Sometimes an external portfolio manager just doesn’t cut it and has to be let go.

As corporate treasuries seek to diversify their investment strategies, finding top-notch managers has become ever more important. Amid the usual discussion about the portfolio – i.e., the matching portfolio manager to the company’s portfolio needs, searching for best-in-class managers or building the best internal management – many have contend with the thorny issue of getting rid of the a manager for weak performance or because it strayed from the company’s mandate.

The subject of firing a manager came up at a fall meeting of the The NeuGroup’s second Treasury Investment Managers’ Peer Group (TIMPG2). In the group’s pre-meeting survey 62% of respondents said they did not have a formal process for terminating managers.

Those members who had a process didn’t have any hard-and-fast rules for firing managers; many actually hadn’t been through it yet. But they indicated that good communication with the manager is always important. Some members use scorecards to show how the manager stacks up either against their peers or a benchmark. It’s said that the best evidence is that which provides direct proof of the truth of an assertion; a scorecard does just that.

One member said his company benchmarks performance to its peers; and if a manager is underperforming they will first put them on a watch list and then make a decision. Sometimes, the decision will have to be quicker; if a fund could be in trouble, they want to be able to act fast so they aren’t last out of a fund.

While members didn’t have too much experience with firing a manager, several offered ways that would likely avoid that outcome. One member walked the group through his process for choosing and retaining managers that meet the company’s portfolio needs. Their recent growth in the investment portfolio has resulted in hiring some new external managers. Their investment policy had not changed and limits each manager to $500M. The company stopped at eight managers and now they are focused on evaluating their performance.

This member also stressed that it is important to reach out to peers for feedback during the selection process. Other elements that he felt were important in selecting managers are the asset under management, management structure, research and models, and insight offered to the team. Many members also stressed the importance of not being an investment manager’s largest client. The relationship and insight a manager brings to the table is also as important as historical performance.

Also shared with the group was a suggestion from a TIMPG member that companies ask managers for their entire RFP template, to compare what different ones emphasize. “By saying, just send us everything, they have no ability to understand what we’re looking for besides what we tell them. But we can get an idea of what their organization’s strengths are,” noted the member.

Corporates’ search for alternative investments and growing investment portfolios means finding new managers in sometimes unfamiliar sectors, and invariably firing the ones that don’t work out.