Our starting point for strategic asset allocation is today’s valuation of each asset class. This allows us to estimate sustainable returns for each class of assets which – combined with expected volatility – gives us a framework for the construction of a series of portfolios across the risk spectrum. Each solution aims to maximise returns for a given level of risk through the benefit of appropriate asset class selection and diversification.
Our strategic asset allocation process drives an optimal long-term asset mix for each client’s portfolio, consistent with each client’s tolerance for risk. This will change relatively infrequently (typically every 3 years), being based on long-term valuation measures that tend to remain stable.
We do however compliment this stability with a more tactical and opportunistic stance in asset allocation, allowing some rebalancing between asset classes and aiming to exploit shorter-term market opportunities. This will reflect the economic and market cycle, such as being willing buy (or sell) those assets with attractive (or unattractive) short term characteristics. This reflects the need for wealth to be actively managed to avoid risk and where appropriate take advantage of opportunities.
Our Investment Team is responsible for these decisions, drawing on the deep expertise and experience of its members. The team has the benefit of different skills from short-term trading in fixed income and foreign exchange, equity fund management and strategic asset allocation. We are fortunate to have relationships with leading Think Tanks, Investment research and fund management companies and policy making authorities that challenge and enrich our own research and insights. We also offer our insights to policymakers where we think we have identified risks to the economy and markets which have ramifications not just for our clients but in the countries in which we live.
Our specialist in Asset Allocation is also our Chief Investment Officer Gerard Lane.
Discretionary Investment Management
Having worked hard with each client to determine the appropriate mandate, those clients who prefer not to participate further in the investment process pass discretion to the investment team to make investment decisions on their behalf. We monitor these portfolios closely and report and discuss progress at a frequency to suit you. If your preference is to be more actively involved in the portfolio’s investment you would be better suited to an Advisory relationship.
We establish the optimal strategic mix of assets for each client, maximising expected risk-adjusted returns for the profile deemed appropriate for the client. This can be modified to suit individual preferences and will be tilted from time to time in order to take advantage of more tactical opportunities. We will seek to reduce holdings of those assets with elevated risk but not be averse in being attracted to acquiring assets with supportive valuations.
We populate asset classes with a combination of single securities (equities or bonds), passive vehicles and actively managed third-party funds. We are not dogmatic in the debate over active or passive management: where we find evidence that active management makes sufficient sense to more than offset the associated fees we will deploy active managers. But we are aware of the frictional drag that total costs impose on future returns and we closely monitor the portfolios’ total expense ratio. For the same reason we prefer to minimise activity within the portfolios: we have no incentive to ‘trade’ as we receive no revenues on this activity. But it does incur costs for our clients from third parties and we want to keep these as low as possible.
When it comes to the selection of individual equities in discretionary portfolios, our team has developed a stock selection methodology, dubbed the Capital Discipline Process (CDP). This identifies companies that are generating sufficient free-cash flow (the surplus of cash generated within the business after the deduction of capital expenditure) to return cash to shareholders without the use of increasing debt. Having identified a pool of attractive companies in this systematic process we apply fundamental research to build a high-conviction portfolio of stocks (20 in the UK and Europe, and 50 in the US) which is diversified. The aim is to replicate the index in terms of statistical risk, while generating better returns over time.
Similarly we have developed a bespoke solution for those clients with specific needs such as Sharia investing. To us this demonstrates that the solutions are developed with the client in mind.
Clients who prefer to be involved in the investment of their portfolios may do so in the context of an advisory relationship. The Artorius investment team benefits from decades of experience, much of it in the institutional domain, across asset classes and instruments. Our Senior Investment Partner in Zurich managed multiple teams of investment advisors across several geographies for a leading private bank, prior to joining Artorius.
We number specialists in Equities, Fixed Income, Collectives, Alternatives, Real Estate, FX and Derivatives within our investment team. This pool of experience is supplemented by external research from banks and Think Tanks. We are a small firm with broad and deep expertise to offer to client.
Advisory clients who wish to trade on a more frequent basis, deploying a shorter time-horizon may do so, benefitting from our investment team’s tactical ideas and experience in implementation. Artorius generates ideas in currencies, interest rates and equities drawing on a broad range of institutional research, provided by our partner banks, as well as extensive personal experience in these markets. These ideas can be implemented in cash instruments, derivatives or combinations of the two, always following close communication with the client
Other advisory clients prefer to invest for the longer-term but nonetheless like to participate in their investment decisions, supported by our advice and within the context of an asset allocation appropriate to their wishes.
Family Office Consultancy
Our larger clients, for example entrepreneurs exiting a substantial business, face particular challenges: the cost of establishing a dedicated family office (or ‘private investment office’ as it’s become fashionable to call it) is substantial. If you’re Bill Gates this makes sense. Opinions differ about the minimum pool of assets to justify such a step but most agree that it’s in the hundreds of millions rather than the tens. There’s some evidence that private offices representing billionaires perform better than their smaller peers, suggesting that at the more modest end of the spectrum it’s hard to make the model work.
Assuming that a dedicated office isn’t the answer, what then are the options? Multi-Family Offices allow families to achieve sufficient scale by pooling their assets, but these vehicles can come with complications and conflicts. If one family – often the founder – represents too great a portion of the assets, or owns a disproportionate amount of equity in the management company, it can set the agenda for the junior participants.
Our Family Office Consultancy has been established to help such clients manage these challenges. Artorius becomes effectively an out-sourced single family office: we can provide the interface with multiple third-parties, giving independent advice about the best partners with whom to work. This mitigates the complexity of dealing with multiple solution providers – and we can provide consolidated reporting across the entire asset base.
The investment proposition is fundamentally consistent with our other solutions – based on a strong fundamental asset allocation process but sufficiently flexible to accommodate individual clients’ needs and preferences. Our CIO oversees the overall portfolio and the majority of the solutions deployed are the same as in our other Artorius solutions.
Certain options are only available to our Family Office Consultancy clients, perhaps because of high minimum ‘ticket’ sizes, especially within alternative asset classes for certain solutions. Some families have established corporate vehicles for their assets, which might qualify as per se Professional clients and might also favour segregated mandates of single securities over funds. Some want a higher allocation to alternatives, consistent with ‘endowment’ thinking in the context of multi-generational time horizons, than we would generally advocate for our clients.
Our specialist in Family Office is Kevin Shone
Real Estate Advisory
Buying property, whether for investment or occupation, is both difficult and tiresome. Agents act for the vendor and even ‘property finders’ are frequently conflicted or mal-incentivised. We act exclusively for buyers and their interests are our sole concern: our Real Estate team is retained by our client, filters opportunities from those available on the public market and more discretely and handles the entire process, from arranging the viewing of a screened shortlist to negotiation of the terms of purchase. We liaise with agents, lawyers and surveyors and can also help with financing and property management – we can become your sole point of contact, should you wish.
Originally envisaged primarily as a service to overseas clients we find our Real Estate Advisory service increasingly popular with UK resident clients too. The property market is opaque and difficult to navigate – we can help you reach a happy outcome while massively reducing the time and effort expended along the way. Effective negotiation of the purchase consideration and shrewd advice on financing can mean that we more than recoup our fees in cost-savings to you.
Our specialist in Real Estate is Jordan Williams
Lenders have different sticking points in their credit policies (for example in terms of preferred collateral, loan-to-value ratios, use of loan proceeds, spreads and asset coverage ratios) which makes the business of borrowing complex. As a customer of a bank the collateral may be deemed ‘sticky’ too and if the assets are considered ‘captive’ to the bank, the opportunity to maximise fees and spreads on the lending may be irresistible. The ‘wrong’ collateral or use of loan proceeds may render credit only available at punitive cost at one bank, while it might be offered at modest cost at another.
We are independent of the banks: we know the quirks of their credit policies and can negotiate effectively on your behalf to ameliorate the terms of loans. Credit can be complex – our specialists can cut through this complexity on your behalf with the benefit of decades of experience, much of it gleaned from within the banks themselves. As with Real Estate, good advice in Credit can more than pay for itself.
Our Regulator affords Professional clients more flexibility in how they invest and in how they may be advised. Professional clients comprise per se professional clients, generally entities rather than individuals, and ‘Elective Professional’ individuals.
Artorius has defined a process to ensure that such clients are correctly classified, meeting the Regulator’s qualitative and quantitative criteria. Those clients who meet these criteria (and in the case of Elective Professionals request to be so treated) are deemed capable of making their ‘own investment decisions and understanding the risks involved’. Elective Professional clients give up certain protections that would be available to them if classified as ‘Retail’ and must write to us to confirm that they understand the consequences of this.
Professional investors have access to a broader range of solutions, as some external managers operate funds that do not comply with a retail regime such as UCITS and are excluded from a Retail environment. Such funds may be ‘alternatives’ (Hedge Funds or Private Equity for example) or may be too concentrated or too illiquid to meet retail regulatory standards.
Professional investors may choose to eschew our recommended asset allocation framework, for example setting aside pools of liquidity to meet shorter-term needs while investing longer-term capital with less diversification by asset class. They may view risk as permanent loss of capital, with a greater tolerance for volatility than retail investors might be expected to demonstrate. Similarly, professional investors may sustain more illiquidity and portfolio concentration in asset classes, individual securities or funds than would be deemed prudent for inexperienced investors.
We work with a number of idiosyncratic external managers, often boutiques with a focus on investment returns rather than growth in assets and almost invariably ‘unconstrained’ by reference to any benchmark. We will generally know the managers personally, indeed in most instances will have known them for some time in a former institutional context and we select these managers based on the quality of their people and the quality of their process. They are typically too small and too quirky to have attracted the interest of larger, mainstream wealth managers or institutional asset owners, often initially running largely their own money as well as that of their family and friends. We believe that diversification by process (‘quants’ would use the term ‘factor’) and by manager idiosyncrasy can be as important as by geography and asset class.
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