CIMA Manager Search and Selection 2 — Questions and Answers
Question 1: Which database is most commonly used by investment consultants to screen investment managers during the initial search phase?
- Bloomberg Terminal
- Morningstar Direct
- eVestment (Correct answer)
- FactSet
Correct answer: eVestment
eVestment is the primary institutional database used by consultants to screen and compare investment managers across strategies.
Question 2: What is 'style drift' in the context of investment manager evaluation?
- A manager gradually increasing fees over time
- A manager deviating from their stated investment style or mandate (Correct answer)
- A change in a manager's ownership structure
- A shift in a portfolio's geographic allocation
Correct answer: A manager deviating from their stated investment style or mandate
Style drift occurs when a manager deviates from their stated investment style, which can disrupt a client's intended asset allocation.
Question 3: In a manager search RFP, which section most directly reveals whether the manager's investment process is repeatable?
- Fee schedule
- Investment philosophy and process description (Correct answer)
- Firm ownership structure
- Client service team bios
Correct answer: Investment philosophy and process description
The investment philosophy and process section documents the systematic approach the manager uses, indicating whether results can be consistently replicated.
Question 4: A consultant is evaluating two managers with identical 5-year returns. Manager A has a Sharpe ratio of 1.2 and Manager B has a Sharpe ratio of 0.8. What does this indicate?
- Manager A took on more total risk to achieve the same return
- Manager A generated higher risk-adjusted returns per unit of volatility (Correct answer)
- Manager B is more appropriate for conservative clients
- Manager A's returns are less reliable over time
Correct answer: Manager A generated higher risk-adjusted returns per unit of volatility
A higher Sharpe ratio indicates that Manager A generated more return per unit of risk (standard deviation), making them more efficient on a risk-adjusted basis.
Question 5: What is the primary purpose of a 'finals presentation' in the manager selection process?
- To negotiate fee reductions with shortlisted managers
- To verify the manager's compliance record with regulators
- To allow shortlisted managers to present directly to the investment committee (Correct answer)
- To conduct background checks on key personnel
Correct answer: To allow shortlisted managers to present directly to the investment committee
The finals presentation gives shortlisted managers the opportunity to present their strategy, team, and process directly to decision-makers before a final selection is made.
Question 6: Which of the following best describes 'benchmark hugging' as a concern in manager evaluation?
- A manager whose portfolio closely mirrors the benchmark, offering little active value (Correct answer)
- A manager who changes their benchmark frequently to show better performance
- A manager who invests only in benchmark constituents
- A manager whose tracking error is too high relative to peers
Correct answer: A manager whose portfolio closely mirrors the benchmark, offering little active value
Benchmark hugging describes a manager whose portfolio closely resembles the index, generating minimal active return while still charging active management fees.
Question 7: When assessing a manager's organizational stability, which factor is considered a 'red flag' during due diligence?
- A recent merger that integrated a complementary investment team
- High turnover among senior portfolio managers in the past two years (Correct answer)
- A CEO transition to an internal candidate after a planned retirement
- Expansion into a new asset class with a dedicated team hire
Correct answer: High turnover among senior portfolio managers in the past two years
High portfolio manager turnover raises concerns about team cohesion, continuity of the investment process, and the firm's ability to retain key talent.
CIMA Manager Search and Selection 2
Which database is most commonly used by investment consultants to screen investment managers during the initial search phase?