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
In a manager search, what is the significance of conducting an 'on-site visit' as part of due diligence?
Answer: To assess the firm's culture, operational infrastructure, and team dynamics firsthand
On-site visits allow consultants to evaluate factors such as team cohesion, operational controls, and organizational culture that cannot be fully assessed through documents alone.
A defined benefit plan sponsor is searching for a domestic equity manager. Which benchmark would be most appropriate for evaluating a large-cap growth manager?
Answer: Russell 1000 Growth Index
The Russell 1000 Growth Index is the standard benchmark for large-cap growth equity managers in the U.S., covering the growth segment of the 1,000 largest U.S. companies.
What is the main limitation of using a manager's 'composite' performance to evaluate suitability for a new mandate?
Answer: The composite may include accounts with different constraints than the prospective mandate
Composite performance may blend accounts with varying investment guidelines, making it less relevant for evaluating a mandate with specific constraints such as ESG screens or concentration limits.
Which fee structure aligns the investment manager's incentives most closely with client outcomes?
Answer: Asset-based fee schedule with performance fee above a high-water mark
A performance fee structure with a high-water mark rewards the manager only when returns exceed a prior peak, aligning incentives with generating actual client gains.
When evaluating manager performance attribution, which component isolates the manager's stock selection skill from sector allocation decisions?
Answer: Selection effect
In the Brinson-Hood-Beebower attribution model, the selection effect measures the value added by choosing securities within a sector versus simply holding the sector benchmark weight.
A consultant evaluates two equity managers. Manager X has annualized alpha of +2% with a t-statistic of 1.4. Manager Y has annualized alpha of +1.5% with a t-statistic of 2.3. Which conclusion is most appropriate?
Answer: Manager Y's alpha is more statistically significant and therefore more reliable
A t-statistic of 2.3 exceeds the conventional threshold of approximately 2.0 for statistical significance, making Manager Y's alpha more reliably attributable to skill rather than chance.
Which of the following best describes the role of an investment consultant in the manager search process for an institutional plan sponsor?
Answer: The consultant serves as a fiduciary advisor, providing recommendations while the plan sponsor retains final authority
Investment consultants typically act as non-discretionary fiduciary advisors, guiding the search process and providing recommendations while the plan sponsor or investment committee retains final decision-making authority.