Family offices and other qualified investors employ a sophisticated and consistent process for selecting fund managers. This diagram breaks down the selection process into six macro-steps and serves as a collective view of what the industry is currently employing around the world at the 1,000 foot level.

The Six Steps of Fund Manager Selection:

The first step is typically to review what is called the one-pager or tear sheet of a fund manager.  This is a very brief 1-2 page PDF document which contains the fund’s investment performance, team, investment process, disclosures, and complete contact details.  It is meant to explain the investment strategy to the investor and present a 10,000 foot view of what the fund offers.  Typically, these are reviewed very quickly, for just 5-10 minutes by investors who decide very quickly whether the rest of this process should be followed or whether the fund is not a good match.

The second step in the process takes place when the investor has some interest in the fund and would like more details. The investor is then sent a PowerPoint presentation on the fund manager sometimes referred to as a “deck” or “pitch book.” The pitch book is typically 15-80 pages long and reviews the fund’s team, unique edge in the marketplace, investment process, risk management procedures, operations, service providers, investment examples, and future plans.

If the pitch book is well received most investors will then want to move to the third step and setup a phone call to discuss the materials of the presentation. These calls typically last for 30 minutes to an hour and consist of the management team walking the investor through each page of the presentation, stopping for questions and fielding additional questions at the end of the phone call.

During these phone calls analysts, investment committee members, or the chief investment officer of a family office may start asking tough questions about style drift, the effect of a key executive leaving the team, or how why and for how long they may have “gone to cash” in the last recession.  It is during these phone calls that investors get a feel for where the strengths and weaknesses of a fund manager lie.

The fourth step of the fund manager selection process involves the completion of a due diligence questionnaire or DDQ, as they are often called.  These DDQs can be include anywhere from 25 to150 questions and can often be 50 to over 100 pages long once completed by the fund manager.  The point of the DDQ is to dig into the granular details of the fund’s operations, legal structure, compensation structure, portfolio of investments, future plans for growth, etc. This combined with the PowerPoint, one-pager, and phone call is the bulk of what many analysts and investment committees use to review fund managers in a relatively comprehensive manner.  Sometimes this step in this process is required before step three and that is important to note. Most of the other steps will not change order very often.

The fifth step which most family offices complete while selecting a fund manager is to conduct an on-site visit.  Occasionally, due to geographical distance, the fund manager will come to the offices of the family office, but this is an exception and not the rule since it is more valuable to see the real office of the fund.  A lot can be learned by seeing how a team works together, trades, selects investments, and treats each other on a day-to-day basis.  Almost all of the family offices I have spoken to and worked with require a face-to-face meeting, but some will rely on a third party investment consultant or compliance team to do this for them.

Typically the final step in the selection of a fund manager is further research, analysis, and deliberation by the analyst, investment team, chief investment officer or investment committee or even all of the above.  In some cases a unanimous agreement is required to invest in a fund manager, in other cases only the chief investment officer has the authority to select a fund manager for an allocation.  Every family office has slightly different processes for what is needed before a new fund manager is selected.

Again, the family office fund manager selection process that I just outlined is only an example of the process which many of these sophisticated investors use to evaluate prospective funds.

Richard C. Wilson is a family office expert and his team connects family offices with best-of-breed fund managers.  Richard is the founder and head of the 40,000+ member Family Offices Group association (, and author of “The Family Office Book: Investing Capital for the Ultra-Affluent.”