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Due Diligence Deep Dive - Paul Herbert
September 25, 2023
| Featuring: Paul HerbertManaging Director, Investment Research Team
|
Paul’s Passion for Due Diligence
For over 35 years, we’ve been driven to provide access to the best managers and products available across the globe. Our research is the cornerstone of what we do, and our standards are high. Our stewardship and conviction – our ability to provide access to what we believe is an elite lineup of managers – stems directly from our Investment Research Team. Interested in how the team does what they do and how you can level up your own manager research skills? Paul Herbert, Managing Director of the Investment Research Team, shares his thoughts based on his extensive experience.
What do you believe is an often-overlooked area of due diligence, portfolio construction, or investment management?
Temperament. Personality. We’ve found there are some qualities that may enable success – discipline, the ability to lead teams and communicate clearly, knowing how to take feedback and explain what you’re doing, adaptability in the face of uncertainty. It’s really the human side of the job.
When you’re evaluating a manager, how do you analyze their ability to balance both adaptability and consistency?
When it comes to consistency, a significant factor is how well managers understand what their clients value. But then there has to also be an acknowledgement that that may change over time. I think it comes down to creating an environment where there is challenge and debate within the firm – with your investment team, clients, and business partners.
How has due diligence within the industry changed since you started your career?
There’s a more specific understanding of value add. In the past, the focus would have been on return over the benchmark or risk-adjusted return over the benchmark. Now you also consider holdings analysis, attribution, factor analysis, etc. It’s not only what stocks or allocations contribute to performance, but also considering a more specific factor like size, value, or growth. It’s more of a mosaic approach now.
What’s the point where you know you’ve done enough to evaluate a manager?
So, ultimately manager evaluation means you’re formulating and testing hypotheses to come up with more robust conclusions. Ideally, you get to the conclusion phase and you feel like you truly understand why a manager may be poised to outperform, be a great partner, or fulfill a role in a portfolio. You’re going to live and die with the performance every day, when you feel that conviction, that’s when you’re ready to be done. It’s a humbling endeavor.
What does the concept of hidden gem mean to you?
Let me start by saying that finding those “hidden gem” managers is among the most intellectually satisfying parts of the job. And for us, hidden gem really means a smaller, owner-operated firm that’s relatively new to the marketplace. Someone who’s going to be a great partner, has experience, and has the potential to generate alpha.
What’s a common reason that you’d choose not to underwrite a manager?
No alignment on firm ownership – it can create misaligned incentives.
Do you have any advice for an aspiring research analyst?
Follow your intellectual curiosity to its greatest extent. This is a great profession for people who are curious, who ask questions, and who run hard in the face of difficult answers.
Our Investment Research Team is dedicated to finding the true masters of their craft – an elite lineup of hidden gems you can confidently recommend to your clients. There aren’t many of them, and we’re intentionally selective. Learn more about the Investment Teams we partner with.
Harbor Capital Advisors
Harbor Capital Advisors is an asset manager known for curating an intentionally select suite of active ETFs from boutique managers. Advisors looking for distinct and differentiated investment options for their clients’ portfolios often connect with our passionate obsession to find what we believe to be the best – bold solutions that have the potential to produce compelling, risk-adjusted returns.
For more information, visit www.harborcapital.com.
Important Information
Investing entails risks and there can be no assurance that any investment will achieve profits or avoid incurring losses.
The views expressed herein are those of the Harbor investment professional at the time the comments were made. They may not be reflective of their current opinions, are subject to change without prior notice, and should not be considered investment advice.
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