Details
Category: Consulting

Manager of Managers Portfolio

Alpha Strategies Investment Consulting utilizes a customized manager of managers approach to active portfolio management. We combine best-of-breed boutique investment managers in both traditional and alternative investments to generate significant excess returns (Alpha, α) to your overall portfolio. Keep in mind that our strategies are customized to complement your existing holdings with allocations to strategies that are not currently represented within your portfolio. Alpha Strategies personnel have worked at major Wall Street firms and inside family offices and have personally managed diversified portfolios of stocks, bonds, hedge funds, private equity and real estate worth billions of dollars.

We begin by carefully evaluating all of your existing investments, business interests and industry exposures. We then look further into your existing investment managers and their underlying holdings. By classifying each of your holdings into different asset ‘buckets’ and applying our proprietary asset allocation process we determine your true asset allocation. It’s important to note that we don’t simply place your existing managers into predetermined style boxes. Instead we delve deeper, to the individual positions because we get a more accurate holdings based analysis. Many managers classify themselves as Large Cap Growth or Small Cap Value but based upon our experience many of these managers will hold stocks that fall outside of their stated style box.

Once we have completed our holdings based analysis we have an accurate picture of where you are currently. At that point we begin an honest discussion of what your return expectations are and what levels of volatility you are comfortable with. There is always going to be risk involved with investing but we try our best to identify that risk, embrace it and hedge against it by allocating your assets in a diversified portfolio of top performing managers.

There have been several academic and industry related studies done to determine which managers produce the most excess returns. Despite the consensus that smaller, emerging and boutique managers consistently outperform their larger counterparts by significant margins, they are most often overlooked by the large consulting firms and plan sponsors. By the time the firms are large enough to be considered they have evolved from being alpha generators to being asset gatherers and closet indexers. We add value by identifying these talented managers early in their life cycle and harnessing their energy and skill to produce returns in excess of their benchmark. We are firm believers in active management and feel that indexing is merely acceptance of guaranteed mediocrity. We hold fast to the basic tenet that the market rewards quality research, and it is possible to consistently add value over the benchmark.

Portfolio Construction

We begin the portfolio assembly process at a macro level based upon current valuation levels, market segment expectations, the economic picture both domestic and abroad, geopolitical risks in emerging markets, the demand for commodities, interest rate forecasts, volatility levels in the major markets, and where we are currently in the economic cycle. Our asset allocation targets are based upon all of these factors combined with your risk and return expectations.

We then select the best money managers for your portfolio using a five-step process:

  1. Identify top performing managers in each of our identified asset classes 
  2. Analyze the 5 P’s – People, Philosophy, Process, Portfolio and Pricing 
  3. Identify the managers who demonstrate a competitive advantage 
  4. Perform a complete due diligence review of those managers 
  5. Negotiate fees and terms favorable to you 

We then assemble your Alpha Strategies portfolio to provide:

  • Diversification among best-of-breed investment firms 
  • Proven manager selection and surveillance process 
  • A fiduciary partner for portfolio management 
  • Ongoing monitoring and rebalancing
  • An outsourced professional partner to help with future portfolio needs 

Because Alpha Strategies Investment Consulting is a registered investment advisor it is held to the highest fiduciary standards in making sure that prudent decisions are made regarding the management of your portfolio. Our professionals are experienced industry veterans who hold professional designations and have all undergone extensive training and have passed rigorous background checks.

The performance of your overall portfolio will depend on the quality and performance of the sub-managers hired and the blending of these strategies into a cohesive diversified portfolio. We rely on objective third-party investment managers to outperform each of their individual indices on a net of fees basis and hold them accountable on a monthly or quarterly basis. Each manager is selected based upon their core competency in evaluating and identifying profitable opportunities within their selected allocation.

Alpha Strategies core competencies include researching money managers and identifying those we believe are most likely to outperform; combining those managers into portfolios designed to beat a specific benchmark; and monitoring the managers and their portfolios to ensure they adhere to their investment objectives and continue to perform as expected. We may also use hedged or overlay strategies to further minimize volatility and generate extra returns.

In summary, we provide family offices a simplified solution to complete portfolio management and diversification without the burden of additional staff. We act as your co-CIO and provide you access to our team of experienced investment professionals and all of their vast resources.

Example - Family #1

This particular family had significant real estate holdings and several brokerage accounts with hedge fund exposures. Generation 2 was having health issues and Generation 3 was concerned with maintaining an overconcentration to real estate and ensuring the growth of the family assets for generation 4 and beyond.

Previous allocation

  • Real Estate     86%
  • Fixed Income  9% (100% CA municipal)
  • Equity            4% (75% Large Cap, 20% Small Cap, 5% International)
  • Cash              1% 

Assessment

Prudent diversification of existing assets and a greater exposure to equities and international opportunities was appropriate. Also there was significant risk in the fixed income portfolio with geographic non-diversification and all of the issues being from a single state with significant budget issues. After multiple meetings with several family members there was an agreement to sell lower cap rate commercial properties and to redeploy the proceeds into the Alpha fund.

Solution

Created a customized Alpha Strategies Fund which included the following exposures:

  • Fixed Income - US Treasury TIPS, Non-US Debt, Fixed Income Arbitrage
  • Equities – Mid Cap, International, Emerging Markets
  • Alternatives – Long/Short Equity, Managed Futures, Event Driven, Global Macro, Emerging Markets
  • Private Equity – Fund of Funds
  • Hedge – utilized structured products to short real estate sector ETF’s and REITS 

Results

  • Lowered Risk
  • Increased Returns
  • Created cash flow
  • Protected against inflation
  • Added liquidity

Example - Family # 2

This particular G1 family had a concentrated stock position managed by a large brokerage firm and several accounts with mutual fund holdings. Generation 2 was entering the work force and not inclined to follow in G1 footsteps. Estate planning had been done several years earlier and needed to be revisited for events that had taken place since the drafting of the documents.

Previous allocation

  • US Equity                 68% (15% Large Cap, 85% Small Cap)
  • International Equity   5%
  • Fixed Income           12% (High Yield, Total return, Agencies)
  • Alternatives             9% Fund of Hedge Funds, REIT’s
  • Cash                       6% 

Assessment

Prudent diversification of existing assets and a greater exposure to fixed income, hedged equities and global opportunities was appropriate. There was significant risk in the equity portfolio based on single stock risk. The mutual fund holdings in the portfolio left client unable to control tax exposure. After analysis of the fees and commissions paid as well as the tax exposure the client quickly decided to close the accounts and transfer the assets to an independent custodian where more customized strategies could be employed at a lower cost.

Solution Created a customized Alpha Strategies Fund which included the following exposures:

  • Fixed Income - US Treasury TIPS, Non-US Debt, Fixed Income Arbitrage 
  • Equities – Large Cap, Mid Cap, Sector Funds and Emerging Markets
  • Alternatives – Long/Short Equity, Managed Futures, Merger Arbitrage, Fund of Funds, Asia Fund, Event Driven funds
  • Private Equity – 3 direct investment opportunities
  • Hedge – systematic covered call strategy on stock and futures 

Results

  • Lowered Risk
  • Lowered Tax Exposure
  • Lowered Portfolio Volatility
  • Increased Returns
  • Dramatically lowered costs