Portfolio Structuring
Portfolio Planning Survey
PFM Advisors designed this survey to capture information on all the asset classes, enabling us to determine which should be permitted in the final overall allocation. Through a series of questions, the survey brings to light information about the client's goals, objectives, cash flow projections, risk tolerance, ability to withstand losses and view of the economy and the markets.
The Portfolio Planning Survey documents the client’s expectations so that all parties understand the goals that have been set for the investment of the assets.
Asset Allocation
Asset allocation is the most important factor in determining the expected investment returns between two different portfolios. Therefore, PFM Advisors maintains strict adherence to a disciplined process that ultimately determine the amounts to be allocated to equities, fixed income, or alternative investments. PFM Advisors' Capital Market Assumptions are determined by its experienced Investment Committee.
Structuring Asset Allocation Models
PFM Advisors processes the information from the Portfolio Planning Survey and the Capital Market Assumptions to design a series of asset allocation models.
Each model uses the latest historical data on asset class investment returns, volatility and correlation with other asset classes, along with capital market assumptions made by PFM Advisors to determine an "optimal" portfolio.
Selecting an Appropriate Asset Mix
A series of tests are run on each model to determine the probability of achieving the desired investment objective under different market scenarios.
This enables the client to gain a better understanding of the band of possibilities associated with each asset allocation model and is more equipped to embrace the one particular model that best meets the expectations set forth in the Portfolio Planning Survey.
Investment Policy
PFM Advisors begins a client engagement with a thorough examination of the client’s current Investment Policy Statement through our portfolio planning survey. The process includes an assessment of the Trustees' risk/return profile and the asset classes appropriate for the portfolio. PFM Advisors arrives at a quantitative measurement of risk that specifically identifies the Trustees' tolerance for loss of principal.
A typical investment policy statement would cover the following issues:
- Background - Discusses the origination of the fund and identifies the fiduciaries.
- Purpose - Documents the Trustees' objectives, performance expectations and investment guidelines. It also establishes the investment time horizon, risk tolerance ranges and asset allocation.
- Statement of Objectives - Document the goals for spending, growing the assets, minimizing principal fluctuations and achieving long-term rate of return.
- Investment Guidelines - Establishes the investment time horizon, diversification parameter, asset allocation targets and ranges, re-balancing philosophy, risk tolerances and performance expectations.
- Selection of Investment Managers - Documents criteria for selecting investment managers.
- Guidelines for Portfolio Holdings - Establishes criteria for portfolio holdings in equities, fixed income, cash and other asset classes. It also discusses the use of pooled vehicles and lists prohibited securities.
- Safekeeping of Assets - Documents the manner in which the assets are custodied.
- Control Procedures - Documents the procedure for reviewing investment objectives, investment performance, the voting of proxies, and execution of security trades.