Manager Selection & Due Diligence
Permal runs a disciplined and rigorous manager selection process, developed over many years. This seeks to identify and select the best managers, allocating capital to only those managers who have passed the lengthy due diligence review and fit the required allocation criteria, from a strategic, performance and volatility perspective. The process combines a bottom-up and top-down approach, bringing together an optimal mix of managers and strategies, coupled with ongoing evaluation and analysis. It is the same method that has produced robust performance for close to four decades.
Investing in new managers takes an average of six months due diligence, from the first meeting to the first investment, a timescale Permal believes necessary to gain the right level of insight.
Qualitative Due Diligence
Permal's operational due diligence team conducts numerous interviews with potential managers and their organizations to gain clarity and understanding on all sources of business risk, as well as getting to know the individuals, checking their backgrounds and systems. Reviews are made of legal structures, legal documentation, regulatory filings, financial statements, past press coverage, and investor references. A separate IT due diligence team conducts onsite visits, checking systems, disaster recovery programs, technology infrastructure and office security.
Quantitative Due Diligence
Before a new manager is included on the Permal manager platform, the Investment Management Team and Risk Group conduct quantitative analysis on a wide range of areas, including monthly return patterns, standard deviations, correlations against existing managers and benchmarks, length and size of drawdowns, downside deviation and performance during periods of stress. They are looking for systematic risk factors that explain the manager's returns, with analysis applied to both raw returns and de-smoothed returns. It is then down to the 'quality' of the returns to confirm that the numbers reflect reality and are repeatable. Other areas of focus include assets managed, leverage employed and diversification analysis.
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