How to Evaluate Manager Skill with Limited Transparency

When selecting money managers, investors inevitably make decisions with imperfect information. In previous research, we found that only 20% of hedge fund managers provide their portfolio positions. However, we've also shown that investors can isolate certain skills--like security selection and position sizing--by simulating performance from public filings and running what-if analysis. But what if your managers fall below reporting thresholds, or invest outside the US?

Relying simply on returns isn't enough to determine skill, but one metric analyzed in conjunction with returns does the job: exposures.In this report, we'll teach you how to use exposures and returns to isolate the following portfolio management skills: Exposure Management, Leverage Management, and Exposure-Adjusted Excess Return. Whether you're a Novus client or just using spreadsheet software, this report will help you gain additional transparency into your portfolio and the decisions you're paying active managers to make. Download our latest report to learn more.