Exposure to investment managers a risk factor: Russell

Russell Investments has recommended investors take a close look at their managers and examine the robustness and potential risks of the firms that are managing their life savings.

Russell said investors should consider their exposure to investment managers as an important risk factor, as the current financial environment will see many money managers striving to protect the profitability and viability of their business.

With the market down more than 40 per cent and investors withdrawing assets, some firms have seen their profitability sharply decrease or possibly even evaporate. Russell said this raises questions as to whether money managers still have the capacity to retain key investment talent or keep investing in talented juniors.

It also said firms that are reliant on niche products which have now become unpopular may be especially vulnerable if clients decide to de-emphasise those strategies in their portfolios.

Russell said it is important to understand whether a manager has capitulated on key portfolio positions or changed its investment processes in response to the current climate.

With many money managers coping with lower asset bases by cutting costs and firing workers, Russell suggests investors check to see which staff are being let go, and consider how involved they were in producing the investment performance to date.