Hayley Carr

Three Questions Clients Must Ask Their Managers

A key takeaway from our October issue of The View from Burgundy, “Surviving Success: Investment Management and Value Added,” is that all investors should hold a yearly meeting with their investment managers to assess the manager’s business. Specifically, they should ask three questions:

  1. Is your manager too big?
  2. Is your manager a closet indexer?
  3. Is your manager protecting downside risk?

During our annual client conference call last week, the questions were posed right back to us. Here’s how Burgundy fares in these three areas.


Five years ago (September 30, 2007), Burgundy’s assets under management were approximately $9 billion; as of September 30, 2012, our assets under management are approximately $11 billion. We believe this to be a healthy rate of growth, especially considering its balance across broad geographies and mandates offered at Burgundy.

In The View from Burgundy, our President and CIO Richard Rooney points to closing funds as an effective tool for managing growth within asset classes. At Burgundy, several of our funds are closed to institutional investors, and we will continue to do so to ensure each investment mandate is run the same for the first and last person in the door.

While we will close funds when necessary, we continue to offer many mandates where we can “manage a great deal more money without adding any costs, without adding any business, without adding any people, and without hurting the people already invested in those strategies.”

This statement made by Richard during our conference call wholly sums up our view on growth at Burgundy. We believe we are well equipped to continue to offer excellent service and well managed investment mandates without the need for growth in other areas of the business.

Benchmark Orientation

Since firm inception, we have remained focused on high-quality companies, rather than on the markets or benchmarks. In fact, our portfolios have never resembled their benchmarks. One way to quantifiably assess this fact is by looking at active share, which is a method used to measure value added. Active share shows the degree to which managers differ from their respective benchmarks – the higher the active share, the lower a fund’s correlation to its benchmark (100 being completely different from the benchmark, and zero being a replica of the benchmark).

Burgundy’s active share for its funds, as you may expect, is quite high. Across our various funds, the active share ranges from 73% to 98%.


Downside Protection

Closet indexing can easily lead to a lack of downside protection. Managers who are overly focused on the index (and fear that deviating too much from it is risky) tend to judge their performance solely from a relative basis – making more or losing less than the benchmark – rather than aim to protect their clients’ capital on an absolute basis, which is critical to investment success.

To remain focused on protecting client capital, investment firms must have a firm wide orientation towards absolute performance only, with portfolio managers in place who have ultimate responsibility and authority over the assets they’re managing. Burgundy’s Investment Team is structured as such; our portfolio managers are completely responsible for their funds, and therefore are careful and consistent. Burgundy has never wavered from an absolute return orientation.


At Burgundy, the above considerations remain constant in our minds – monitoring growth, avoiding benchmark orientation, making sure investment process remains clean and clear, attributing responsibility for decision-making, and protecting the client.

We have constructed our firm around these principles. And by remaining focused and diligent, Burgundy should continue to survive success for many years to come.




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