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In Search of Alpha

State Street Global Advisors’ commitment to clients is built on a foundation of strong governance, and is driven by three equal and essential values - Investment Acumen, Integrated Long Term Partnerships and Risk Excellence. Our responsibility as fiduciary advisors is to help our clients achieve financial stability and seek to achieve their long term goals. State Street takes pride in empowering investors to make informed decisions in manager selection, portfolio construction, operational due diligence and ongoing investment oversight.

Manager Research

The primary objective of the manager research team is to select the best managers within each asset class. With many investment managers offering a variety of products, staying competitive necessitates having a broad market reach. It isn’t realistic to expect one manager to have the depth and breadth to be best for all asset classes, so it’s critical to widen the net, and use an open architecture platform which includes the manager universe for each asset class. Introduction of alternatives to the asset mix can make manager selection an even more challenging task due to the illiquid and non-transparent pricing nature of such investments.

Good manager research goes beyond than just analyzing historical performance data. As experts across asset classes, we undertake a comprehensive analysis of both quantitative and qualitative factors to match client needs with the right investment manager and identify attractive long term investment options while keeping costs down.

Selection of Managers

While managers are constantly seeking to generate alpha, we try to strip out the returns attributable to the market and style to get a better understanding of the alpha that the manager’s investment process is generating. We look at past trends, historical correlations, factor and style tilts to make sure it is just not a case of “rising tide lifts all boats” and the manager has taken unique active bets to generate alpha.

Manager selection begins with a thorough scan of the universe of available investment managers within an asset class. What differentiates us is that while we routinely scour the universe for available investment options, we look at previously terminated managers as well. Various exclusionary screens are employed to come up with an initial shortlist of candidates. Arriving at a final decision involves several additional steps. A strong manager selection process takes a multi-dimensional view of an investment manager:

Multi-Dimensional Manager Research

Organization and Team

  • Ownership Structure, Management Turnover, Enterprise and Operational Risk
  • Experience Level, Leadership Structure, Depth of Resources

Investment Philosophy and Approach

  • Fundamental Validation
  • Consistent Application of Style, Philosophy and Process
  • Clear Articulation
  • Unique Inputs and Analysis, Repeatability

Portfolio Construction and Trading

  • Risk Control
  • Cogent Progression 
  • Process Feedback 

Performance Validation

  • Style and Return Consistency, Risk Adjusted Returns
  • Peer Universe Comparison
  • Consistency of Returns with Investment Philosophy and Approach


The manager research process would be incomplete without touching upon the topic of fees associated with each investment manager. As one of the largest asset managers in the world, State Street holds pricing power which helps us secure investments at lower cost than what is available in the market without sacrificing performance.

Manager Fee Analysis

To that extent, for some of our indexed portfolios, we select ETFs that are involved in security lending programs. Security lending enables a fund to offset its costs to a certain extent. All revenues arising from security lending are returned to the fund and eventually passed on as returns to its investors. This can provide an additional source of income.

Portfolio Construction

We are at the forefront of designing comprehensive strategic asset allocation (SAA) plans – suggesting the correct blend of active and passive investments keeping in mind market exposures, liquidity needs, cash flows, and other factors. In view of fluctuating inflation trends, geopolitical uncertainties, financial shocks and other unforeseen events – we are equipped to provide new insights and amend client portfolios as part of tactical asset allocation (TAA) decisions. Each time there is a macroeconomic event, we do not have to reinvent the wheel. Thanks to the exhaustive databases maintained, we can make tactical allocation decisions fairly quickly. With investors making a switch to more sustainable investing, the inclusion of ESG mandates has added greater complexity to the portfolio construction process. To that extent, the portfolio construction team at State Street utilizes a broad array of tools and risk models and Path Forward models in the private markets to maintain the integrity of portfolio and keep it aligned to the mandated requirements in terms of various parameters including but not limited to:

  • Tracking error budgets
  • Active return targets
  • Risk premia exposures
  • Credit duration
  • Leverage caps
  • Regional exposures
  • Vintage, sector and style diversification
  • Maintaining target allocation ranges for privates

Operational Due Diligence

Operational Due Diligence of investment managers is more critical than ever and integral to the manager research process. It improves governance by mitigating manager risk. The Operational Due Diligence team at State Street has extensive experience in conducting due diligence not only across public investments, but across illiquid asset classes as well such as private equity, infrastructure and hedge funds. The operational due diligence process is executed in phases and allows us to evaluate both qualitative and quantitative factors. While no two reviews are the same, we tailor our specific procedures to meet the particular needs of our clients and the type of fund/investment manager subject to review.

Comprehensive Initial Review
  • Investment philosophy
  • Risk management
  • FinancialsStability
  • People &pProcesses
  • IT infrastructure
On Site Meetings
  • Fund structure
  • Investor base
  • ThirdpParty providers
  • Code of ethics
  • Conflict of interests
Ongoing Monitoring
  • Quarterly DDQs
  • Org changes
  • Performance review
  • Watchlist maintenance
Final Assessment
  • Asset verification
  • Summary to SSGA senior leadership
  • Manager ranking
  • Go/No-Go for funding

Source: State Street Global Advisors

We also conduct sanctions screenings before the manager is onboarded onto the State Street platform. This includes screening managers for any negative news, involvement in money laundering activities, identifying any politically exposed people and senior personnel background checks.

Every investment manager is bound by certain guidelines and mandates in which they can operate. These mandates could pertain to minimum/maximum limits on certain asset classes, sectors, regions, market caps, and the percentage of cash in the portfolio. The ongoing monitoring and updates on the platform helps us to be confident that the manager is operating within the investment thesis.

Why Outsource Manager Research?

Clients outsource manager research depending on their unique needs. Some clients fully delegate decision making for all asset classes, while others retain the ultimate decision making for all or part of their portfolios. Clients with in-house teams sometimes lack the expertise or resources in a particular asset class and outsource that sleeve of their portfolio. In each case, the research is conducted by experienced team with a deep understanding of the asset classes, extensive industry relationships, and the opportunity to deliver positive performance and access to potentially discounted investment manager fees.

The Manager Research team at State Street has decades of experience as well as an information bank and documented procedures that are the outcome of continuous thorough research. The multitudes of investment managers and strategies available to asset owners poses the challenge of identifying best-in-class investment ideas. State Street also assists with the implementation of investment recommendations including documentation, AML/KYC, operational assistance and other onboarding activities. We relieve asset owners of these investment complexities by providing the decision-making framework, extensive resources, expertise across investment management and operational functions, as well as the discipline necessary for successfully managing a total investment portfolio.

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