Manager Selection vs. Strategy Labels

Abstract

Institutional portfolios are organized around asset class and strategy labels that facilitate governance, benchmarking, and communication. However, these categories describe where capital is allocated rather than how returns are generated. Evidence across asset classes shows substantial performance dispersion among managers operating within the same strategies, indicating that manager-specific investment processes are a primary driver of outcomes. This paper argues that while strategy labels remain necessary for institutional portfolio construction, they provide only a partial explanation of performance. A process-oriented perspective—focused on sourcing, underwriting, portfolio construction, value creation capabilities, and risk management—offers a more complete framework for manager selection and portfolio analysis. Integrating strategy classification with process evaluation and underlying risk exposures improves decision-making and provides a clearer understanding of how capital compounds.

Key Implications

• Manager selection is often more consequential than strategy selection within asset classes
• Strategy labels provide governance structure but do not explain return generation
• Performance dispersion reflects differences in manager process, not just strategy exposure
• Portfolio diversification based solely on strategy labels may obscure underlying risk concentrations
• A process-oriented evaluation framework improves manager selection and portfolio construction

Keywords

Manager selection; asset allocation; strategy labels; investment process; institutional investing; portfolio construction; risk drivers; performance dispersion; private markets; hedge funds

Recommended citation: Sing, C. H. (2023). Manager selection vs strategy labels: Why process matters more than categories. Working paper.
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