
Australia

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