With our philosophy as a guiding force, we implement a three-step investment process designed to validate that we:

• Thoroughly research the managers we hire
• Build portfolios with high probability for success
• Effectively manage risk

Step 1: Comprehensive Due Diligence
The first step in our process is to uncover the highest-quality managers and investigate them vigorously. To accomplish this goal we perform exhaustive due diligence to identify managers with:

• High Integrity – Through detailed background analysis, including hiring of private investigators and substantial reference work, as well as our own independent audits of managers' back office and controls, we evaluate each manager's integrity extensively.
  
  
• Strong, Competent Organizations – Many managers might be good analysts but are unable to build and manage their organizations. Without this competency, decision-making can become problematic, staff retention can deteriorate and performance will ultimately be affected. Therefore, we interview many people in an organization as well as those who have departed, and we spend time watching the decision-making process in action.
  
  
• Consistent Strategy Execution – By evaluating current and historical portfolios we are able to determine that the strategy we are investing in has been applied consistently over time and can continue to be implemented in the future. We develop capacity analysis and expectations for growth and the implication for strategy execution.
  
  
• Successful Track Record – We have developed advanced quantitative tools that enable us to evaluate managers in terms of their added risk, attribution of performance and style. These data provide meaningful input into the due diligence process that enables us to ask more effective questions and therefore, make better-informed decisions.

Step 2: Systematic Asset Allocation
The second step of our process is to build and manage portfolios that meet our clients' investment criteria for risk and return. To accomplish this goal we evaluate each of our portfolios on a quarterly basis using both quantitative tools and qualitative analyses. All of this work is documented in our Quarterly Allocation Book that is available for clients to review on site.

• Top-Down Strategy Analysis – We evaluate each strategy in which we invest by reviewing the macro-economic and strategy-specific factors that tend to drive performance and risk. We look at qualitative trends in these strategies including capital flows and fund creation. Having developed our own quantitative tools, we then run proprietary optimization models on each portfolio.
  
  
• Bottom-Up Manager Analysis – Using a balance of quantitative tools and qualitative analysis, we evaluate the contribution of each manager to our portfolios, in terms of both risk and return, and the developments in each manager's business that can influence our analysis of future success.
  
  
• Integration and Testing – Based on our analyses, we systematically build allocation models for each portfolio and then run a series of tests to determine whether the changes proposed are likely to increase our opportunities for success.

Step 3: Thorough Risk Management
The final step in our process is to continually identify, monitor and manage sources of risk in our portfolio of managers. To accomplish this goal, we engage in intensive, on-going due diligence to monitor each manager's organization, portfolio and performance.

• Evaluate the organization's stability and effectiveness – We review staffing, back office, pricing, controls, asset growth, product development and decision-making procedures through regular calls, formal quarterly analysis, semi-annual site visits and annual back office/audit reviews.
  
  
• Determine consistency of strategy execution – We evaluate portfolio positions, the rationale and detail behind those positions, the structure of and payoff to allocation decisions and trading activity.
  
  
• Analyze sources of performance and risk – We analyze sources of performance through our proprietary attribution analysis, develop and monitor a "style blueprint" that can enable us to determine style drift and conduct comparative performance among managers as well as with our own internal hedge fund indexes.

 

Any reference to historical performance herein, does not guarantee future results.