PART 4: How to Implement a Portfolio for an Affluent Family or Foundation

This blog will be considered Part 4 of a 4-Part series pertaining to Portfolio Implementation. Please view the Part 1 blog , Part 2 blog , and Part 3 blog.

In Part 1 of this series I compare the design and implementation of a portfolio to building a custom home. To recap, you start by hiring the architect, then design the floor plan as per the custom specifications and then provide the blueprint.

As a reminder, HighView’s Portfolio Implementation Approach is as follows:

HighView’s Portfolio Implementation Approach

This blog post (Part 4) will cover the final phase of the portfolio implementation process: re-deployment of cash into HighView’s investment mandates/managers as per the client’s Investment Policy Statement (IPS). As “portfolio architects”, the IPS is essentially our blueprint, and the “Implementation” phase is where we begin executing it.

A proper IPS includes several important pieces of information that govern the client’s investment portfolio. If you are interested in learning more about why this document is so important and what a proper IPS should include, feel free to read more about it here.

Our client portfolios typically require the implementation of a combination of the following:

Traditional Investments (Public Markets) + Alternative Investments (Private Markets)

We start the deployment process by firstly isolating the full allocation of cash earmarked for alternative investments and then focus on deploying the remaining cash into traditional investments.

Traditional Investments (Public Markets)

When it comes time to deploy cash into traditional investments we want to act as quickly and prudently as possible subject to any portfolio constraints or extraordinary capital market events.

There are certain scenarios where we may delay the deployment of cash for the following reasons:

1. Avoid monthly manager costs by not deploying cash in the final week of the month and alternatively waiting for the first week of the following month.
2. If a material percentage of the client portfolio is ready to be deployed close to a calendar quarter-end, we may delay deploying until after a quarterly cash distribution to take advantage of a lower fund price.
3. When ready to re-deploy cash into public markets we often consider the client’s preference/level of comfort with Lump Sum Investing vs. Phased Deployment (aka. Dollar Cost Averaging).
   • There have been several studies performed over the years comparing the pros and cons of each strategy. In this blog post we will not delve into the debate on which deployment method is “better”; there are pros and cons to each strategy. Based upon our team’s extensive experience, our preference is to deploy in one lump sum.
   • However, it ultimately comes down to client preference, risk tolerance and investment time horizon. Given that each client scenario is unique, the point here is that we consider which deployment strategy would be better suited for the client.

Alternative Investments (Private Markets)

Given the less liquid (compared with traditional investments) nature of the alternative investment component of our client portfolios, this asset class typically takes more time to fully deploy compared to traditional investments.

Our experience is there is a “recurring type” and a more infrequent (ie. periodic) type of deployment into alternative investments.

Deployment into Recurring Alternative Investments

For instance, some alternative investments are available for purchase on a monthly or quarterly basis while others could be available periodically (such as annually or even longer). We would have access to a “recurring type” of alternative investment by accessing it through a fund on a monthly/quarterly basis.

Deployment into Periodic Alternative Investments

In contrast, we also have access to alternative investments that are available on a more periodic basis and the key variable is that we are limited by deal flow. For example, if a real estate company does not close on a property there will not be a need for any client capital. This means that we might be hanging onto cash in client portfolios until an opportunity to deploy presents itself.

We might also be limited in terms of how much cash we can deploy. Using the same example as above, if we have $10 million in client capital waiting to be deployed into alternative investments, but one manager only needs $3 million, we might have to allocate capital on a pro-rata basis and wait for the next opportunity to deploy the remaining cash.

Ongoing Monitoring and Quarterly Reporting

After the portfolio has been implemented according to the IPS guidelines it is the Portfolio Implementation Team’s responsibility to monitor the client’s portfolio on a weekly basis and take any required action if there is a breach of policy.

The portfolio’s performance is then measured on a quarterly basis compared to the client’s unique long term annualized target rate of return and packaged up in a transparent and digestible way for the client.

Stay tuned for some future blog posts related to both portfolio monitoring and quarterly reporting.

Final Thoughts

Throughout this series we walked through the onboarding and implementation process each new HighView client goes through and hopefully you found this series valuable and informative. The idea was to showcase that HighView’s approach to implementing client portfolios is methodical, process-driven, and disciplined.

If our approach is something that you feel would be a good fit we welcome the opportunity to have a conversation with you.

Be sure to bookmark HighView’s blog “The Wealth Steward” to keep up to date with interesting and relevant industry topics: https://www.highviewfin.com/blog/

 Please view the Part 1 , Part 2 , and Part 3 blog.