After the financial crisis, it is a brave new world for investment managers, which means they need to demonstrate new skills and flexibility, according to a panel at the New York Society of Security Analysts’ annual Manager Search and Selection Conference.

In the wake of the financial crisis, investment managers are facing unprecedented scrutiny and demands to be more flexible in their approach, according to Thomas Latta, head of manager due diligence for Merrill Lynch’s Investment Manager & Guidance Group.

Speaking at the New York Society of Security Analysts’ annual Manager Search and Selection Conference in New York yesterday, Latta said investors and wealth managers are “looking for more versatile and well-rounded approaches as part of a qualitative evaluation.”

Following the market losses of late 2008 and early 2009, there was recognition that private wealth clients need better absolute returns and better downside protection, Latta said in his presentation “Equities & Bonds: Thinking Outside the Box.”

The relativistic style-box approach was no longer seen as “a viable long-term solution,” he said.

As weaknesses were exposed, investors and wealth management firms began looking for new skills suited to risk management, better management processes, a better qualitative evaluation of managers and a different mix of strategies.

“Firms are looking for new skills from managers,” Latta said, “including the ability to manage beta, managing across multiple asset styles or classes and managing factor risks instead of asset classes.”

In fact, he singled out a risk factor-based investment approach as on “the leading edge” of what investors and their advisors are looking for.

“Investors want managers that can demonstrate skill at quantification of risk,” Latta said.

Being able to offer a different mix of strategies has become critical, he added.

“For example, we’re seeing more hedged type of strategies,” Latta said, “and flexible strategies are viewed as complementing narrower, style-based strategies.”

“Better portfolio construction that includes tail risk management, hedging and asset allocation are all impacting manager selection,” he told conference attendees.

Managers with greater latitude, ability to manage beta as alpha and who have a higher tracing error with lower correlations will now be in greater demand, Latta said.