Robert Howie, Mercer

The key thing is to pick the right manager to meet your risk and return objectives. Some investors might think there is little to tell between one FoHF and another. We see huge differences in the quality of managers. It is a relatively new industry with lots of players and only the minority offer investors best-in-class products. The attributes of a good manager are easy to identify but hard to achieve: a competitive advantage in accessing the hedge fund universe and identifying the opportunities that are available. The team is also crucial and must contain talented decision makers who are experienced in managing portfolios of hedge funds. A robust investment process needs to balance art (qualitative) and science (quantitative). Assessing managers on a forward-looking view of what they fundamentally have to offer is far more likely to be successful than looking at recent past performance. Without this judgement, exceptional performance might be mistaken for real skill whereas really a few risky bets paid off by chance. By taking time and care to pick the right manager, investors are more likely to have a rewarding experience.