Heavy falls in the Invesco Perpetual European Growth fund have prompted chief investment officer Bob...
Heavy falls in the Invesco Perpetual European Growth fund have prompted chief investment officer Bob Yerbury to overhaul the group's risk management procedures.
The system will take into account each individual manager's style when analysing fund performance and portfolio positioning. It will also include an automated warning system designed to highlight marked under or outperformance on a weekly basis.
The aim of the new system, said Yerbury, is to prevent funds from becoming uncharacteristically reliant on a particular sector or stock, as happened last year with the Rory Powe managed European Growth fund.
Yerbury added: 'I think we've learnt from the European Growth experience. We will now have a mechanism which identifies when performance, in relation to peers, is either insufficient or incredibly good. In the past, across the industry I think there was a tendency to look at performance most aggressively when things were very very bad. Going forward, if performance is either poor or exceptional we will be asking managers to explain where this performance came from.
'I think the events of the past two years, from September 1999 onwards, have shown how important it is for fund managers to adhere to a certain kind of style. If a fund is sold on the basis of a particular kind of style, for example growth or value, and then moves away from that in order to hit a mandate, then I think we need to be asking questions.'
The system should be in place by the end of this year, allowing Yerbury to be more closely involved in monitoring portfolios.
Yerbury added that he believed the changes being implemented at Invesco would allow him and his risk control team to identify potential issues early.
Describing how the new system would work in practice, he said that he would be asking managers which characteristics they look for when picking stocks, for example valuations or earnings growth. The performance of the fund would then be monitored to see if that style of portfolio management was working. If performance was below average or excessive, this would provoke a conversation between himself and the fund manager in question. If the performance of the fund continued to cause concern then alterations to the investment style or process may be considered.
However, he admitted it was difficult to maintain the right balance between risk control and ensuring fund manager performance was not overly constrained.
'We believe we have a very talented team of fund managers,' said Yerbury. 'What we don't want to do is prevent them from expressing themselves and thereby hinder performance. We're trying to learn from past experiences and develop our processes accordingly.'
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