IPE asked the Caisse de prévoyance de l’État de Genève (CPEG) how manager selection is changing

The first step in our manager-selection process is a thorough analysis of the asset class or strategy we want to invest in, through which we try to establish if the strategy adds value. If the investment committee validates the strategy, then we run a beauty contest. We will usually be assisted by a consultant throughout the selection process. 

The due diligence process is split into two main parts. On one hand, we analyse the manager’s investment solution to make sure that it is the best way to implement the strategy, and that it will give us true exposure to the returns available. 

The operational due diligence seeks to establish  if the implementation of the investment strategy is state of the art. We analyse various aspects, from the ownership of the company to execution.  

Because CPEG is mostly invested in passive or low tracking error solutions, operational due diligence is a primary aspect of our selection process.

We also focus on things such as staff turnover. Naturally, at CPEG we also consider aspects relating to an asset managers’ culture. 

A driving factor in the way we select managers is image. There are managers that we would avoid completely if their corporate image is not up to scratch – for instance, if there have been controversies associated with them. 

The concept of image would also include the way a company treats its employees. We are starting to explore their approach in terms of voting at shareholders’ meetings.

These are not scientific measures but they nevertheless matter. 

Grégoire Haenni, CIO

Our manager selection process has not changed to a significant extent. In the future, however, manager selection will become more important. It will be crucial to be invested not just in the right strategy, but with the right manager too. 

One reason why manager selection already matters more than it used to is that ESG investing has become so important.

“We want our managers to be committed to ESG. They must be aligned with our values and ESG criteria. We expect them to engage and be active in terms of voting. Most importantly, we expect them to be honest about their ESG credentials. It will not be enough to show that they have hired a few ESG analysts”

Our strategy is fully ESG-integrated. CPEG was a Pioneer in this space, having started as far back as the early 1990s. We were among the first to award ESG mandates to managers such as Robeco SAM and Julius Baer.

For that reason, we want our managers to be committed to ESG. They must be aligned with our values and ESG criteria. We expect them to engage and be active in terms of voting. Most importantly, we expect them to be honest about their ESG credentials. It will not be enough to show that they have hired a few ESG analysts.

“A driving factor in the way we select managers is image. There are managers that we would avoid completely if their corporate image is not up to scratch – for instance, if there have been controversies associated with them”

The good news is the industry is embracing ESG. There are many managers that are incorporating ESG criteria within their overall strategy. The ESG universe is expanding, and this makes me very optimistic about it. 

Fees are also an increasingly important aspect of manager selection. The great pressure on fees is, of course, linked to the low-yield, low-return environment. In this environment, the absolute level of fees matters. 

Managers simply have to adapt. The pressure on fees is leading some investors to give up entirely on certain strategies, particularly hedge funds. Very large investors with diversified portfolios manage to bring their management fee levels to as low as 1bp.

Investors are also teaming up and pooling their assets in order to negotiate better fee terms. 

At CPEG, we do not have particularly lengthy discussions with managers on fees, partly because of the kind of strategies we invest in.  

Interview by Carlo Svaluto Moreolo