CIMA - Certified Investment Management Analyst Manager Search and Selection Questions and Answers 1

Question 1

An institutional investment committee is in the process of selecting a new large-cap growth equity manager. They have narrowed the field to a few finalists who have all provided performance data and marketing materials. What is the MOST crucial next step in their due diligence process to gain a deeper, forward-looking insight into a manager's capabilities?

Accepted Answer

Perform on-site interviews to assess the key personnel, the repeatability of the investment process, and the firm's culture.

Answer

While quantitative analysis, RFPs, and fee comparisons are all important parts of the manager selection process, the on-site visit provides the most critical qualitative insights. It allows the committee to assess the 'Four Ps' (People, Process, Philosophy, and Performance) in-depth. This qualitative assessment is crucial for determining if past success is repeatable and if the firm's culture and team are stable.

Question 2

During a qualitative due diligence review of a potential investment manager, which of the following findings would be the BIGGEST red flag regarding the 'Process' component of the evaluation?

Accepted Answer

The stated investment process is highly discretionary and lacks documented procedures for security selection and portfolio construction.

Answer

A lack of a documented, repeatable investment process is a major concern. It suggests that past performance may have been due to luck rather than a skillful, disciplined approach. A discretionary process makes it difficult to predict how the manager will behave in different market environments and raises concerns about consistency and 'style drift'.

Question 3

A CIMA professional is helping a pension fund create a Request for Proposal (RFP) for a new fixed-income manager. To ensure they receive comparable and relevant responses, which of the following is the LEAST critical component to include in the RFP document?

Accepted Answer

A list of the investment manager's three largest current clients.

Answer

While understanding a manager's client base can be useful, a list of the three largest clients is the least critical component compared to the others. Performance data, team structure, and a clear mandate are fundamental for a fair and effective evaluation. Requesting specific client names can also raise confidentiality issues, and a summary of client types (e.g., percentage of institutional vs. retail clients) is often more useful.

Question 4

When conducting quantitative analysis as part of manager selection, relying solely on historical returns can be misleading. Which of the following metrics is MOST useful for evaluating the consistency of a manager's active returns relative to their benchmark?

Accepted Answer

Tracking Error

Answer

Tracking error measures the standard deviation of the difference between the portfolio's returns and the benchmark's returns. A lower tracking error indicates that the manager's performance has been more consistent and closely followed the benchmark, while a higher tracking error suggests larger deviations. Standard deviation measures total volatility, the Sharpe ratio measures risk-adjusted return, and R-squared measures the percentage of a portfolio's movement that can be explained by the benchmark.

Question 5

An investment committee has hired a new manager. Which of the following activities is a critical component of the ONGOING monitoring process, rather than the initial selection process?

Accepted Answer

Performing periodic attribution analysis to confirm the sources of excess returns.

Answer

Ongoing monitoring is crucial to ensure the manager continues to adhere to their stated process and meet objectives. Performing periodic attribution analysis helps verify that the manager's outperformance (or underperformance) is coming from their stated sources of skill (e.g., stock selection, sector allocation) and not from style drift or unintended bets. The other options are all primarily part of the initial due diligence and selection process.

(CIMA) Certified Investment Management Analyst Practice Test

(CIMA) Certified Investment Management Analyst Practice Test

CIMA - Certified Investment Management Analyst Manager Search and Selection Questions and Answers 1