Choosing the Right Person to Manage Your Investments

For those with the time and interest to take charge of their own finances, there are some important questions to ask. These questions include: “How much time do you have to spend on investing?”; “How much risk are you willing to bear?”; and “How much capital do you have to spare?”

And while all the above seem like tough questions to answer, it’s not necessarily easy either to find the right person to manage your investments. There are also important questions you need to ask. So, let’s find out how you might be able to go about selecting the best fund manager for you.

Right Philosophy

This comes first because it is important to look through the prospectus and information package prepared by a fund and its manager. That’s because these materials enable you to get a sense of the manager’s investing philosophy.

And, the fund should have a clear, easy to understand strategy (as simple investing strategies can often be remarkably effective) and a long-term view on its investments.

If a fund focuses on fast, guaranteed and high returns with low risks, it might be wise to give it a pass. As a rule of thumb, if it sounds too good to be true, it probably is.

Right Compensation

There are many different types of compensation plans for funds and their managers.

Some have a standard annual fee that they charge based upon the assets under management regardless of the fund’s performance. Some, on the other hand, prefer to have a performance fee where the manger is only paid when the fund performs. And there are yet others that have a combination of both types of fees.

As investors, it is important to understand how the compensation plans might affect the behaviour of the manager and in turn affect the performance of the fund.

Managers of real estate investment trusts such as Ara Asset Management (SGX: D1R) or Frasers Centrepoint Limited (SGX: TQ5) will sometimes take the units of the REITs they are managing as payment for their management fees. Such a compensation scheme could perhaps help give these managers some skin in the game as the REITs would have to perform well fundamentally before the price of their units can do well over the long-term. This also brings us to our last point.

Skin In The Game

There aren’t many fund managers who would invest directly into their own funds. But, there are some who would eat their own cooking. If the manager has skin in the game together with his or her investors, that might help align the interests of the former with the group.

A Fool’s Take

Investing itself is a combination of both art and science. There are no fixed formulas for deciding which investment to buy, just as it is with picking a fund manager.

But even so, it is still important for us to do our own research on the funds – where my framework can be of some help – before jumping blindly into investing in any of them.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim doesn’t own shares in any companies mentioned.