An Alternative Approach to Manager Selection - August 23, 2011 Commentary

At Kingwest, we are long-term investors in businesses. We assess how much a reasonable person should be willing to pay to own the entire company. We invest only when the share price is at least 40% less than our assessment of intrinsic value. We prefer businesses where value is increasing.

As consultants, you know that relying on past performance alone to select a fund manager can be misleading. You also intuitively know that fund managers that display certain characteristics – for example, a solid process and sensible philosophy – are more likely to be successful. But are there any specific fund manager attributes that have proven to increase the likelihood of success?

The answer is yes! A study by David Finstad, published in the Canadian Investment Review in 2005, identified four factors to help explain or predict which managers outperform.

These factors include: a high degree of Employee Ownership; low Personnel Turnover; a bottom-up stock-picking process, and small Portfolio Size.

These key factors are most closely aligned with Kingwest & Company's business discipline and investment process. Kingwest is 100% employee-owned. The firm has had no manager turnover since its inception in 1982. The firm’s bottom-up, value-based approach is logical, time-tested and consistent in its application. Lastly, we manage approximately $1.1 billion in concentrated investment portfolios.

These factors have manifested themselves in the firm's superior long-term performance – exceeding the benchmark in both Canada and the U.S. by over 5% compounded per year over the last 18 years.

Please click here to obtain a copy of the original study entitled "Institutional or Entrepreneurial Management? An analysis of organizational factors and their effect on manager performance," reprinted with permission from Canadian Investment Review (Spring 2005).

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