Fiduciary Asset Management. A Discretionary Investment Management Solution

Transcription

1 Fiduciary Asset Management A Discretionary Investment Management Solution

2 01 / MORGAN STANLEY The Fiduciary Asset Management program is designed to provide a customized, discretionary solution to help you meet your investment objectives and fiduciary obligations.

3 Introducing a Discretionary Investment Management Solution Investors face enormous challenges in today s complex financial markets whether they are managing their own money or the institutional funds entrusted to their care. These challenges include accurately assessing investment objectives, developing investment policy and asset allocation strategies, selecting and implementing appropriate investments, monitoring portfolio performance and conducting disciplined rebalancing strategies. The Fiduciary Asset Management program is designed for investors who seek to delegate decisions to a team of professionals responsible for implementing a fully discretionary investment management program that is based on your objectives. MORGAN STANLEY / 02

4 Our Fiduciary Asset Management Program Fiduciary Asset Management provides investment advisory services along with the processes and systems to help meet your fi duciary and / or regulatory obligations. The program represents an integrated approach to investment management accomplished through a single relationship with Morgan Stanley and your Financial Advisor. In essence, through the Fiduciary Asset Management program, we can assist you with investment functions that may previously have been solely managed by your staff. These functions include managing relationships with asset-management fi rms, custodians, administrative and record-keeping fi rms and other fi nancial entities. The result of the collaboration is a customized program that delivers an integrated investment management program in a cost-effective manner. Potential benefi ts include: Disciplined investment policies Improved risk and return effi ciency Reduced costs Improved audit transparency Investment and fi duciary decision-making Our Fiduciary Asset Management program offers the convenience and security of an advisory relationship with an experienced investment-consulting organization, while at the same time providing access to independent money-management fi rms and other high-quality investment services. The result is a comprehensive and fl exible program suitable for all types of investors requiring professional investment management advice. Diversification does not assure a profit or protect against loss. 03 / MORGAN STANLEY

5 Robust Investment Services Modern, effective portfolio management often requires more expertise and extensive time and attention than many private investors, trustees or families can afford to devote on their own. On the other hand, delegating investment decisions to a series of third parties creates new demands including oversight of responsibilities, coordination of activities, consolidating reports and much more. The Fiduciary Asset Management program is designed to manage these key responsibilities by delivering solutions that include: Initial and ongoing analysis of your investment objectives Strategic and tactical asset allocation decisions Investment policy statements An open-architecture approach to investment management including customized manager searches and implementation Comprehensive risk management oversight Coordination of services with third-party custodians, banks and other fi nancial service providers Many types of investors have recognized the benefi ts of this comprehensive, discretionary investment service including private individuals, families, multi-family offi ces, endowments and foundations, Taft-Hartley funds and other institutional investors. MORGAN STANLEY / 04

6 Introducing Portfolio Advisory Services The Consulting Group at Morgan Stanley has a long history of leadership in the delivery of investment advice. In fact, Consulting Group has consistently ranked as a leader in managed account services. 1 Consulting Group s Portfolio Advisory Services ( PAS ) team leverages the fi rm s strategic and tactical asset allocation advice, manager research and evaluation services, and portfolio construction capabilities to deliver a suite of discretionary investment solutions, including the Fiduciary Asset Management program. This team oversees every aspect of Fiduciary Asset Management program to provide tailored strategies and a wholly integrated, discretionary investment approach. The team is comprised of investment professionals from within Consulting Group and Morgan Stanley and also taps into the thought-leadership of investment professionals from academia and other organizations. The Portfolio Advisory Services team follows a risk-budgeting approach to portfolio construction. This process helps guide portfolio structuring decisions and in turn the manager selection decisions to help assure the overall fi t of each investment strategy used in clients portfolios. The risk-budgeting approach allows the team to strategically allocate where risk is taken. Furthermore, Portfolio Advisory Services team uses an ongoing riskmanagement oversight process so that no undesired risks are assumed. Risks are monitored across a number of factors such as sectors, market capitalization, portfolio characteristics, macro economic factors, country and currency exposures, among other factors. In this manner, Portfolio Advisory Services, with support from its Advisory Board, employs a disciplined portfolio construction process with an intense focus on investment risk. 1 Cerulli Associates. Past performance is not a guarantee of future results. 05 / MORGAN STANLEY

7 A Disciplined Portfolio Construction Process Portfolio Advisory Services uses a series of six comprehensive, repeatable steps that represents a disciplined and repeatable process for portfolio construction: 1. Strategic Asset Allocation. A strategic, long-term diversifi cation strategy is determined for each client. Fiduciary Asset Management uses traditional (stocks and bonds) and alternative asset classes such as commodities, hedge funds, global real estate investment trusts, infl ation protected bonds and managed futures to help diversify client portfolios, when appropriate. 2. Tactical Asset Allocation. Tactical tilts may deviate either underweight or overweight from the strategic asset allocation to help capitalize on current and prospective market conditions or to reduce risk in the portfolio. 3. Implementation Approach. Portfolio Advisory Services then determines the specifi c portfolio implementation approach for each client this may include all active management or a blend of active and passive investment strategies. 4. Risk Budgeting. At all times, Portfolio Advisory Services focuses on risk budgeting or the allocation of risk to various asset classes. The process is referred to as an active core-satellite approach. The team takes an active view on allocation of risk to the core asset classes relative to the asset classes designated as satellites. 5. Manager and Fund Selection. The team then leverages the extensive research and evaluation services of Investment Advisor Research to select from traditional money managers, mutual funds, exchange traded funds and alternative investment strategies as appropriately determined based on each client s strategy and risk budget. Portfolio Advisory Services uses a proprietary tool known as alpha driver analysis to help identify characteristics and sub-styles that the team believes can deliver value to clients in the future. 6. Evaluation of Portfolio Risk. The team conducts detailed and ongoing analysis into the evaluation and measurement of the portfolio s overall risk levels across 95 distinct risk factors. Strategic Asset Allocation 1 2 Tactical Asset Allocation Evaluation of Portfolio Risk 6 3 Implementation Approach Manager and Fund Selection 5 4 Risk Budgeting MORGAN STANLEY / 06

8 The Power of Global Capital Markets Insights and Money Manager Research To deliver discretionary advice to Fiduciary Asset Management clients, Portfolio Advisory Services leverages the extensive investment analytics and advisory solutions available through the fi rm. These capabilities include tapping into the intellectual capital of: The Global Investment Committee at Morgan Stanley The Global Investment Committee is comprised of seasoned professionals with deep levels of expertise spanning the global spectrum of asset classes, instruments and investment techniques to deliver extensive investment and economic analysis and leadership on diversifi cation strategies. Normally, the committee meets monthly to survey the economic landscape, to update its base-case outlook and discuss bullish and bearish scenarios thereof, and to recommend tactical adjustments intended to capitalize on short-term opportunities. In addition, the committee delivers a wide array of strategic model portfolios designed to accommodate different risk profi les and liquidity requirements. Portfolio Advisory Services leverage the Global Investment Committee s advice to develop each client s strategic and tactical asset allocation recommendations. Consulting Group Investment Advisor Research Choosing the appropriate investment manager is one of the most important decisions any investor can make. Given the thousands of managers and funds available, there s no question fi nding the right investment manager can be a bewildering challenge. The Fiduciary Asset Management program helps investors make these diffi cult decisions by tapping into Consulting Group Investment Advisor Research team s disciplined process for evaluating investment managers. Investment Advisor Research consists of a team of experienced manager research analysts who conduct extensive due diligence on traditional investment managers, selected alternative investment strategies and a series of mutual funds and exchange-traded funds. 07 / MORGAN STANLEY

9 The Importance of Ongoing Risk Management Risk can take many forms such as individual securities risk, capital markets risk, geopolitical, economic and environmental risks, human errors, fraud and others. While some events may be uncontrollable such as environmental risk or terrorism, a prudent risk management and oversight process can help manage any negative impact on portfolios from unexpected risks. The Fiduciary Asset Management program uses a disciplined approach to risk management. Specifi cally, the PAS team looks at several critical areas: Due diligence of investment management firms. The Portfolio Advisory Services team selects the investment fi rms recommended to Fiduciary Asset Management clients, leveraging the work of Consulting Group Investment Advisor Research. If a manager or strategy no longer meets its objectives for the program, a replacement manager is quickly selected. Recurring, regular due diligence on investment management fi rms delivers a consistent oversight process way to help ensure compliance with the highest ethical standards. Ongoing factor analysis and forecasts. A signifi cant risk management component entails checking for undesired factor bets in the portfolios. Risk forecasts are developed across a number of factors including sector allocation, market capitalization, portfolio characteristics, e.g., yield, P/E ratios, macro economic factors, country and currency exposures and individual holdings. PAS regularly monitors these factors across portfolios and requires timely information and full transparency of holdings from all investment fi rms. If signifi cant risk factors are developing with investment management fi rms or asset allocation strategies, changes are nimbly enacted. Monitoring of style drift. From time to time, investment fi rms may stray or drift from their stated investment process. The Portfolio Advisory Services team monitors style drift regularly to determine whether asset managers remain true to their investment discipline. Given that portfolios are constructed with managers that have specifi c style biases, if a manager s style drifts, the manager in question may no longer fi t in the portfolio. In addition, style drift may cause undesired concentrations in the portfolio that may result in excessive risk taking. Therefore, if a manager drifts or investment fi rms become too similar in their approach to investing, replacement managers may be selected. Capital Market Risks. The Global Investment Committee continuously observes and analyzes the capital market environment. Their insights and forecasts of risk and return opportunities for various asset classes helps Portfolio Advisory Services manage risk in portfolios. For example, Portfolio Advisory Services may make periodic adjustments to a client s asset allocation to a risky asset class, if the GIC views the asset class as signifi cantly riskier than normal, in order to maintain portfolio diversifi cation and portfolio risk. Portfolio Advisory Services may also increase cash in a client portfolio if the GIC recommends the risk asset classes to be excessively risky. Rebalancing strategies. History has shown that more volatile asset classes in a portfolio tend to have higher returns over time. Consequently, their overall weight in a portfolio may rise over time and, as a result, investors may assume more risk than allowed within their investment policy guidelines. The Fiduciary Asset Management program offers active rebalancing strategies on a regular basis to adhere to a client s asset allocation strategy and help maintain the appropriate level of portfolio risk. MORGAN STANLEY / 08

10 The Matter of Cost Fiduciary Asset Management would be of little value if the costs outweighed the benefi ts. The Fiduciary Asset Management program may be able to help reduce total costs by closely supervising all of your investment-related expenses, including custody fees, investment advisory fees and trading costs. Our size and considerable market presence allows even smaller investors to benefi t from cost effi ciencies normally available only to the largest investors. Because of the cost effectiveness of the Fiduciary Asset Management program, the services are particularly important to: Institutional investors seeking to outsource their investment management responsibilities and greater fi duciary oversight Midsized pools of funds such as small companies and insurance pools that may lack the proper staffi ng levels to meet today s market challenges Private individuals and institutional investors in need of experienced management, professional portfolio management and investment oversight Investors seeking more timely execution of investment decisions and an integrated, cost-effi cient solution 09 / MORGAN STANLEY

11 Integrated, Discretionary Investment Strategies; Comprehensive Portfolio Advice Investment management is a difficult business, with much room for error. Mistakes can be costly, for private individuals and the institutional organizations they serve. The Fiduciary Asset Management program may help you improve your chances of reaching your desired financial objectives while helping you manage legal or regulatory liabilities. Our Fiduciary Asset Management program provides clients with a fully equipped solution for all your investment needs. It is designed to help you build, manage and supervise all of your investment decisions and responsibilities. Learn more about how Fiduciary Asset Management can help you meet your investment responsibilities by speaking with your Financial Advisor. He or she will also be happy to provide more information on the program s customization capabilities. MORGAN STANLEY / 10

12 The Fiduciary Asset Management program is available for investors with a minimum of $2 million to invest. Professional, discretionary investment management expenses are covered through an asset-based management fee. Investing in alternative investments is speculative, not suitable for all clients, and intended for experienced and sophisticated investors who are willing to bear the high economic risks of the investment, which can include: loss of all or a substantial portion of the investment due to leveraging, short-selling or other speculative investment practices; lack of liquidity in that there may be no secondary market for the fund and none expected to develop; volatility of returns; restrictions on transferring interests in the fund; potential lack of diversification and resulting higher risk due to concentration of trading authority with a single advisor; absence of information regarding valuations and pricing; delays in tax reporting; less regulation and higher fees than mutual funds; and advisor risk. Morgan Stanley Smith Barney LLC, its affiliates, and its employees are not in the business of providing tax or legal advice. These materials and any tax-related statements are not intended or written to be used, and cannot be used or relied upon, by any such taxpayer for the purpose of avoiding tax penalties. Tax-related statements, if any, may have been written in connection with the promotion or marketing of the transaction(s) or matter(s) addressed by these materials, to the extent allowed by applicable law. Any such taxpayer should seek advice based on the taxpayer s particular circumstances from an independent tax advisor Morgan Stanley Smith Barney LLC. Member SIPC. Consulting Group is a business of Morgan Stanley Smith Barney PS-1003 CS24035 CLF /