Q:  Do you invest in boutiques only?

A: We have a mix of the larger wellknown names together with boutiques which are not always accessible to the general retail public. When we invest in small funds we monitor them very closely because they bring additional risk.

Q:  Building a multi manager based product, how do you do the asset allocation?

A: The starting point is our strategic benchmark. For the Open Global Distribution fund that has been skewed towards yielding assets so there is a greater emphasis on fixed income and a slightly smaller emphasis on equity. We still have exposure to property and commodities for portfolio diversification.

We also have an asset allocation view which is reviewed on a monthly basis. At the moment the view is broadly neutral equity, underweight fixed income, overweight cash and slightly underweight property. We interpret that positioning in our portfolio to make sure we are not contradicting the asset allocation model.

Q:  Who is involved in the allocation process?

A: The asset allocation process involves internal economists and our UK Chief Investment Officer who chairs the decision making process. The multi manager portfolio managers are also part of that process. That gives us our position against strategic benchmarks. Within the sectors, for example, there can be quite a diverse spread of funds. The fixed income sector, for instance, crosses the range from developed government bond to emerging markets and tactical fixed interest funds.

We tend to use tactical fixed interest managers because they are far closer to the fixed interest markets than we are. So to an extent we are outsourcing fixed interest asset allocations to our managers.

Q:  How often do you value the strategic benchmarks?

A: Performance is measured against the strategic benchmark on a monthly basis by our performance measurement team. Our overall objective is to generate absolute returns with low levels of volatility.

Q:  How many funds do you generally have in the Open Global Distribution fund?

A: The number of funds can change depending on the investable asset classes. At the moment we have 18 funds. If we were to introduce another asset class which has sufficient yield then the fund count would probably increase. We tr y to hold managers who are doing something special and are different in the portfolio so we tr y to keep the fund count under control.

Q:  Could you give any breakdown of your asset allocation?

A: Strategic equity weighting is 31.5% and fixed income strategic weighting is 44.2%. Alternative investments, which includes property and commodity, is 10.5%. Then we have a money market allocation of 11.9%.

Q:  What kinds of risk do you monitor?

A: We have a dedicated portfolio risk team which analyzes the risk and provides various reports. They use the Barra system to assess risk primarily and we input our underlying manager’s portfolios to conduct portfolio risk analysis. They produce correlation matrix amongst the funds that we hold so we are aware that if two funds are highly correlated, we can make an adjustment and either remove a fund or reduce holding in one of the funds.

Within the equity fund group, we use a system called Style Research, which is a holdings-based equity fund analysis system that compares the portfolio to certain representative style factors, for example large cap, small cap, value growth, momentum, beta and combinations of those, and gives us indication of the style bias of our equity funds.

Q:  Could you discuss one or two successful managers that you have held and explain how you have selected them?

A: A good example would be the Schroder Commodities Fund. We have held the fund since inception with approximately 5% exposure and we haven’t changed our target exposure since the launch of our Open portfolios last November. We have a tolerance range so we are not trading every day. It is an unusual fund as it is invested in the physical commodity markets using futures. It is a Luxemburg domiciled Part II Sicav and it allows the manager a lot of flexibility unlike most mutual funds in Europe which are quite limited in terms of the type of physical assets they can own. They cover a broad range of agricultural products and have a dedicated agricultural analyst who trades a wide range of commodities. We are talking about pork, live hogs, wheat, rice, soy bean, palm oil plus crude oil, coal and all the metals and energy. And it’s a very active style.

We realized that there are some significant inefficiencies in the commodities markets and decided to use this very active fund which has a sensible risk control structure which will give us comfort that we are not going to be overexposed to any one commodity.