How to Enhance Your Portfolio in Three Steps

(December 6, 2013) — If institutional investors could give their funds a makeover, what should be at the top of the list? Hewitt EnnisKnupp’s (HEK) experts said they have three ideas in mind to successfully revamp and improve investment programs.

Brady O’Connell, partner in HEK’s client advisory group, said investors should take a closer look at their decision making process: “Knowing what you are good at, and—perhaps more importantly—not good at, may result in better investment decisions over the long term.”

More specifically, reviewing the investment manager hiring and firing process, and understanding behavioral biases could help reduce costs that may be difficult to measure, according to O’Connell. He said this could reveal more accurate and appropriate investment strategies for individual funds.

Another beneficial change would be to “eliminate the noise” to avoid making significant short-term changes, said John Flagel, another partner in HEK’s client advisory group.

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Institutional investors need to focus on reaching long-term goals and be able to “differentiate ‘noise’ from opportunity,” Flagel said. “We believe that medium-term asset allocation can take advantage of the observed inefficiency of markets.”

While the implementation is customized per client, Flagel said using a benchmark over a medium-term time horizon of one to three years would allow investors a clearer view of their goals.

O’Connell and Flagel’s colleague Staya Kumar, on the other hand, suggested looking at risk allocation rather than capital allocation when selecting active management.

“When deciding on the size of mandates for investment managers, focus on their contribution to risk and your conviction in the position,” Kumar said.

To ensure that risks being taken are steady and “commensurate with the expectations for value-add,” Kumar said, investors should formulate an active risk budgeting framework to construct and operate their portfolios.

(December 6, 2013) – Robin Diamonte, the much-decorated CIO of United Technologies, has another feather in her cap: a Presidential appointment as an advisor to the Pension Benefit Guaranty Corporation (PBGC).

President Obama, who announced her and other senior government appointments on December 5, said:“I am grateful that these talented and dedicated individuals have agreed to take on these important roles and devote their talents to serving the American people,” he said. “I look forward to working with them in the coming months and years.”

Diamonte has been a prominent link between the retirement benefit sector and the Obama administration for several years. She is the chair of the leading industry group, the Committee on the Investment of Employee Benefit Assets, which undertakes lobbying efforts as well as professional development for its members.

The PBGC advisory committee has six members at present: Chairman and former PBGC Executive Director David Strauss, former head of Dallas’ Employee Retirement Fund Cheryl Alston, union plan specialist David Blitzstein, employee benefit attorney Joyce Mader, CEO of the Employee Benefit Research Institute Dallas Salisbury, and corporate advisor Harry Wilson.

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Diamonte will be the only practicing CIO on the committee. She has served as investment head of United Technologies’ retirement assets since 2004. Before that, Diamonte spent more than a decade in various roles at Verizon Investment Management Corporation.

In 2012, she was named Innovator of the Year at aiCIO’s Industry Innovation Awards. This year, Diamonte is a finalist in the defined contribution category.

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