Manager Research for trustees: the 5P process

Insights

How Enhance’s structured five-pillar research framework identifies leading active, passive and alternative funds for trustees, and what it tests for at each stage

5 mins

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Select The Select Model

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Author

Tom Wiseman

CEO

Tom is the Chief Executive Officer of Enhance Group overseeing our multi-jurisdictional Monitor and Select solutions from our Jersey headquarters.

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Every fund in the Select investment universe has been through the 5P process, a structured research framework covering Performance, Process, People, Price and Planet, applied consistently across active, passive and alternative strategies. It is strengthened by data from the 7,000-plus portfolios Enhance monitors, conducted by a team of CFA and CISI-accredited Research Analysts, and approved by the independently chaired Investment Committee. This article explains what the 5P process is and why it should give trustees confidence that the funds in their Select portfolio are best-in-class today and held to that standard tomorrow.

Why structured manager research matters

Investment managers compete on three things: track record, process and people. Trustees evaluating managers are routinely told all three are excellent by every manager they meet. A structured research framework cuts through that. It applies the same questions, in the same order, with the same evidence requirements, to every manager considered, active, passive or alternative. That way, the trustee’s eventual decision is grounded in comparable findings rather than relative impressions. The Enhance 5P process does this work on the trustee’s behalf. The Investment Committee applies it to every fund considered for the Select investment universe. It applies the same process to every fund already in the universe, at scheduled review intervals. And it applies to every fund flagged for ad-hoc re-review when a meaningful change occurs at the manager. The output is the IC-approved fund universe: the curated set of funds the Investment Consultant selects from when building each client’s portfolio.

Past performance is not a reliable indicator of future results, but it is the most testable assertion any investment manager makes. Risk-adjusted returns are evaluated against the relevant benchmark and peer groups of comparable funds, over multiple time horizons. Drawdown profiles are examined for resilience in market dislocations. Consistency is assessed too: a fund whose long-run track record rests on a small number of exceptional years is not the same proposition as one that has compounded steadily. What strengthens the Performance assessment at Enhance is the data behind it. Through the Monitor service, Enhance independently monitors more than 7,000 portfolios for trustees globally, anchoring the pillar in real client outcomes rather than survey statistics.

The Process pillar is the most difficult and most important of the five. A strong track record produced by a sound, repeatable process is one proposition. The same track record produced by chance, or by a single style bet, is quite another. The Investment Committee probes the investment philosophy, security selection methodology, risk management framework and sell rules behind each fund. It assesses whether what worked in the past has the durability to keep working. The questions are adapted by category: active managers are tested on stock-selection process, passive managers on tracking discipline and securities-lending governance, alternative managers on idiosyncratic risk management.

A process is only as durable as the team executing it. The People pillar tests the team behind each fund: experience, incentive alignment, diversity of perspective, and stability. A fund that has lost a key portfolio manager is, in effect, a different fund, even if the name on the door is unchanged. A process that tested well only months before can unravel once the people behind it change. The Investment Committee re-tests the pillar whenever a meaningful team change occurs, rather than waiting for the next scheduled review.

Fees compound. A fund charging half a percentage point more than its peers, with no compensating value, costs an investor materially over a multi-decade horizon. The Price pillar tests every fund’s headline fee against its peer-group median. It then examines the embedded costs headline fees can mask: transaction costs, performance-fee structures, securities-lending revenue treatment. Where Select clients’ aggregate assets give Enhance leverage with a manager, the Investment Committee negotiates competitive rates, while ensuring the manager remains appropriately incentivised.

The Planet pillar tests for evidence rather than declarations. It looks at how each manager identifies and assesses ESG factors, how those factors influence security selection in practice, and what stewardship activity the manager undertakes: voting record, engagement, escalation where needed. The pillar applies regardless of whether a fund markets itself as ESG-focused. A fund that never mentions ESG is tested on the same evidence as one that leads with it.

How 5P translates into the Select portfolio

5P research informs every fund recommendation an Investment Consultant makes to a Select client, and every change recommendation thereafter. The IC-approved fund universe is the bounded set of funds that have passed all five pillars. The Investment Consultant selects from that universe to build a portfolio matching the trustee’s investment policy. Funds approved through 5P are not approved indefinitely. Every IC-approved fund is re-tested at scheduled review intervals, and ad hoc whenever a meaningful change occurs at the manager. Trustees never need to ask whether the funds in their Select portfolio remain best-in-class; the Investment Committee has already asked the question.

Who conducts the research, and how often

5P research is conducted by a team of CFA and CISI-accredited Research Analysts, working to a standard research template applied consistently across every fund under consideration. The Investment Committee considers 5P findings and re-testing outcomes at every quarterly cycle. It makes adjustments to the IC-approved universe accordingly: adding funds that newly pass the framework, removing funds that no longer do, and flagging funds for closer monitoring where a single pillar has weakened without yet failing. The schedule is quarterly as standard. Ad-hoc re-review is triggered immediately by any meaningful change at a manager. That includes a change of lead portfolio manager, a change of ownership, or a material breach of a fund’s stated mandate. Enhance does not wait for the next scheduled cycle in these cases.

The bottom line

5P is why Select’s recommendations hold up to scrutiny. Every fund the trustee approves has been through five structured pillars of research. It has been anchored in real-world performance data from thousands of monitored portfolios, conducted by a CFA and CISI-accredited team, and approved by an independently chaired Investment Committee. The framework applies consistently to active, passive and alternative funds. It re-tests every fund on an ongoing basis, and it is included in the single Select consultancy fee rather than charged separately. For trustees evaluating any investment consultancy, the question to ask is what their adviser’s equivalent of 5P looks like, and how rigorously it is applied.

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