How to select a fund manager
It is important that you select a fund manager that can deliver the services you require to meet your financial and social, environmental and ethical (SEE) objectives. Whether you are taking a segregated approach or investing in pooled funds, you should carefully research what is available and question fund managers about their approach and expertise. It is important to take proper advice when making investment decisions.
In this section:
The selection process
For a segregated mandate
For pooled funds
Questions to ask
Further information
The selection process
You may wish to take professional advice when selecting a fund or fund manager. The Finding advisers section provides details of some investment advisers and consultants that may be able to help you through this process.
The need to take proper advice when selecting investments is most relevant when selecting pooled funds rather than an investment manager.
The selection process will depend upon whether your charity wishes to invest in pooled funds or take a segregated approach.
The minimum sum needed for a segregated mandate is usually over £250,000 and for several large fund managers is as high as £50million.
For a segregated mandate:
Step 1: Clarify your needs
In order to find a fund manager who can provide services that fit with your charity’s needs, you may first want to consider:
- the Responsible Investment issues and strategies that your charity wishes to incorporate into your investments (The Developing a policy section will help you to consider these issues and set them out in a policy.)
- the financial objectives required from investments (such as income levels and capital growth)
- your attitude to the various risks to which a charity's investments are exposed
- the timeframe over which you wish to invest
- the type of service required and level of involvement you want in the investment process (e.g. execution only, discretionary management, or advisory services)
If you are using the services of an adviser they will be able to help with these issues.
Step 2: Can your existing fund manager meet your Responsible Investment needs?
Use the sources and suggested questions below to determine if your fund manager has the expertise you require.
If yes go to step 7
If No go to step 3
Step 3: Identify potential fund managers
- the Database of funds and fund managers enables you to search for fund managers providing segregated management and provides details of the methodology used to incorporate social, environmental and ethical issues into investment processes.
- the Eurosif website gives details of which fund managers are signatories to the Retail Transparency Guidelines and their approach to SRI.
- seek recommendations from contacts and colleagues
- fund manager websites provide information on the services and approaches they offer
Step 4: Develop a short list
You may wish to develop a long list of fund managers using the above sources and then gather more information from the fund managers to produce a shortlist. For some, public sources may provide sufficient information to produce a short list.
You can ask candidates to
- complete a questionnaire such as the one suggested in the briefing paper Guidance on selecting investment managers
or - respond to a brief specifying how they intend to meet your requirements.
Step 5: Meet the fund managers
You may wish to organise meetings with the most suitable candidates.
Meetings can provide an opportunity to ask more questions and clarify anything you don’t understand. Such meetings can be more revealing when they take place at a firm's own premises.
Step 6: Select a fund manager
Once you have selected a fund manager and agreed contracts you can implement your investment policy.
Step 7: Review your fund manager
You should formally review the performance of the fund manager every one to three years to ensure that they are delivering on the objectives specified in the investment policy and implementation policy/mandate.
Step five of the Developing a policy section provides further information on reviewing investments.
For pooled funds
Step 1: Can your existing fund/fund manager meet your Responsible Investment needs?
If yes go to step 5
If no go to step 2
Step 2: Identify and research pooled funds with Responsible Investment criteria
Details of pooled investment funds can be found in:
The Database of funds and fund managers provides details of a range of pooled funds with SRI criteria available to charities.
The EIRIS website provides a list of over 90 retail ethical funds. Further information on these funds is available in the EIRIS Guide to Ethical Funds, which provides details of UK-domiciled ethical retail funds, including unit trusts/OEICs and Investment Trusts. It provides fund profiles, ethical performance ratings and portfolio analysis tables and is intended to assist investors and their advisers who want to compare the policies and practices of retail ethical funds.
The Eurosif SRI Funds Service provides details of European SRI funds, including information on performance and risk measures.
The Charity Commission website provides a list of registered common investment funds.
Fund managers usually publish fund factsheets and investment bulletins on their websites. This will help you understand the investment strategy of the fund and its Responsible Investment policy. Specimen portfolios or a list of a fund’s top ten holdings may help you gain an understanding of how the Responsible Investment criteria are applied to the fund in practice. The complete portfolio of a fund is shown in the full version of a fund's annual report.
Step 3: Question fund providers
You may wish to contact fund managers to ask for information not provided in the sources above. A list of questions you may wish to ask is given below.
If you have sufficient sums to invest you could also request meetings with managers of short-listed funds.
Step 4: Select a fund or funds
The information you gather in steps 2 and 3 should help you determine which funds best fit with your financial and SEE objectives. You may wish to invest in more than one fund to meet these objectives.
You should formally review the performance of the funds every one to three years to ensure that fund managers are delivering on the objectives specified in the investment policy.
Step five of the Developing a policy section provides further information on reviewing investments.
Questions to ask fund managers
- what Responsible Investment services do they provide?
- what positive and negative screens can be applied to investments? How are the criteria defined and applied?
- does screening cause the portfolio to be over or underweight in particular sectors and how is this addressed?
- do they engage with companies (if so which ones and on what issues).
- are they able to exercise voting rights in accordance with trustees’ instructions?
- what resources do they employ for research?
- do they charge an additional fee for a Responsible Investment service?
- how do they incorporate social, environmental and ethical matters into their risk management framework and investment process?
- how do they assess and report their Responsible Investment performance?
- what is their track record of Responsible Investment involvement?
- do they collaborate with other interested parties: e.g. other fund managers, research organisations, charities, collaborative organisations etc.?
- what are their reporting practices in terms of frequency and quality?
- are they a member of a Responsible Investment network or initiative e.g. UK Social Investment Forum, Responsible Investors Network, Carbon Disclosure Project, Eurosif?
Please note that these questions relate specifically to Responsible Investment, and do not include the more general questions you may wish to ask about factors such as
Investment philosophy and process, mix, risk, returns, benchmarks, fees (including the availability of lower-charging institutional classes of share in a fund), client relationships etc.
Further information
Guidance on selecting investment managers provides a suggested route through the selection process, including a questionnaire for fund managers and suggestions of how to handle meetings. It is prepared by an experienced investment adviser and charity trustee.
Download paper
UKSIF’s online training course provides guidance on the selection of fund managers and pooled investment funds
The Just Pensions programme has produced a series of resources for trustees. These are specifically designed for pension fund trustees but are also relevant for charity trustees. These include:
- A list of questions to help assess how fund managers incorporate social, ethical and environmental risks into their stock selection, and / or their engagement with companies.
Download questions - A Responsible Investment Trustee Toolkit, which contains a list of questions for trustees to ask their fund manager and investment consultant about engagement based Responsible Investment.
Download toolkit
The Eurosif Retail Transparency Guidelines aim to create more clarity on the SRI principles and processes of fund managers. The website gives details of which fund managers are signatories to the guidelines and their approach to SRI.
