Only 5% of the funds Ian Macoun reviews pass his screen. Here are 6 traits they all possess

The data doesn’t lie, selecting a fund manager that can consistently outperform their benchmark is a difficult task. If you take data from SPIVA, you’d go as far as saying the odds are heavily stacked against you. And for many investors, that is the reality.

For the past 18 years, Pinnacle Investment Management’s Managing Director Ian Macoun has dedicated himself to beating the odds and backing fund managers that outperform. Whilst the industry data looks bleak, Ian and the Pinnacle team have developed a formula that they believe allows the best investment talent to shine.

Pinnacle, which is listed on the ASX, operates a multi-affiliate model where the firm takes a minority stake in a funds management business and provides support services in areas such as administration and distribution. Effectively they let the fund manager focus on investing.

Macoun's passion for the multi-affiliate model comes from frustrations during his early years working in large financial institutions.

“My early training was in institutional fund managers, but what I found was we weren't delivering what clients really wanted. There was too much turnover of people, we were poaching each other's people, and the clients hated it,” Macoun says.

Pinnacle now has 15 affiliates (fund managers) across a range of asset classes and strategies. 85% of Pinnacle’s strategies have outperformed their benchmarks over the 5 years to 31 December 2023. Over the past decade funds under management (FUM) has compounded at 22.4% per annum (excluding ‘acquired’ FUM)*.

Whilst the strike rate is not 100%, there are clearly some useful lessons to be taken from Pinnacle’s story. As part of Livewire’s inaugural Undiscovered Funds Series, I took the opportunity to ask Ian Macoun about his views on the current market environment, the benefits of the boutique model and the common traits he looks for in a fund manager.

The good news is that Ian believes it is possible to identify exceptional talent and he has shared a few of his tips. The bad news is that only 1 in 20 of the managers that he reviews make it through the selection process. Perhaps that is not surprising when you consider the bigger picture.

You can watch the full interview by clicking on the video player or scroll down the page to read a summary of the 6 traits Ian looks for in a fund manager.

Topics discussed

0:00 - Introduction
1:15 - The regime change taking place in markets
3:06 - The superior environment for funds management
6:09 - Spotting exceptional investing talent
7:53 - The traits Ian Macoun looks for in a fund manager
9:37 - The most important thing to look for in a fund manager
10:40 - What is next for Pinnacle Investment Management?
12:12 - How to avoid bad outcomes
13:32 - True or False with Ian Macoun

Click on the video player below to watch the interview or scroll down the page to read a summary of the 6 traits Ian Macoun looks for in a fund manager.

Below is a summary with select quotes from Ian Macoun on the traits he looks for when assessing a fund manager. 

Trait #1: Confident not arrogant and drawn to the boutique environment

Macoun says the boutique environment is self-selecting and attracts managers that back their skills.

“You don't come into a boutique environment if you're not confident, and if you're not good at what you do.”

He adds that these managers have often already proven their skills working in a larger firm.

“Where it's already become obvious that they're talented, they're brave, they believe in themselves, but the people we look for are not arrogant, but they are confident, and you can see these people are the real deal.”

Trait #2: Business ownership

The next two points are about alignment with the client/investor. Macoun believes the fund manager should have majority ownership in the business.

“So they are on a mission to build something amazing by delivering excellent outcomes for their clients. The business will only be successful if they do a good job for their clients.”

Trait #3: Skin in the game

In addition, they should be doubling down and be significant investors in their own funds.

“You want people with skin in the game. You want people who are absolutely obsessed about doing what they do well, and that means they're going to want to put everything they can into it.”

Trait #4: Experience

There’s a view that young investors can put more into the process, but Macoun says exuberance alone is not enough.

“There needs to be a reasonable amount of experience already. Just because they're young, that's not enough. I love energetic young people, but I need to have seen some demonstrated success and some experience.”

Trait #5: Investing passion

Passion for markets is a given.

“We're looking to really understand what the vision and ambition of these people is. Are they passionate about markets, about investing, and about their clients?”

Trait #6: Unique personalities

Don’t let a difficult character put you off! Macoun says obsessive personalities are a common trait in the best investors.

“Normally they have particular personality traits that are fairly difficult. They're often quite obsessive people, they're very focused on investing, and they get angry if there's anything that might get in the way of them delivering good performance.”