BENEFITS OF THE PORTFOLIO SOLUTION
The<![if !vml]><![endif]>solution to the problem of portfolio personalisation and the delivery of personalised asset management solutions can only be provided by a liability management framework.
It is called a liability management framework because it allows point in time asset management to be run concurrently with long term liability management, while managing the complexities of portfolio personalisation.
Low risk personalisation and automation
Because the low risk portfolio allocation is related to liabilities arising during the period of significant stock market and economic risk we can personalise low risk allocation and security selection in both risk/return and liability space from one central low risk management interface.
Additionally because there is also a natural relationship between risk aversion and increased low risk allocation, the relationship between risk aversion and portfolio structure and the management of structure can also be automated and centrally run.
Short term asset liability modelling & management
The short term asset and liability modelling and management engine manages all the complex interactions of portfolio inflows and outflows over time allowing asset management to focus on point in time risk/return relationships.
Portfolios are also able to anticipate change, adjust to change and remain appropriate as things change.
Equity portfolio management
The short term asset and liability modelling and managemen<![if !vml]><![endif]>t engine interacting with low risk security selection also determines the optimum equity allocation.
Importantly, because the liability management framework manages the variance in liabilities over time, equity portfolio strategy can be directed towards managing stable longer term average yield/liquidity/return objectives without having to constantly readjust to unknown short term changes in net financial requirements.
Liability management frameworks also provide a foundation on which segregated equity portfolio management can be managed and organised centrally. The concept of personalised benchmarks for the centralised management of segregated portfolios is critical to the ability to manage personalisation at the equity level within liability space.
If the valuation models are directly related to the portfolio construction and planning, and the portfolio construction, planning and management directly related to liabilities, then for any given change in relative asset prices, liability management frameworks automatically manage and adjust as things change.
One of the major problems with managing personalisation used to be that every time there was a significant market change, you had to reassess strategy and then go through each portfolio and reassess relationships. Asset and liability management frameworks naturally manage this change, reducing the complexity of the management process.
With liabilities and liability risk at the heart of the portfolio construction process, investors can properly assess their attitudes to the risks that affect their financial security as well as return objectives.
Total asset, life cycle wealth management
Within the constrained portfolio solution to the problem of managing assets and liabilities over time, asset management stopped short of long term planning. In fact, long term asset liability modelling and management lies at the heart of asset management services. Total Asset Life Cycle Wealth Management is the logical conclusion of the solution to the portfolio problem and the final integration of the management of assets and the management of liabilities.
The ability to integrate all business process components into one central service process has ramifications for cost, service, asset management distribution and the future structure of the financial services market place.