When it comes to selecting investment managers for funds, identifying where a manager is in its lifecycle is crucial, with the best time to invest coming in the late start-up to growth phase, according to a new report from Barclays Wealth.

“The life cycle is real,” said David Romhilt, who heads manager research and selection for the Americas at Barclays Wealth. “It’s not something we’ve made up,” he said during a presentation of the report, entitled “Portfolio Management in Uncertain Times,” which was released Tuesday. “You can see this with a lot of firms.”

That includes the 15 largest active U.S. equity mutual funds, according to Barclays, with the top three including Gro Fund of America, Fidelity Contrafund and American World Gro & Inc. While 45% of those managers were in the top quartile from 2001 to 2009, that has since flipped. Now, 37% of those same managers have placed in the bottom quartile since 2010.

The growth phase is when a manager typically is seeing success performance and marketing, expanding their non-investment operations and adding products to complement existing ones. It is also when relative performance typically exceeds a firm’s assets. That relationship between performance and assets usually changes in a subsequent maturity phase, where a manager is approaching or has reached capacity. A decline period that follows is where asset growth exceeds capacity.

Barclays typically seeks to invest with employee-owned firms early in the earlier stages of their lifecycles, where asset growth will not be an issue for five to 12 years.

It also means knowing when to cut ties with existing investments, Romhilt said. That, admittedly, has led to some difficult conversations.

Consider one West Coast-based firm that Barclays was working with that had a phenomenal track record in the early to late ‘90s following successful media and telecom investments. But in 2005, when that firm started calling its investors to return their money, it was a signal it had too much capital.

“We were more than happy to take all of our capital back instead of just what they wanted. We left the firm,” Romhilt said.

Barclays has not regretted that decision, Romhilt noted. That firm’s alpha deteriorated after 2005, he said, with only a couple of periods of excess return after that followed by a big miss last year.

Another hedge fund manager Barclays worked with came up with a one-time trade that was very successful, Romhilt recalled. But that same firm did not recognize for a long time that the one trade did not match the hedge fund’s investment strategy. Barclays pulled out of that investment, and now the firm is starting to diversify.

“This is one that we’ll update in another year or two, and I think it will look a little different,” Romhilt said.

For each kind of investment, it is also important to keep in mind how quickly it can be exited based on the size of an investment. Long-only managers have daily liquidity, while hedge funds typically offer liquidity only quarterly. For private equity, where managers control their investors’ liquidity, issues such as how well they can access investments with their assets and have liquidity events are more important.

Most of all, investment process is the most important aspect that Barclays considers when evaluating an investment manager, followed by their track record and operations, Romhilt said.

“We want to see consistent victories over time, and then we want to see an organization that’s set up to allow them to continue to do that without impeding their process in the future,” Romhilt said.

The report outlines the standards Barclays Wealth applies when selecting managers for in areas including long-only, hedge fund and private equity investments.

Lorie Konish writes for On Wall Street.