Portfolio structure - Structure

The structure, planning and management of assets should be directly related to the investor’s lifetime liability profile at a point in time and over time. .

Asset management – Valuation & Management

The management of excess risk and excess return is critical to the ability to manage lifetime financial needs. If you cannot value, you cannot allocate, nor can you manage risk and return. Simple arguments regarding asset allocation and investment timing are dangerous mandates for those without valuation expertise as are the simple systems that facilitate their delivery.

The management of assets requires expertise in areas of valuation, allocation, security selection, portfolio construction, risk and return management and economic analysis. Asset management research is not a secondary function.

Modelling - Modelling

That the assumptions used to model ability of assets to meet lifetime financial needs should be conservative, reflect market and economic risks to return and be independent of assumptions used to determine allocation and strategy.

Risk preferences

Liability risks, the effect of significant stock market and economic risk on the ability of assets to meet needs is the most important risk to an investor. Performance risks of an investment style is the second most important determinant of portfolio structure.  Aversion to monthly price movements, or standard deviation, is the 3rd most important risk.

Systems

There should be a direct relationship and accountability between the asset management decisions, the systems that deliver them and the planning process in which they are implemented.