The Investment Process
The investment philosophy is based on two key tenants notably:
Implementing an appropriate asset allocation – based on understanding the risk and diversification attributes of each asset class in relation to the investment objectives and time horizon; selecting the right asset managers – with the aim of achieving synergistic benefits.
Asset allocation takes place against the backdrop of a world that changes rapidly. Vital components forming the foundation of strategic asset allocation are understanding the risk and diversification attributes of each asset class in relation to the investment objective and time horizon. Provision is made for an active tactical asset allocation overlay which ensures that the fund is tilted to take cognizance of the global macro environment. Click here to read more about asset allocation.
Both quantitative and qualitative analysis is undertaken to construct the range of target return portfolios. Portfolio construction is a process of combining managers from different tiers based on underlying unique manager attributes.
The quantitative process consists of a bespoke and comprehensive, considered, programmed and documented process to identify and blend managers based on particular characteristics which define a manager’s unique “DNA”. The unique “DNA” is identified by four key critera, namely Beta; Alpha; the Win-loss ratio and the Recovery- drawdown ratio.
The four key criteria unbundled are:
- Beta- the sensitivity of investment returns to changes in market returns
- Alpha – the extent to which a fund has outperformed the sector average,
- Win-loss ratio – a ratio of “winning trades” (positive returns) to “losing trades” (negative returns)
- Recovery-drawdown ratio – a ratio of recovery time following maximum drawdown performance to its previous peak.
With the intimate understanding of each manager’s unique “DNA”, we are able to capture individual manager excellence and combine them synergistically. Of the many combinations that can be formed those with attractive DNA are isolated and the frequency of occurrence of each manager in this group of portfolios plays a role in the selection of managers.
The qualitative manager reviews are undertaken so that the quantitative process is born out by the Investment managers. The manager reviews are performed to establish other qualitative considerations. These considerations are namely manager’s investment philosophy and style, quality and stability of management team, size constraints of the fund, compliance and administrative soundness, understanding of manager’s position and remaining true to DNA. The qualitative process is underpinned by manager visits and comprehensive due diligence questionnaire.