Our investment process begins by constructing a benchmark portfolio. This is a paper portfolio of purely passive positions for our long-term strategic asset mix. The asset class weights assume equilibrium pricing. This portfolio will be how we determine whether or not we are succeeding in or value-add activities, such as:
Asset class weights
The asset class weights of our actual portfolios will reflect where particular asset classes and sub-asset classes are in their valuation cycle.
Active management can add value through either excess return or reduced risk, or even a combination of both. We will try to identify managers with enough skill that we expect they can overcome the hurdle of their management fees relative to the nearly free passive exposure.
Though we primarily outsource security selection by investing through funds, we at times invest in individual securities. For example, this may be a better, more focused way to articulate our view on a long-term theme.
Our risk management process is anchored by our broad diversification: multi-asset class, multi-manager and multi-style:
… combined with a systematic rebalancing process that helps us avoid common behavior mistakes by forcing us to sell high and buy low as our portfolio asset class weights drift from the strategic model
…and finally through hedging positions; for example, cash, gold and treasuries.
We will continually monitor all fees paid by our investors and do all that we can to minimize.
We then must monitor, measure and analyze our value add activities to constantly improve. We must also never stop researching new asset class exposures, new managers, new strategies and new hedging techniques.