Despite all the fancy tech gadgets that have made communication more seamless and the world seem smaller, many advisors say that for global fund managers to do their jobs best, they must be physically present within the local market where they're managing assets.
“In terms of analyzing active management in overseas markets, it is critical for fund managers to understand the cultural and linguistic nuances abroad,” says Alex Crooke, fund manager at U.K.-based Henderson Global Investors. “A profile of the fund’s professionals should have background and language expertise in these markets.”
Market capitalization and related IPO activity have increased relative to the United States, especially in emerging and frontier markets, says Matthias Kuhlmey of HighTower Advisors. “In order to participate in a widening, global opportunity set, it is advantageous to hire managers in local markets with local expertise,” he says.
The reason for this? Advisors note that if fund managers are based in markets around the world, they have more ease and flexibility in navigating country-specific legal frameworks, tax challenges, and trades in local currencies.
Some fund managers won’t even seek opportunities unless they are proficient in the language. “We have a policy of not investing in certain markets overseas unless we have analysts who speak the language of the markets we’re in,” says Crooke.
Specialized advisors have screening tools and methods available to qualify the search for international managers, located outside the U.S. "With an understanding to invest in local shares and underlying local currencies, fund managers can significantly optimize their gain potential, and optimize a given portfolio," Kuhlmey says.
The catch for global fund managers of U.S. based clients, Kuhlmey adds, is the extent to which they make their product offering "US-friendly." "It's essential that global fund managers, operating outside the U.S. have their clients in mind — investment products should be applicable to U.S. investors with respect to their tax efficiency, for example."
That doesn’t mean advisors should actually look for direct international investments in foreign vehicles. To get truly global exposures, the best place from which to invest is the U.S. says David Kuenzi of Thun Financial Advisors. “U.S. markets offer greater, more efficient access –lower fees and higher liquidity—to all global pools of financial assets than any place else in the world.”
Though access to the U.S. market is good for investors, it may pay to make sure analysts and managers are well-versed in the local language and culture of the area their fund invests in. Advisors say there's still a qualitative aspect missing when it comes to global investing if fund managers are not based around the globe.