Investment PhilosophyMost fund managers have an Investment Philosophy. For some it is little more than a marketing blurb on their website, for others it is their core. An "Investment Philosophy" for professional fiund managers is required for compliance purposes (compliance with compliance) but it goes beyond that. An Investment Philosophy, whilst it can be updated and amended at any time, provides clarity for all parties, for the RE (Responsibile Entity) of the fund, the fund manager, the investing clients, the regulator, the employees. For many it sets the culture of the fund manager, it defines the funds management process and doubles up as a selling and marketing tool. But the real value of an Investment Philosophy is that it prrovides a platform, injects stability and, for the fund managers in particular, it provides peace of mind that decisions will be made using a defined process through thick and thin (through good times and bad). That process defines what to do and includes everything from setting and communicating goals, to methodology, risk management, roles and responsibilities, operational routines but above all, an investment process that provides peace of mind for everyone involved, from the fund manager to the investor. You can put what you like in an Investment Philosophy but the main headings tend to start with “Investment Beliefs” with the subheadings:
- Efficiency of markets
- Risk and Reward
- Stock market cycles
- Asset Allocation
- Markets are inefficient.
- Technology has, if anything, made stock markets less efficient and more exploitable.
- Risk and reward do not have a linear relationship.
- You can narrow risk and push probability in your favour through process.
- The stock market is related to the economic cycle but both can be suddenly and savagely interrupted by out of cycle events. Investors need to expect the unexpected not "sit on the cycle".
- We re-assess the risk of the markets every day at the top of our investment committee meetings.
- We actively aim to identify and protect our investors from precipitous moments.
- Most of the time we are fully invested.
- When fully invested the focus is on stock picking.