Repeatability-Based Manager Due Diligence
Test whether a manager's record rests on a durable team and process
- Difficulty
- Expert
- Time to result
- ~months to results
- Steps
- 6
- Confidence
- 95%
Begin with the manager's track record, but investigate what produced it rather than treating reported returns as self-explanatory. Examine the underlying investments, relevant caveats, and the concentration of the strategy. Then assess whether the team is stable and whether the manager has a fundamental, repeatable investment process that could plausibly persist. The diligence should include fiduciary review and culminate in an investment committee decision rather than a single analyst's opinion. Olson describes this as an intensive, months-long process supported by a large specialist organization. The framework's central test is repeatability: past performance becomes useful evidence only when the people, process, portfolio structure, and risk characteristics behind it have been understood.
Origin
Extracted from Masters in Business
Core principles
- 01A headline track record is not enough
- 02Team stability supports process repeatability
- 03Portfolio concentration changes the meaning of past returns
- 04Independent fiduciary review should precede approval
How to run it
- 1
Decompose the track record
Identify the investments and conditions that generated reported performance, including caveats that alter the headline result.
Pro tip Ask what sits behind every aggregate return figure.
Watch out Do not infer future repeatability from a headline record alone.
- 2
Assess team stability
Determine whether the people responsible for the record remain in place and continue to work together effectively.
Watch out A record created by departed decision-makers may not represent the current manager.
- 3
Test process repeatability
Document the manager's sourcing, selection, and portfolio-management process and judge whether it can be applied consistently.
Pro tip Connect each claimed advantage to an observable practice.
Watch out A persuasive story is not a repeatable process.
- 4
Measure concentration
Review the number and size of investments to understand whether a few outcomes dominate portfolio risk and historical returns.
Watch out High concentration can make a strong record less representative.
- 5
Complete fiduciary diligence
Use specialist resources to review the manager and the legal, operational, and fiduciary implications of the investment.
Pro tip Seek professional help when the required diligence exceeds internal capability.
Watch out The average investor may not be equipped to complete this work independently.
- 6
Make a committee decision
Present the evidence, risks, and repeatability case to an investment committee for approval or rejection.
Watch out Do not let initial enthusiasm bypass formal review.
In the wild
Olson says Goldman's External Investing Group includes 250 people focused on manager selection and diligence. Each manager can take a couple of months to assess before moving through an investment committee process, including detailed work on what lies behind the track record.
→ Outside managers reach client portfolios only after specialist diligence and committee approval.
Common mistakes
Buying the headline record
Reported performance can contain caveats that only become visible when the underlying investments are examined.
Ignoring who produced the returns
Team instability can break the link between historical performance and the current manager.
Skipping concentration analysis
A small number of investments may explain both the return and the risk in a manager's history.
Is it for you?
Best for
It is best for professional teams selecting outside alternatives managers for client portfolios.
Not ideal for
It is not ideal as a lightweight screen for an investor without access to detailed manager information.
From the transcript
“Each manager is going to take a couple months to do the diligence. It's going to go through an investment committee process.”
“And as you know, like you look at a track record from a manager, you really need to dig in and understand kind of what's…”
“Obviously, you're going to look at the track record over time, and you're going to look at the stability of the team and do they…”
From the episode
Alternate Investing: Masters in Business with Kristin Olson