Our investment process includes three key disciplines, manager selection, portfolio construction and on-going monitoring, although in practice they form a continuum and are not compartmentalized. The process aims to deliver high-quality, long-term performance with risk exposures and market sensitivities that are appropriate to the investment objective of the relevant portfolio.
Our manager selection process consists of a comprehensive range of investment and operational due diligence. When we select managers, the investment team analyzes several key areas including:
The investment team also undertakes two further key sets of analysis:
In addition to the investment analysis, to seek to minimize downside valuation , operational and fiduciary risks, our independent Operational Due Diligence team analyzes several key areas including:
Fundamentally, our selection process is designed to assess whether a manager has a robust and repeatable, strong investment process and an effective operational infrastructure. The process leads to allocating an Investment Proposition score and a Conviction Rating to each manager as they move through the various levels to become an approved investment that can be included in a portfolio.
The portfolio construction process begins with asset allocation to strategies which achieve a balance of delivering the expected return/risk profile over the long term (Strategic Asset Allocation “SAA”) and the best opportunities over the short term (Tactical Asset Allocation “TAA”). Proprietary assessment of forward looking return/risk, diversification, clustering, and factor exposures are conducted using our Strategic Portfolio Analysis and Construction Environment (“SPACE”) and optimized to each portfolio's objectives. We believe our role as an allocator is to understand, measure, and manage risk; and this belief is reflected in the SAA and TAA process. In measuring risk, our proprietary Portfolio Decomposition System (“PDS”) includes a number of aspects:
The SAA and TAA approach to portfolio construction is applied uniformly to our entire client offering, whether it is a customized portfolio or one of our flagship products.
Managers are monitored closely after investment, with formal quarterly reviews and a minimum of annual on-site visits. We also undertake informal reviews for on-going risk and strategy updates more frequently. Additionally, there is an on-going annual review process of manager’s operational controls administrators. Our on-going due diligence process, allows us to deepen our understanding of the evolution of each manager’s business, and to assess the on-going application of their investment philosophy, risk controls and strength of operational infrastructure.
Reports of these and other factors are presented to and considered by Aberdeen’s Hedge Fund Investment Committee. The Hedge Fund Investment Committee meets through a regular series of three distinct meetings held monthly:
Inputs to these meetings include, inter alia, individual fund reviews for each invested fund, strategy reviews on each desk, as well as SAA and TAA, and risk reports describing the composition of the portfolios and their returns.
This Investment Committee comprises the Global Head of Hedge Funds, Head of Alternative Operations, Head of Portfolio Construction and Quantitative Strategies, the senior members of the investment team and the Head of Alternative Operations.