Our Outsourced Chief Investment Officer Process
Our Outsourced Chief Investment Officer Process
Review & Analysis
Our outsourced chief investment officer process begins with a review and analysis of the existing investment policy. This analysis may lead to revision or restatement because we view the investment policy as an integral building block for the investment fiduciary.
Identify Objectives & Constraints
We revise an existing investment policy statement or draft a new investment policy statement to clearly outline the appropriate objectives and constraints affecting the various portfolios and should ultimately provide an asset allocation model for implementation.
Determine Required Asset Class Exposure
Cornerstone utilizes the objectives and constraints from the investment policy statement to develop the asset allocation model. Next, we select investment vehicles to facilitate the requisite asset classes exposures. Asset classes exposures may be facilitated through active or passive alternatives and are structurally agnostic.
Consider Cost & Client Philosophy
“All-in” cost and client philosophy are important considerations when determining whether a mutual fund, separate account, ETF, or other vehicle provides the most efficient asset class exposure.
Implementation
Our process is structured to allow for implementation through a traditional investment consulting or “outsourced chief investment officer” format. This means that we monitor and rebalance portfolios on an ongoing basis.
Portfolio Monitoring and Reporting
Following the implementation decision, comprehensive portfolio monitoring and reporting are required for proper fiduciary oversight. Cornerstone’s portfolio management and rebalancing systems allow us to properly track every transaction inside our client’s portfolios and monitor policy adherence on a daily basis. Further, our quarterly reporting is designed to enable Investment Committees and Boards to quickly ascertain if the portfolio complies with policy guidelines, is in adherence with UPMIFA, if spending parameters are properly being followed, and if the fees are in line with market norms. Cornerstone acts as an outsourced chief investment officer to leverage these tools to help monitor manager and portfolio performance, efficiently rebalance portfolios, and facilitate distributions.
Portfolio Monitoring and Reporting
Following the implementation decision, comprehensive monitoring and reporting are required for proper fiduciary oversight. Cornerstone’s portfolio management and rebalancing systems allow us to track every transaction inside our clients’ portfolios and to monitor policy adherence on a daily basis. Further, our quarterly reporting is designed to allow Investment Committees and Boards to quickly ascertain if the portfolio is in compliance with policy guidelines, in adherence with UPMIFA, if fees are in line with market norms, and if spending parameters are being followed. As an “outsourced chief investment officer,” Cornerstone leverages these tools to efficiently rebalance portfolios, monitor manager and portfolio performance, and facilitate distributions.
Our Outsourced Chief Investment Officer Asset Class Selection
One of the most vital components of Cornerstone's role as outsourced chief investment officers is asset class determination. Listed below is the process Cornerstone utilizes to determine acceptable asset classes or consider adding an additional class. Cornerstone will develop these assumptions and add asset classes to portfolios if necessary. Our team uses several software programs to perform such analysis. Here is our process:
- Step 1: Select basic asset classes that may be acceptable
- Step 2: Utilize historic return series to develop standard deviation and correlation analysis.
- Step 3: Run an unconstrained mean-variance optimization program using historical data. As an alternative, a forward-looking system may be used.
- Step 4: Overlay constraints based on three criteria:
- Cornerstone’s historic experience with sustainable and implementable portfolios.
- Forward-looking macroeconomic overview (subjective)
- Liquidity and liability demands
- Step 5: Construct the final target allocation model
- Step 6: Utilize Monte Carlo simulation to stress test performance expectations and the successful management of the implied liability stream.
Our Outsourced Chief Investment Officer Asset Class Selection
An important component of Cornerstone’s role as an investment consultant is asset class determination. Cornerstone utilizes the following processes to determine acceptable asset classes or to consider adding an additional class. When functioning as an Outsourced Chief Investment Officer (OCIO), Cornerstone will develop these assumptions and add asset classes to portfolios as necessary. Cornerstone utilizes multiple pieces of software to conduct such an analysis.
- Step 1: Select basic asset classes that may be acceptable.
- Step 2: Utilize historic return series to develop standard deviation and correlation analysis.
- Step 3: Run an unconstrained mean-variance optimization program using historical data. As an alternative, a forward looking system may be used.
- Step 4: Overlay constraints based on three criteria:
- Cornerstone’s historic experience with implemental and sustainable portfolios
- Forward-looking macroeconomic overview (subjective)
- Liquidity and liability demands
- Step 5: Construct final target allocation model
- Step 6: Utilize Monte Carlo simulation to stress test performance expectations and the successful management of the implied liability stream.
Social Screening in Our Outsourced Chief Investment Officer Process
As an outsourced chief investment officer, Cornerstone must also determine if any social screening criteria can affect portfolio implementation. With our experience as a Christian investment company serving faith-based organizations, we regularly construct socially screened portfolios. Our team conducts Socially Responsible Investing/Biblically Responsible Investing for a number of our clients. Generally, this takes place through a negative screen, which means that investments in companies of certain industries (e.g., firearms, tobacco, alcohol, pornography, abortion, or defense) are avoided.
When a Socially Responsible Investing strategy is implemented for a client, we often do so through the use of separate account managers. These account managers are provided with a list of industries and/or companies to avoid on a “best efforts” basis. However, a growing number of Christian investment companies offer a faith-based screening program in a mutual fund format. These screened funds may often be utilized in place of a separately managed account, allowing attractive screened strategies for smaller portfolios.
In a traditional outsourced chief investment officer format, Cornerstone will work with the client to select Christian investment companies offering implementation alternatives that meet the organization's objectives. In our more commonly-used Outsourced Chief Investment Office (OCIO) format, these decisions rest with Cornerstone’s investment committee.
Social Screening in Our Outsourced Chief Investment Officer Process
As an outsourced chief investment officer, Cornerstone must also determine if there are any social screening criteria that may affect portfolio implementation. With our experience as a Christian investment company serving faith-based organizations, we regularly construct socially screened portfolios. Cornerstone conducts Socially Responsible Investing/Biblically Responsible Investing for a number of its clients. Generally this takes place through a negative screen, which means that investments in companies of certain industries (e.g. alcohol, tobacco, firearms, pornography, abortion or defense) are avoided.
When we implement Socially Responsible Investing for a client, we often do so through the use of separate account managers. We provide these managers with a list of industries and/or companies to avoid on a “best efforts” basis. However, there are a growing number of Christian investment companies that offer faith-based screening in a mutual fund format. Often these screened funds may be utilized in place of a separately managed account, allowing attractive screened strategies for smaller portfolios.
In a traditional investment consulting format, Cornerstone will work with the client to select an appropriate Christian investment company offering implementation alternatives which meet the organization's objectives. In our Outsourced Chief Investment Officer (OCIO) format, such decisions rest with Cornerstone’s investment committee.
Whatever your financial need, Cornerstone Management connects you with a team of professionals who will help your organization grow and thrive.