OVERVIEW

What type of an institutional investor are you? If you have already identified your need and seek a product to match that need then you can make your selection from our suite of expertly constructed multi-manager portfolios. Alternatively if you are seeking a fully integrated customised solution tailored to meet your specific requirements then our fiduciary management solution may be the answer for you.

MULTI-MANAGER PORTFOLIOS

Investment process

As a multi-manager we strive to achieve good outcomes for our clients that are based on skill and not on luck. While we can’t always control the outcome we can control the process and through a good process we stack the odds in our favour of delivering a favourable outcome. Through a focus on good process not only can we increase the probability of a favourable outcome but we can also ensure that the outcome is repeatable and not specific to a point in time. While the outcome can never be guaranteed, a good process can reduce the element of luck in favour of skill.

In order to deliver superior investment performance to our clients, our investment process is built around some key areas:

  • Ensuring that the asset allocation is appropriate for the investment objective.
  • Being cognisant of risk and allocating the risk budget wisely.
  • Choosing specialist managers within each asset class to deliver consistent alpha from a diversified opportunity set.
  • Taking advantage of tactical asset allocation opportunities.

We build portfolios that not only deliver on their return expectations but have the highest likelihood of doing so.

At each step in the process it is about identifying sources of return as well as sources of risk to ensure that we build portfolios that not only deliver on their return expectations but have the highest likelihood of doing so. Always at the forefront of our minds when making investment decisions is the impact that the decision will have on the overall risk of the portfolio. This process is seamlessly executed by an experienced team employing rigorous oversight and high levels of governance.

Designing a sound investment strategy begins with the end goal in mind. This end goal is determined by an understanding of the expected investment outcome of the respective multi-manager portfolio. Once we have set the investment objective we then build an investment strategy designed to meet this expectation. A key determinant of the design process is asset allocation, determining the combination of the various asset classes that can deliver on our expectations most efficiently and with the lowest probability of not meeting our target. This is achieved through establishing an understanding of the behaviour of asset classes, their drivers of return and risk and their interaction with each other during different market conditions which is determined by the utilisation of both quantitative and qualitative tools. Strategic weightings to the respective asset classes is determined in the context of an overall risk budget. Tactical asset allocation tilts are applied as a means to be opportunistic to enhance returns over the shorter term or as a means to mitigate short-term risk.

The full benefits of diversification are also explored. We don’t want to put all of our eggs in one basket and need to make sure that we are truly diversifying both our sources of return and risk. The asset allocation process is also overlaid with any regulatory constraints that may need to be taken into consideration.

Manager selection is based on research completed via exhaustive due diligences. In-depth analysis is done on the make-up of managers’ returns in search of evidence of process and philosophy at work. We look for managers who can generate robust, consistently repeatable performance and who are strong alpha generators. The investment thesis must be supported by robust operations and favourable investment terms.

The due diligence process that we follow has three main pillars:

INVESTMENT THESIS

  • Identify the potential sources of alpha and determine if these are repeatable
  • Philosophy and process at work – evaluate if portfolio holdings are consistent with philosophy and look for evidence of style drift
  • Analyse manager’s approach to risk as well as risk exposures
  • Analyse fund’s performance
  • Evaluate robustness, stability and experience of investment team

OPERATIONAL ASSESSMENT

  • Company – business structure
  • Identify sources of operational risk
  • Infrastructure
  • Integrity of fund valuation, accounting and cash management
  • Compliance
  • Governance
  • Use of technology
  • Safe custody
  • Third-party service providers

INVESTMENT TERMS

  • Offering documentation/prospectus
  • Fees
  • Liquidity/gates/lock-ups
  • Investment mandate
  • Pooled/segregated
  • Mutual fund/unit trust
  • Transparency of holdings
  • Ability to timeously respond to queries

There are many different managers managing money across all asset classes each with unique performance signatures resulting in varying outcomes. Our goal is to build diversified portfolios comprising multiple complementary styles that when blended together have a high probability of outperforming an individual style and delivering the best risk adjusted returns over a full market cycle. A direct outcome of the asset allocation process is the identification of the alpha sources best suited to the current economic cycle which is then used for the application of tactical tilts. The diversified style exposure is therefore dynamically managed as markets evolve in favour of the alpha sources, either by increasing or decreasing allocations between the different managers to enhance returns. Our due diligence process allows us to identify managers who are best positioned to capture the specific alpha sources as well as select the best of breed mangers within a specific style who can outperform their peers of the same style. We remain cognisant of the risks that each individual manager introduces and the impact on the overall portfolio blend. Therefore manager weightings like asset class weightings are also determined in the context of an overall risk budget.

The manager universe is a very disparate one – dispersion of equity manager 3 year returns

Our portfolio construction process harnesses the specialist expertise of asset managers within a skilfully defined asset allocation framework. Managers are optimally blended together to produce multi-manager solutions designed to deliver superior risk adjusted performance over a complete market cycle.

Once the desired asset allocation has been determined and we have our preferred list of asset managers within each asset class then the portfolio construction process begins. Risk budgeting is used to determine the weightings to the respective asset classes and asset managers. An in-depth understanding of the behaviour of each asset class and each asset manager allows us to understand the risk and return characteristics of the overall portfolio. In addition while we are not benchmark cognisant (and nor do we require our managers to be) we do recognise that there is risk in underperforming the benchmark, so we look at our positioning relative to the benchmark to know where we are taking significant bets in the overall portfolio and if those are intended bets that we are comfortable to hold.

Portfolio construction at work

The benefits of diversification are captured through an in-depth understanding of the managers’ unique alpha signatures and optimally combining them to achieve the desired outcome of superior risk adjusted performance.

Understanding our clients’ needs is important to us which is why we don’t just want to understand what our clients return objectives are but also what the implication is of not meeting that objective. To approach investments holistically every effort is made to understand what the risks to our portfolios are. The key risks in a portfolio don’t exist in isolation of each other. Some risks are dependant on each other such as the risk of not meeting an investment target increases with the risk of capital loss. Some risks are inversely related such as decreasing the risk of relative performance can increase the absolute risk in a portfolio and some risks can be diversified away such as increasing the number of managers in a portfolio.

Core to our investment process is risk mitigation. Rigorous risk management and monitoring is applied at every level of our investment process and daily portfolio transparency allows us to monitor risks closely and react without delay should we need to.

Key portfolio risks

FIDUCIARY MANAGEMENT

The demands of an increasingly complex global economy and a highly regulated environment have placed considerable pressure on retirement funds many of whom do not have the capacity or resources to meet these demands. Fiduciary management offers such funds a fully integrated seamless solution which includes the setting of an appropriate investment strategy, the construction and dynamic management of the investment portfolios, ongoing monitoring and risk management of the portfolios and comprehensive reporting.

As a fiduciary manager we partner with our clients to build bespoke solutions that seek to improve the benefits for members and reduce the regulatory burden. The benefits of customisation include: high governance and simplicity, increased transparency and cost management and the implementation of a unique investment strategy that meets the institution’s future cash flow needs. Our clients also enjoy the benefits of attentive support and guidance from our team of highly skilled investment professionals who are guided by a strong sense of values that always places the needs of our clients first. We provide unbiased recommendations and design world-class solutions based on the experience, breadth and quality of our team. This coupled with our innovative and modern investment approach that makes the best use of cutting edge thinking ensures that we can unlock value by implementing new approaches and ideas to fulfil the unique demands of our clients.

At 27four we understand that without our clients we would not exist and therefore our clients are central to our business philosophy and strategy. This is evident from our high client retention rate which is rooted in our client-centric approach, our biggest strength and differentiator. We assure our clients a positive experience by going the extra mile providing elevated levels of support and attention through regular interaction and feedback, sourcing of new ideas, the provision of full look-through on their investments, ongoing insight into portfolio positioning and customised reporting.