Institutional Portfolio Managers and Chief Investment Officers typically do a thorough vetting of new investment managers. The more common problem is the ongoing monitoring of existing managers.

Periodic reviews of existing managers are often skewed by confirmation bias that may cloud the need for replacement. In this excellent article, An analytics approach to debiasing asset-management decisions by McKinsey& Co., it provides some analytical methods to overcome this bias.

One of my favorite tools is the use of Red Team analysis. Red Team is an independent group that challenges an organization to improve its effectiveness by assuming an adversarial role or point of view. Red Team was developed and embraced by the military and its contractors that gained significant traction after the attacks on 9/11.

Since its adoption by the military, businesses have also found it extremely useful as a risk management tool. The investment management industry has only begun to utilize it. For large foundations and government investment pools, it is a tool that can be implemented internally or in conjunction with similar entities on a reciprocal basis.