Asset Allocation
Our asset allocation advice is the primary tool we use to improve the probability of meeting the stated investment objective. Identifying the appropriate asset classes for investment and then the appropriate allocation across these asset classes is critical in the proper structuring of an institutional portfolio. Our asset allocation work begins by evaluating whether the portfolio's current asset mix is expected to meet the investment objective and what the probability is of doing so. We then make specific recommendations to improve the probability of meeting the objective over time by adjusting the asset allocation, introducing new asset classes and adjusting the diversification within each asset class. We consider the impact of these changes have on the investment constraints (e.g. risk tolerance, liquidity needs, etc.) as well.
Investment Policy
Once the spending policy is set, the endowment or foundation then needs to examine their investment policy. A critical issue facing endowed institutions today is whether the investment policy supports the spending policy. The clear articulation of the investment objective is the first step (e.g., "real (after inflation) growth after distributions"). However, investment constraints such as the investment time horizon, liquidity requirements and risk tolerance of investment committee members, must also be considered. Our goal is to develop an investment policy that has a high probability of meeting the investment objectives and constraints over time.
Investment Manager Research
Our investment manager research is another key area where we add value for our investors. We focus on identifying best-in-class managers in both traditional and alternative asset classes that meet our strict manager research criteria and that have outperformed the appropriate index and universe benchmarks after the deduction of investment management fees. Our traditional manager research area focuses on U.S. and non-U.S. equities as well as fixed income and covers all major investment styles within these asset classes. Our alternatives asset class research team has developed extensive topical research that supports the use of private equity, real estate and hedge funds in a total portfolio asset allocation. Additionally, this team has identified the market leaders in both direct and fund-of-funds investment managers in these areas. We conduct our own manager research in these areas.
Other Issues
Our experience with endowed institutions also includes a number of unique issues. Examples include analysis of debt issuance and the structure of an investment program to pay off the debt over time, diversification of donor stock, comparisons with institutional surveys of similar investor types, analysis of cash reserve levels, and foundations with a finite life designed to be completely spent down to zero over a specific time period.
Performance Reporting
We produce comprehensive quarterly performance reports as well as summary monthly updates to assist our investors in the monitoring of the total portfolio as well as the individual manager allocations. Our reports are fully customized to meet the individual needs of each investor and include background information on the capital markets, specific details about the portfolio's total value and asset allocation versus targets, and detailed analysis of each investment manager versus appropriate index and style universe benchmarks. As part of our performance reporting, we monitor the investment managers for changes in people, organizational structure and investment process. Communications with the investor's managers occur regularly and we are proactive in communicating any developments at a client's investment managers.