Many consultants and institutional investors take a focused approach to asset allocation and manager implementation whereby they use specialist managers. This approach proves beneficial if the specialization increases a manager’s ability to add value. If this is not the case, or is no longer the case, specialization may overly constrain the scope of an opportunity set.
An informed understanding of the different areas of specialization and their accompanying constraints can maximize investment efficiency. However, given that appropriate constraints may be subject to changes over time and the proficiency of a particular manager, the decision to pursue or avoid certain areas requires careful deliberation. This paper will attempt to explain why the role of specialization is changing in public equities, and why the past benefits of specialization in domestic or international equities may now limit the ability of select managers to add value.