The investment world has evolved into a complex array of asset classes where specialization is critical for the asset manager to excel. It is highly unlikely that any one-asset manager will be best of breed across numerous asset classes. This fact dictates our belief that any given investment portfolio should have its strategy (asset allocation and asset manager selection) determined by an independent internal or external investment advisory team with no incentive to appoint itself as asset manager in any one area. We believe that any institution which purports to provide both roles is conflicted. Partners Capital plays the role of an independent external adviser with no asset management roles and therefore is free from conflicts in allocating assets and selecting asset managers. Gone are the days where owners of investment capital tolerated the conflicts of interest inherent in the traditional private banking and wealth management model where the advisor allocated client capital to in-house asset management funds.
The Equity market is one of the most competitive, volatile and high-risk asset classes in the investment world. The competitiveness of the Equity market makes it very difficult for even the most talented Equity managers to beat the market from one year to the next. We aim to be more concentrated in the less competitive or inefficient sectors of the investment world, where talented asset managers can and do generate exceptional risk-adjusted returns for their investors. The result is a robust portfolio not overly exposed to the vicissitudes of the global Equity market, and spread across a broad array of specialist asset managers, most of who are investing in the less efficient corners of the financial markets.
We believe that the best performing institutional portfolios over the long-term, at various places on the risk spectrum, have been those that have maintained the most static and consistent levels of risk through full investment cycles including deep downturns. Maintaining risk requires the investor to constantly measure and monitor the look-through market exposures of the underlying asset managers comprising the overall portfolio and rebalancing to target risk levels (i.e., market exposures) and to target asset allocation when the collective risk of the managers deviates from long-term targets. This approach to managing the risk of our clients’ portfolios requires strong asset manager relationships with the accompanying transparency. Our approach avoids the usual performance “leakage” which accompanies overall portfolio management that seeks to time market risk exposure or to leave the collection of asset managers to do this in an uncoordinated and often unintentional manner.
We start with the premise that most asset managers have no economically justifiable reason for remaining in business, as average market performance can be attained in most asset classes by paying virtually no fees. As such, identifying the asset managers who will outperform their peers is not easy. This assessment of any manager against his chosen investment domain requires a combination of art and science, rooted in years of experience and learning from good and bad decisions. The best asset managers cannot be chosen in isolation, but must be grouped with relevant peers for direct comparison of their teams, strategies, past performance, infrastructure and operations, investment terms, third party service providers and risk controls. Veteran specialists of each investment sector (i.e., sub-asset class within geographic market) must make these tough decisions, informed by a deep understanding of the specific sector of the investment world and the critical requirements for success in those sectors. In our view, the best managers will have a significant portion of their own personal assets at risk against their success.
We have shaped our manager evaluation framework based on over 5,000 asset managers we have evaluated (>10,000 screened) since the inception of the firm across all asset classes and geographic markets. This framework cannot be distilled down into a finite set of diagnostics, but rather is a dynamic model that varies by asset class, geographic market, specific strategy and economic environment. We believe that, to spot the most talented managers, "it takes one to know one". Accordingly, our team includes many veteran asset managers and face to face manager evaluation is conducted by our most senior team members.
Inevitably, many of those asset managers we believe to be the best are closed to new capital and new investors. Partners Capital aims to exploit the rare openings with those managers by virtue of our reputation as loyal, long-term sophisticated investors who have the potential to contribute to the asset manager's success. We are experts on investment businesses with our core training in business strategy, finance and operations. Asset managers recognize our ability to be a true investment partner, offering insights on operational, team, financial and other critical requirements for building a successful asset management business. In addition, Partners Capital's community of shareholders, investment committee members, clients and advisors often bring valuable relationships with many of the leading asset managers which have led to exceptional access for Partners Capital.
Partners Capital is committed to responsible investing and we understand the importance to our investors of ethical, environmental, social and governance considerations when allocating our client’s capital. We take our role as a responsible investor seriously and believe that it is our duty to review and challenge the fund managers that we partner with, on their adherence to industry best practice in this area.
Partners Capital’s policy on responsible investing is to promote a strong ethical culture at the fund managers we partner with. We support the work of the Financial Reporting Council on better stewardship in addition to being a signatory to the UK Stewardship Code. We believe that there should be effective engagement between asset managers and companies to help safeguard and increase investor value in the long-term. Further information on our compliance with the Stewardship Code can be found here.
As part of our due diligence on asset managers, we review whether they are signatories to the United Nations’ Principles for Responsible Investment (UNPRI) and whether they have policies and procedures in place for environmental, social and corporate governance (ESG) investing. We recognize that responsible investing is a process that must be tailored to fit each manager’s investment strategy, culture and resources and that each manager’s approach may be different. We strongly believe that ESG issues can affect the performance of investment portfolios in the long-term and that we owe our clients fiduciary duties to try and mitigate these risks, through positive engagement with the managers that we invest with.