Alexander Forbes taking a more holistic approach to select asset managers to ensure better client alignment and outcomes

16 September 2019 Alexander Forbes

Alexander Forbes Investments is placing greater emphasis on environmental, social and governance (ESG) principles when selecting and assessing the performance of asset managers. The company has also widened the discussion with asset managers to include topics such as governance in the companies they invest in.

Head of Manager Research Lebo Thubisi says the company is taking a leadership position by taking a more holistic approach in the overall selection process because it is no longer enough to solely focus on the capabilities of asset managers. Initially, the conversation with asset managers was on governance and poor performance. However, this has evolved over time to incorporate how environmental and other social factors can affect performance, especially of listed companies. This is where ESG becomes even more important, he says.

“Over the last few years we have been a thought leader around ESG, which we are using to assess asset managers. We want to ensure that ESG is integrated into their organisations and want to assess how it is being used either to generate ideas or to mitigate risk,” Thubisi says.

“Alexander Forbes is moving away from just principled conversations to a scoring measurement on how asset managers perform. That drives change in the business because we think it is important for asset managers to deal with these issues. When assessing managers, and when requested, we give them feedback on areas of weakness with suggestions for improvement without making it a punitive exercise,” Thubisi says.

In this respect, Alexander Forbes Investments expects evidence from asset managers that they are actively and regularly engaging with the boards of companies in which they have invested clients’ funds. “We are asking them to give us evidence that they have been engaging with boards. This aligns with our policy of ensuring asset managers are stewards of our clients’ capital. We want asset managers to have the right conversations, especially about the investment implication of ESG,” Thubisi says.

Specific metrics used to select the best asset managers include:
• understanding the investment philosophy and investment process
• assessing the quality of the investment team and key individuals
• adhering to ESG principles
• how the business is managed and run

The qualitative selection of asset managers is based on the following:

• Idea generation capacity
We need to understand how asset managers generate ideas, their investment capability and philosophy about markets. This is because philosophy ultimately influences investment decisions. Alexander Forbes also wants to understand the asset manager’s competitive edge and their differentiation strategy going forward.

• Portfolio construction
One can have a great idea but still make mistakes when investing. Alexander Forbes wants to understand how an asset manager manages risk, considers variables such as stock and sector limits and assesses the portfolio’s exposure to these risks.

• Implementation of ideas
This is another critical component of our assessment. We consider:
o the manager’s ability to enter and exit investment opportunities with ease
o consideration of size of assets under management
o exposure to the large market capitalisation shares on an exchange
o how long trades take to be implemented
o cost of a portfolio’s turnover

• Business management
This determines an asset manager’s success or failure. Alexander Forbes wants to ensure the interests of investment professionals are aligned with expected client outcomes.

Thubisi says asset managers can benefit from both in-house research from Alexander Forbes Investments and that from its strategic partner, Mercer.

“We are fortunate in that we have a strategic partnership with Mercer, which exposes our clients to global best practice with local relevance. The alignment of research processes by Alexander Forbes and Mercer allows for seamless improvement in how we assess managers as the industry evolves. We are therefore spending a lot time with asset managers, conducting due diligence exercises as well as quarterly performance calls, to ensure alignment with investment outcomes for clients,” Thubisi says.

Quick Polls


How to give affordable and appropriate financial advice to the low income market segment. There is little room on a R50 pm policy for advisers to be remunerated for the time it would it would take to educate & fulfil admin function. What is the solution?


[a] Eliminate non-advice sales / telesales
[b] Implement industry standards for non-advice information
[c] Introduce an insurer-funded pro-bono advice network to low income earners
[d] Reinforce the Policyholder Protection Rules
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