assignment of "buy/hold/sell" rating. 11 Decision-making process for inclusion/exclusion. 5. Portfolio construction: II Sizing of positions. If Matching security weights to overall portfolio risk and return targets. II Application of sophisticated risk management techniques. 6. Monitoring: il Updates with management. II Continued industry and company triangulation. II Monitoring of risk positioning and portfolio structure. When infused with the best practices of elite money-management organizations and applied to a manager-selection business, this generic process takes on a shape that is distinct from traditional manager due diligence. For a manager-selection group, the asset-management approach to manager selection strongly impacts group structure, culture, work flow, investment tools, and even recruiting-in short, this philosophy remakes the manager-selection team in the image of an asset-management group. The current chapter deals with the first four steps of this generic process; Chapter 22 focuses on the portfolio construction process. At each step, we describe how insights gleaned from elite asset-management organizations can inform and sharpen the investment process, with the ultimate goal of generating superior investment results for institutional and individual clients. MANAGER SELECTION USING AN ASSET-MANAGEMENT APPROACH The opportunity set of managers and products is nearly as vast as the opportunity set of securities in the equity market. As of March 31, 2002, there were over 7,000 mutual funds registered for investment in the United States, and there were more than 10,000 offshore funds registered outside the United States. This does not include locally registered mutual funds, separate accounts, and private partnerships. The task of identifying the best money manager in a particular arena can be quite daunting at first glance and is similar to a portfolio manager's task in finding the most promising company for a portfolio out of thousands of potential choices. In both cases, a systematic approach to a massive database of information is utilized to reduce the amount of time and effort expended on ultimately unattractive options. The first step in paring the universe of managers is to identify and screen for a specific type or style of manager. This step is analogous to quantitative screens employed by most asset managers to identify a universe of securities appropriate to the manager's style. For example, just as a U.S. large-cap value manager must sift through roughly 1,000 large-cap securities to determine which ones exhibit value characteristics, the manager-selection team must sift through thousands of U.S. eq-