While we believe that our commingled investment programs provide the best combination of risk-adjusted return, diversification and cost-effectiveness for most investors, there are circumstances where a separate account is more appropriate given an investor’s specific risk tolerances, return expectations and possibly investment policy restrictions. For large mandates of generally $100 million or more, Commonfund offers separate account management in:
- Long-only equities
- Fixed income
- Hedge funds
- Private capital
Like our approach to commingled funds, Commonfund’s philosophy of portfolio construction for separate accounts is founded on the principle of active portfolio management – that is the dynamic use of active strategies that can be more opportunistic, aggressive or defensive based on our assessment of capital market conditions. Our experience is that active portfolio management can add value over strictly passive approaches over market cycles. We believe that a carefully constructed portfolio that is based on the investor’s investment objectives, built on the principle that the expected return of an investment should be commensurate with its risk, and managed accordingly, will outperform a passive one.
Underlying this premise is the fact that all sectors of the capital markets are dynamic. Therefore, we believe that active management includes strategically underweighting those asset classes and sectors where capital is plentiful, prices are rich and the expected return is not commensurate with the risk and similarly over weighting those assets where capital is scarce, prices are cheap and there is less risk relative to the expected return. Of course, such decisions must be made in the context of an investor’s long-term policy portfolio.