Portfolio Construction and Allocation in this ever changing market

On Feb 20th at the UBS Tower, CFA Society Chicago’s Education Advisory Group offered a panel discussion highlighting the issues and opportunities of allocating assets for various types of portfolios. A full room of about 100 financial professionals were privileged to hear from an experienced, diverse group of fund managers and advisors.

Opening speaker Tim Barron, CAIA, CIO of Segal Marco Consulting, prepped the feature event with his entertaining yet practical list of eight things to be aware of and thinking about when structuring portfolios. His list consisted of relating several quips from the likes of Yogi Berra, Mike Tyson, Harvey Pinnick, Wayne Gretzky and Bobby Unser into practical guidance for professional investment of assets. Lessons learned included; understanding the purpose for the portfolio, having a plan in place in the event of market turmoil, not having a false sense of security in making predictions while understanding one’s skillsets, and not being afraid to stand apart from the herd while putting in the hard work necessary for being in a position to win.

A brief Q&A ensued before giving way to moderator Chris Caparelli, CFA, at Marquette Associates and the panel of (1) Patricia Halper, CFA, CIO at Chicago Equity Partners, (2) Josh Lohmeier, CFA, Head of Investment Grade Credit and AIA Investment Officer, Aviva Investors, (3) Ellen Ellison, CFA, Chief Investment Officer, University of Illinois Foundation, and (4) Kevin Zagortz, FSA, US Head of Portfolio Management (OCIO) at Aon.

Caparelli’s first question for the panel was to provide a high-level description of their approach to asset allocation. Kevin spoke first from his background with qualified corporate defined benefit and 401(k) plans. His first objective is to be mindful of mitigating risk before evaluating a multitude of asset classes in priming the portfolio for growth was a common theme across the panel.

Ellison’s perspective is of a large foundation with a very long-term investing horizon, minimal concern for liquidity and growth sourced from a global rolling portfolio approach. The foundation’s clients consist of a large base of living alumni, trustees and committees, with a strong focus on governance and fiduciary risk. The only thing worse than not having a plan is changing the plan over the course so being mindful of the human element is important.

In contrast, Lohmeier has a relatively narrow focus of investment grade credit and is most concerned about target benchmarks and how to manage to against that performance. Common issues to be aware of include behavioral biases, herd mentality, tail risk and downside protection especially in environments of severe stress.

Halper stressed the importance of knowing your place. If your client is relying on investment exposure to a specific asset class then it is imperative to not stray from that mandate. In other words, only perform asset allocation within the bounds that you engaged for.

The remainder of the discussion involved the panelists providing perspective on a variety of topics such as their use of alternatives, adaptation to the market environment, and being tactical  via factor investing. Context is important once again as each strategy depends on the purpose and objective for that client. 

After taking formal questions, the panelists generously made themselves available after for further inquiries.

In summary, this was a fast paced and informative exposure to the topic of portfolio construction. Caparelli was effective in moderating the discussion and the diversity of viewpoints represented on the panel was of tremendous value.

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