A couple of weeks ago, the Bottom Line explored how private banks can differentiate on increasingly crowded fund shelves. The conclusion? Access alone is no longer enough. The value lies in what they do with it – from selecting genuinely differentiated strategies to building them into portfolios.

Discussions at our Funds Selection Nexus in Singapore and Hong Kong this month suggest the question is moving on again.

It is no longer simply about finding the right manager. It is about knowing what to do when that manager inevitably gets it wrong.

That may sound like a small distinction, but it goes to the heart of what gatekeepers are actually being asked to do.

In a market where dispersion is high, there will be winners and losers. Even the best managers will have periods when their process does not work. The easy response is to cut the manager and move on to the next one. 

But if private banks are serious about selecting genuinely active managers rather than simply expanding their shelves, that cannot be the whole answer.

The harder job is separating temporary underperformance from a broken investment thesis.

That requires more than performance monitoring. It means understanding why a manager is underperforming, whether the portfolio is behaving as expected, what risks have changed and whether the manager is still operating within the parameters for which they were selected in the first place.

It also changes how the fund shelf itself should be constructed.

The most useful manager may not be the one with the highest returns or the biggest AUM. What matters is what it adds to the portfolio. In a crowded fund shelf, differentiation matters more than size or brand.

That was evident in the way selectors discussed adding complementary strategies rather than simply more of the same. For example, a second multi-asset manager can have value if it behaves differently from an existing 60/40 portfolio.

A short duration or unconstrained fixed-income strategy can have a role alongside traditional duration. Different hedge fund strategies can serve different purposes rather than being treated as one homogeneous bucket.

In other words, a good fund needs a job.

And that job does not necessarily have to be beating an index every year. If a manager provides diversification, downside protection, a different source of return or exposure that behaves differently from the rest of the portfolio, its value cannot always be captured by a simple benchmark comparison.

Which raises a broader question for the industry: Does every active manager really need to beat the index every year to justify its place in a portfolio?