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Rich and Co.

Chart of Institutional Investment Behaviors

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  Traditional Investment Management Model Traditional Investment Consulting Model Outsourced CIO Consulting Model
Decision-making process The institution makes asset allocation decisions and selects investment managers to implement balanced portfolios or individual asset class mandates The institution makes decisions on asset allocation and managers in the portfolio based on advice from the investment consultant The institution selects the consultant, who makes decisions on asset allocation and managers in the portfolio based on input from the institution
Fiduciary burden for investment decisions Rests mostly with the institution; investment manager may not accept any fiduciary responsibility The institution makes decisions on asset allocation and managers in the portfolio based on advice from the investment consultant Rests mostly with the consultant, who acts as a fiduciary and is responsible for all decisions
Efficiency for the institution (in terms of time and effort) Somewhat efficient Not efficient; can be very time-consuming Highly efficient
Oversight needed by the board or investment committee Oversight of all managers, but number of managers is usually limited Oversight of all managers in the portfolio, who can be numerous Oversight of one consultant who provides all other oversight
Diversification of asset classes in the portfolio Can be extensive Extensive Extensive
Diversification of managers in the portfolio Can be very limited, particularly for investment managers who have proprietary strategies for most asset classes Extensive Extensive
Experience of advisor for asset allocation and manager selection Often limited Extensive Extensive
Institution’s ability to view the consolidated portfolio to understand exposures None, unless the institution consolidates the portfolios itself or hires a custodian to do so Provided by the consultant Provided by the consultant
Fees Should be transparent A la carte fee structure can make total fees difficult to predict and fully understand Should be transparent
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Written by Rich and Co.

October 27, 2015 at 4:29 pm

Posted in Uncategorized

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