Today's dynamic markets call for a dynamic approach to asset management. The global investment world has evolved into a Darwinian arena of those who will flourish and those who will languish... or worse. The old-guard, static approach of strategic asset allocation (a little of this, a little of that) ignores this new paradigm. Our philosophy seeks to actively allocate amongst the more favorable investments (companies, countries, asset classes or management styles) while underweighting, zero weighting or at times even hedging with less favorable groups.
The foundation of North Pier's management process, both in broad strategy as well as customized client solutions, is our focus on potential risk factors. Our approach goes far beyond traditional indicators of risk such as absolute loss, volatility and beta. If recent events have evidenced anything, they have revealed the importance of event risk in today's markets. Interconnected global markets and monetary policy, geopolitical events and herd investment behavior must be factored heavily. At the root of it all, we ask these simple questions:
"What could go wrong?" & "What would that mean to our client and their objectives if it did?"
These two questions are far more pervasive than the old standard of:
"What is your risk tolerance?" & "What amount of loss would cause you to lose sleep at night?"
Far beyond the simple stocks, bonds, and cash approach to risk management, North Pier utilizes our unique process of risk budgeting for each client. Once we establish your unique circumstances, we then tailor your allocation to that profile through the use of low-risk and growth oriented disciplines.
AIG, Fannie Mae, GM - all former giants. And more so, they were anchors of every index fund and large-cap ETF around. Who couldn't have at least recognized the risks in these names as the last crisis unfolded, or in the financial sector as a whole? But to be beholden to passive index funds, ETFs, or closet indexing, "high R-square" managers was fool's folly, and we believe it still is.
Navigating today's markets makes active management a must. These days, one needs not go out on a limb to enhance risk-adjusted returns; we simply steer around the jagged rocks and point towards smooth waters. Our manager selection is not just about looking for the shops with the best trailing 1, 3 or 5 year returns. We delve deep into a manager's philosophy and process to ensure that they are the best manager for the coming year, not just the last. We will avoid or overweight sectors and asset classes based on our read of their merit, and not just simply allocate within a 'black box' computer model. Lastly, North Pier can employ hedges to the portfolio at times of extreme event or technical vulnerability. With today's policy makers gripping the throttle of the global economy with a heavy hand, there are days and weeks that may warrant a little insurance.