Taking the strategic asset allocation plan that is developed for each client, the next step involves the construction of an appropriate portfolio. The strategic plan will form the underpinnings of the portfolio; however if the risk-return profile can be improved upon in a particular market environment by deviating slightly from the plan we will do so. For example, while the structural exposure to equities and fixed income are important to maintain, there will be scenarios in which an investor can move up or down the capital structure of a company and pick up incremental return or reduce incremental risk without a significant trade-off. This has been a source of historical value that our clients have enjoyed.
The due diligence process that governs the decision regarding which investments to allocate to within predetermined asset classes is another important part of our process. If a passive approach is the most efficient exposure to take within an asset class, we will evaluate a range of options that covers traditional market benchmarks as well as those based upon fundamental determinants rather than a pure capitalization-weighted approach. While we don't avoid traditional investment options, we don't solely rely upon them.
Evaluating active managers is a process that we have refined over many years. The managers we work with have attractive long-term risk-adjusted returns relative to peers and benchmarks, but their historical results must be accompanied by a proven adherence to a specific investment philosophy. We evaluate a range of quantitative and qualitative metrics, as we recognize that satisfactory results over time can only be delivered by a quality organization. By maintaining regular contact with our managers, and understanding and explaining to our clients what has driven performance historically, we are confident that we can be proactive rather than reactive in making decisions about the ongoing appropriateness of an investment with a manager. This holds true across both traditional and alternative asset classes. |
