We believe that, while process is key to developing strategic allocation, it cannot be rigid so as not to adapt to client needs. Our process marries our best thinking and informed viewpoints with what’s more appropriate for our clients’ goals and risk/reward profiles.
Determine Strategic Asset Classes
We define an asset class as a group of similar investments whose behavior and price movements are generally uniform throughout any market condition.
We believe each strategic asset class should:
- Have a distinct risk-return profile relative to other asset classes.
Offer at least one of the following investment characteristics:
- Improved Return Potential
- Risk Diversification
- Inflation Protection
Support significant allocations of capital, based on:
- Liquidity – ability to trade securities as requires
- Depth – abundant and diverse number of securities
- Capacity – ample market size for sizable allocations
Develop Global Economic Outlook
Research and Forecast
- Evaluate the global macroeconomic backdrop through monitoring key indicators and changes over time.
- Continuously present and debate research findings as a group.
- Employ a ‘building block’ decomposition model to better forecast asset class return assumptions.
- Forecast a set of long-term expected returns, volatility, and correlations for all strategic asset classes.
Establish Strategic Efficient Frontier
Strategic Asset Allocation
- Utilize various optimization models and techniques based on long-term capital market assumptions.
- Ensure broad diversification across multiple asset classes.
- Apply asset class constraints where appropriate.
- Avoid significant factor biases unless as a tactical decision.
- Maintain sufficient liquidity.
*Factors are characteristics specific to a group of investments that help explain return and risk.
Identify Tactical Opportunities
- Tactical opportunities have the potential to incrementally enhance an asset allocation’s risk/reward profile.
- Technical patterns and anomalies may indicate pricing or valuation dislocations within a specific market.
- Opportunities exist outside the consensus.
- Tactical positioning may be expressed directly through a specific investment or outsourced to a sub-advisor.
Select Skilled Managers
Our team employs a multi-stage process to identify investment managers for the distinct needs of our clients. We rigorously evaluate key performance metrics, as well as structural and operational factors, to assess each manager’s ability to produce superior risk-adjusted returns.
Foundational Requirements for Managers
- Expertise in a specific investment discipline.
- Investment philosophy based on sound capital markets theory.
- Repeatable investment process that supports the philosophy.
- Structured approach to managing risk.
- Stable organization supportive of future growth.