Manager Evaluation Framework

Track record analysis goes beyond single-period returns. The right framework examines: (a) full-cycle performance through at least one bull-bear cycle (ideally 5+ years); (b) drawdown profile during stress events (2020 COVID, 2022 yield-cycle inflation, 2024 mid-cycle volatility); (c) Calmar ratio (annualised return divided by max drawdown) — a value above 1.0 indicates the manager has generated meaningful return per unit of drawdown risk; (d) hit rate (percentage of months with positive returns); (e) consistency between long-book alpha and short-book alpha — managers strong on the long side but weak on the short side may not justify the long-short fee load over a long-only alternative. Team stability matters because long-short skill is tacit and cumulative — the senior portfolio managers who have generated alpha across multiple cycles cannot be easily replaced. The evaluation should include team tenure (PMs ideally 5+ years on the strategy), succession planning, and any recent senior-level departures. AMC infrastructure includes: independent risk management (CRO who can override the PM in stress), robust execution platform (low-slippage execution across futures, SLB, options), and operational reliability (timely SoA, quarterly statements, audit-quality reporting). Strategy clarity tests whether the investor understands what the manager does and how returns are generated. A genuinely good strategy can be explained in 10 minutes; if after a careful read of the SID and a meeting with the PM, the strategy remains opaque, that is a yellow flag. Fee economics evaluates whether the gross alpha potential justifies the all-in fee load. A SIF with 2.5% management + 20% performance over 8% hurdle costs ~3.5-4.5% in good years; the gross alpha must exceed this materially for the structure to add value over a passive index alternative. Operational quality is the unglamorous but critical final dimension — quality SoA delivery, responsive RM coverage, audit-quality reporting, and zero history of operational errors signal a well-run AMC.