The optimal investment team structure – does it exist?

From

Quan Nguyen

The European Commission’s second Markets in Financial Instruments Directive (MiFID II) came into effect on 3 January 2018, aimed at increasing competition and fee transparency amongst market participants inside and outside the European Union.

In its International Shares sector report, Zenith Investment Partners found that sell-side analysts were migrating to the buy-side as a direct result of MiFID II, leading to larger and more experienced investment teams.

Following on from this, Quan Nguyen, Head of Equities, sought to quantify the characteristics of investment teams that led to the most optimal outcomes. This analysis was conducted on a variety of global equities fund managers based on their performance over the five years to September 2019.

Zenith’s study suggests that large teams driven by a compact decision-making approach tend to exhibit greater levels of outperformance compared to alternative structures.

While Zenith uncovered the characteristics of the “optimal” investment team, it does not believe that there is a single template that managers should follow to succeed.

“We have reviewed successful managers that do not align with the optimal characteristics and unsuccessful ones that mirror the ideal template,” said Nguyen.

“Overall, we believe a team’s ideal structure needs to align with its investment philosophy and process.”

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