Manager Search and Selection Flashcards
7 cards from real CIMA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Manager Search and Selection flashcards as text
What does a manager's 'information ratio' measure?
Answer: Active return generated per unit of tracking error
The information ratio measures active return (alpha) relative to tracking error, indicating the consistency and efficiency of a manager's active bets.
A plan sponsor is selecting a fixed income manager and notices the manager's composite includes accounts with significantly different mandates. What is the primary concern?
Answer: The composite may not be representative of the strategy being evaluated
When a composite mixes accounts with different mandates, the reported performance may not accurately represent the specific strategy the plan sponsor intends to hire.
Which of the following is an example of 'qualitative' criteria used in manager selection?
Answer: Depth and cohesion of the investment team
Qualitative criteria include judgment-based assessments such as team quality, investment culture, and organizational stability that cannot be fully captured by quantitative data.
During reference checks for a manager finalist, a consultant speaks with a client who recently terminated the manager. What is the most valuable piece of information to obtain?
Answer: The reason for termination and whether performance met expectations
Understanding why a client terminated a manager and whether performance met expectations provides critical insight into the manager's real-world track record and client relationship management.
A consultant recommends allocating to a manager with high active share. What does high active share suggest about the portfolio?
Answer: A large proportion of holdings differ from the benchmark, reflecting conviction bets
High active share indicates that a substantial portion of the portfolio differs from the benchmark, suggesting the manager is taking meaningful active positions rather than closet indexing.
What is the purpose of reviewing a manager's ADV Part 2 during the due diligence process?
Answer: To understand material conflicts of interest, fees, and disciplinary history
Form ADV Part 2 is an SEC-required disclosure document that details a manager's conflicts of interest, fee structures, disciplinary history, and business practices.
Which of the following best explains why a consultant might recommend a manager with a shorter track record over one with a longer history?
Answer: The investment team that generated the long track record has since departed
If the key personnel responsible for the historical track record have left, the long performance history is no longer attributable to the current team and loses its predictive value.