CASE STUDY

Strategic Asset Allocation and Whole-portfolio Design Review

Middle Eastern Family Office | 2021

Engagement at a glance

The trustees of a Middle Eastern family office enlisted bfinance’s help to review the internal investment team’s approach to managing assets—the client wanted an independent assessment of the appropriateness of the internal team’s strategic portfolio design (SPD) and to ensure that the fund was not exposed to any outsized market risks. To carry out that task, bfinance reviewed the overall strategic asset allocation (SAA) in relation to achieving the portfolio’s broad objectives, followed by an in-depth assessment of allocations to specific asset classes and strategies.

Key Milestones

Client-specific Concerns

The trustees wanted to ensure that the management team’s approach to positioning and structuring the investment portfolio was broadly consistent with the approaches taken by other, similar asset owners. The engagement required top-down modelling to understand the portfolio’s ability to meet the client’s stated investment goals; bfinance also carried out research into each asset class to ensure that the investment team was maximising the opportunity set—and being consistent with the client’s investment principles. As part of the process, bfinance also sought to educate the trustees and better equip them to review the internal team’s investment performance, portfolio positioning and risk exposures going forward.

Outcome

  • Refining the investment mission: As part of its preparatory work with the client, bfinance reviewed the family office’s existing investment policy statement and clarified its understanding of the team’s objectives, constraints and opportunities.

  • Assessed the existing strategic asset allocation: bfinance worked closely with the client to determine how well the existing SAA adhered to the goals set out in the investment policy statement and evaluated both past performance and the portfolio’s positioning to achieve its stated goals in the future. Comparisons were made with approaches taken by similar asset owners and differences identified and tested.

  • Stress-testing the existing SAA: Each asset class within the existing SAA was evaluated in terms of the landscape of underlying strategies available and their applicability to the portfolio as defined by the investment policy statement. Where asset classes were excluded, these exclusions were retested and specific reasoning discussed with the trustees.

  • Setting out a new framework: bfinance investigated the various deployment methods available for implementing the client’s desired strategies, including cost considerations, governance requirements and ongoing performance assessment. In this context, bfinance also delivered a model portfolio based on its own assessment (i.e., an answer to the question: “What would bfinance do?”) and where differences emerged, these were discussed and debated with the internal team before bfinance presented the full portfolio assessment to the trustees.

Our specialist says

  • We combined our detailed, top-down assessment of the overall portfolio with granular, strategy-level insights—fundamental bottom-up analysis—to evaluate the portfolio’s efficiency, consistency and adherence to its stated objectives and constraints. This approach meant ensuring robustness in the deployment of capital. We challenged the internal team, in a healthy and constructive way, on portfolio positioning to ensure that the underlying asset-class elements would hang together and generate the desired outcomes, which gave the trustees comfort and confidence in the investment process.

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