essays pieces of the puzzle
Friday, November 30th, 2012
truth and disclosure

Another money management soap opera came to a head recently, with the bankruptcy filing by Aletheia Research and Management.

According to the New York Times:  “At its peak, Aletheia managed nearly $10 billion in assets and had a superior long-term investment track record that handily outperformed the Standard & Poor’s 500-stock index.”  Now its business is in tatters and it faces scrutiny by the SEC of its practices.

Big-name firms that selected Aletheia as an asset manager for their clients, including Goldman Sachs and Morgan Stanley, have now fired it, as have pension funds and other institutional investors.  CIBC Asset Management is trying to remove Aletheia as the subadvisor for the Renaissance U.S. Equity Growth Fund, the performance of which is shown above since Aletheia started managing the portfolio.  Ouch.

About the name:  It means “truth and disclosure.”  You can find that out on the firm’s website, and delve into the firm’s investment philosophy and investment process there too.

What’s interesting is how similar those sections of the website are to those of other asset managers.  That’s a reminder that it is hard for managers to effectively communicate what differentiates them from the crowd, something I help managers do as a part of my consulting practice and which I have written about before.

But the code is even harder to crack in the other direction.  Most investors never get past the marketing platitudes to dive into real due diligence — and most put entirely too much emphasis on past performance when making their decisions.

Do the Aletheia pages sound good?  Sure.  Are they the “truth and disclosure” on which you should make investment decisions?  No way.  And “past performance is not an indicator of future success” could never have been more true than when the firm put it on its materials.

Another painful lesson for those who select managers.  (Chart:  Bloomberg terminal.  The fund shown is the U.S. dollar version, not the Canadian dollar one, and is compared to its benchmark, the S&P 500.)