Section 1 - Interview
1.1 INTERVIEW
What are the advantages of multi-asset investing versus
the traditional, siloed strategic asset allocation strategy
that is commonplace among many institutional investors?
Interviewer Interviewee
David Grana,
Head of North
American Media,
Clear Path Analysis
SUMMARY
Multi-asset is a powerful method to help
investors meet their desired outcomes
A siloed asset management approach does
not properly address the issue of in between
asset classes
David Grana: Why are institutional investors shifting their
strategy from a siloed approach to multi-asset?
Brian Meath: We believe that multi-asset investing is the best way
for investors to meet their desired outcomes today. The benefits of
multi-asset investing include taking advantage of cross asset class
opportunities to help in both adding return potential and managing
risk. This gives investors an improved framework to think of a portfolio
in its totality. And as a result, you have a total objective for the pool
of assets. The historical method of investing via silos was fine for
managing a series of separate asset classes, but is not optimal in the
low-return environment that we are in today. Investment committees
are starting to realize the benefits of a multi-asset approach. Many are
also recognizing that, while they are appropriately structured for their
historical model of portfolio management, theyre not entirely capable
of effectively executing multi-asset themselves.
David: Does the range of asset classes in multi-asset portfolios
differ from a siloed portfolio?
Brian: In many cases it can. The key is in the capability set of the
organization that is managing the assets. A siloed approach will
typically make allocations to equities, bonds, and possibly real
estate. That is more than enough moving parts to manage for most
organizations, as they typically do not have the dedicated in-house
expertise to go beyond that. A fully integrated multi-asset approach
Multi-Asset Strategies North America 2017
Brian Meath,
Chief Investment
Officer, Multi-Asset
Solutions, Russell
Investments
Multi-asset investing is not a one-size-fits-all
strategy
Measuring performance is more about outcomes
than beating a benchmark
Switching to multi-asset is about educating
committees and shifting the paradigm
can include things that fall in-between the asset classes of a siloed
approach, or that would not generally get a large enough allocation to
justify a separate silo. The integration of these types of assets can have
a meaningfully positive impact on results. These in betweens can
include more extended types of fixed income, such as local currency
debt; instruments that have characteristics of both equities and bonds,
such as convertibles; or derivative-based strategies, such as long
volatility, which help manage the overall risk profile of the portfolio.
David: What exactly makes the difference between one
approach versus the other?
Brian: In a siloed approach, lets say you make a strategic or tactical
decision to reduce your equity exposure and increase your bond
exposure. This would typically result in two separate assignments: you
give instructions to your managers to raise cash out of your equity
portfolio, which generates transaction costs, then you give the cash
to your bond managers, who go out and spend it. In the multi-asset
world, you can make that transition by using derivatives and its
seamless, instantaneous, and can happen with virtually no cost. The
transaction cost and implementation can be far more efficient.
David: A lot of companies have multi-asset as part of their
strategy offering. How do the capabilities of one differ
from another?
1
Section 1 - Interview

Brian: You have to start with what tools are necessary to truly manage
a multi-asset solution that is geared towards meeting the specific
outcomes of specific clients. This isnt a one-size-fits-all or single
portfolio solution. Instead, the outcome is specific for each individual
client. Also, its about the capability of total portfolio management
from an asset allocation standpoint. What asset classes are available?
What are their expected returns, their correlations, their volatilities,

DURING ELEVATED
and how do they fit with one another in an optimal way?

We believe the best multi-asset providers work with a client to fully

understand their objectives, constraints, and desired outcomes. A lot
of the requisite skills come from firms that have more of a consultancy
heritage an important skillset and we see a lot of firms out there
MARKET VOLATILITY
who are multi-asset in name with this consulting heritage. But in
order to truly understand the integrated risks of the portfolio and
opportunities available in the marketplace, you need information and YOU MAY SEE HIGHER
granularity that comes from the bottom up which really requires

REBALANCING
an asset management heritage. We see these as two ends of a
spectrum. Few companies have the requisite depth of experience
in both consulting and asset management. And fewer still have the
perspective, capabilities and technical toolsets that differentiate a true
multi-asset manager from simply a manager of multiple asset classes.
ACTIVITY AS FUND
David: Most portfolio managers use indexes to measure
their performance. How is a multi-asset portfolios
performance measured? MANAGERS ADJUST
THE PORTFOLIO TO
Brian: Performance measurement for multi-asset assignments is
often as simple as a composite index of the strategic allocation to the
primary strategic asset allocation. This is no different than what might
be done in a siloed approach. However, increasingly, we are seeing
objectives that are more outcome oriented than simply beating an
index. These objectives can range from beating inflation by a certain
THE BENCHMARK
amount, to ensuring no more than a specific capital loss, or even to
minimizing the volatility of required funding. These outcomes can be
hard to measure over short time periods. OR EVEN PERFORM
TACTICAL ASSET
David: Is it difficult for institutional investors to adapt to the
multi-asset model?

Brian: Yes, mainly because it takes time to educate committees, along

with a mind shift of how you measure performance and when and
how to outsource in order to gain access to the right talent. Paradigm
ALLOCATION
shifts are never easy, but there are many organizations who have
already made the move, and there are many who know that they need
to do it. Its all about taking that first step.

David: Thank you for sharing your views on this topic.

Multi-Asset Strategies North America 2017 2