The investment process is driven by the targeted risk levels of the fund. Our general approach can be broken down as follows:
- Set strategic asset allocation: We determine the long-term strategic asset allocation based on each respective fund’s return and risk objective. The strategic asset allocation is the product of rigorous analysis, taking into account the following for each asset class:
- Long-term return expectations;
- Correlation and covariance of the underlying building blocks to each other;
- Liquidity; and
- Potential hedging costs.
We manage the local and global equity component of our funds. This allows us to ensure that the equities have the appropriate return and risk characteristics.
- Risk management: The allocation to assets is varied based on a risk management process that takes the specific risk objective into account. We make extensive use of derivatives (both futures and options), leveraging off our market-leading skills and experience in this area. Lower risk funds generally make use of options to minimise risk, while funds with a higher risk tolerance use futures more frequently.