Endowments and Foundations are a critical source of financial support for many institutions, operations and philanthropic efforts. Their importance in our communities’ results in an increased demand for investment committees to effectively balance long-term asset growth with short-term stability We understand each situation is unique and analyze each client’s spending needs, operational dependence, liquidity tolerances and goals for growth to develop a custom investment policy and implementation strategy.
Spending Policies & Organizational Dependence
E&F are unique with their regular spending mandates and varying levels of organizational dependence. Both factors will significantly impact the short-term volatility and liquidity tolerances that must be balanced with long-term growth goals. Many spending policies are based on the market value of assets, resulting in spending reductions during market downturns. Identifying investments that can provide stability during these times can help ensure operational stability and availability of needed funds.
Downside Volatility Management
Often these clients are especially sensitive to downside volatility. We optimize targeted portfolios, maximizing diversification and considering asset classes with low correlation to other assets and markets. Identifying those asset classes and strategies with differentiated return patterns is a critical factor in reducing downside volatility. Utilizing non-traditional assets is an important tool in these efforts, but requires consideration of reduced liquidity and long-term lock-ups in some cases.
DeMarche helps clients establish their specific social responsibility objectives and ESG criteria, incorporating these into a written Investment Policy Statement (IPS). This will serve as the navigating document for your investment committee, aiding in setting strategy and decision-making. We emphasize implementation with clients, ensuring flexibility and dynamic strategies in this area as capabilities continue to evolve at a rapid pace.
Asset allocation is the most critical decision facing investors. To ensure our clients have an asset allocation strategy that is positioned to perform in the current market environment and over the long term, we employ both Strategic and Secular scenarios. The Strategic forecast (three to five years) incorporates our proprietary supercycle analysis which identifies differences in asset class characteristics due to economic/demographic trends. The Secular model projects a normalized state for economic, market, and asset class conditions. Efficient frontier analysis solves for the optimal portfolio structure that accounts for both scenarios. DeMarche asset allocation process employs the following methodology:
Strategic Inputs We evaluate economic conditions using our strategic forecast (next three to five years), which developed internally by DeMarche’s Asset Allocation Committee. This incorporates our proprietary super-cycle market analysis, which identifies differences in the interaction and performance between asset classes due to changes in underlying economic and demographic trends, such as GDP and earnings growth forecasts; inflation, interest rates, and Fed policy; and demographics, unemployment, and debt.
Secular Inputs We evaluate long-term economic conditions for the economy, and we project a normalized state for interest rates, GDP growth, consumer, debt, asset class returns, risk premia, and correlations.
Asset Allocation Modeling Asset allocation model inputs include the expected return, standard deviation, and correlation of each asset class and are based on the long-term historical returns and volatility of the various asset classes. Our efficient frontier optimizations are based on our Strategic forecasts, taking into account our current market environment. Thus, the optimal portfolio will be discovered using a shorter time horizon, and its risk and return will be compared with that of the long-term forecast (which is reviewed to consider the longer-term view). We believe that this provides you with a realistic view of risk and return over the strategic horizon, which has implications for your spending policy.
DeMarche is committed to exceeding client expectations through our leadership in research and education. Through our Programs in Finance and Investments (PIFI), we host workshops across the country each year for institutional investors. These programs feature our consultants, together with top investment experts, for discussions of critical investment topics, market forces, and industry trends.
In selecting as asset allocation policy, Defined Benefit plan sponsors have more to consider than the traditional tradeoffs of risk and return. They must look beyond a two-dimensional efficient frontier to consider other risks like surplus volatility and liquidity. Concurrent Solution Investing (CSI) is a proprietary approach that considers four broad functions of risk- Investment, Funding, Interest Rate, and Financial Statement. Collaborating with independent actuaries, we help you identify key variables, establish priorities, weigh tradeoffs of maximizing return or minimizing surplus volatility, and ultimately define the best balance of concurrent solutions. Multiple studies have shown that 50% to 90% of portfolio return can be attributed to asset allocation1. To ensure our clients have an asset allocation that is positioned to best perform in the current market environment, we have designed an industry-leading asset allocation modeling process. The asset allocation model employs both Strategic (shorter-term) and Secular (longer-term) model inputs. We believe Strategic model inputs provide more appropriate and realistic risk and return assumptions to construct an optimal asset allocation for the current economic environment than asset allocation models based solely on long-term history. This unique approach differentiates DeMarche from other consultants and helps clients to craft an investment strategy that will work best in current market conditions and over the long term.
The DeMarche approach to defined contribution services is comprehensive, drawing on our many years of experience evaluating markets, investment managers and defined contribution plan providers. The result is a program that meets the needs of plan participants and helps plan sponsors meet their fiduciary responsibilities.
Investment Policy Development/Review
Performance Review/DC Analytics
Plan Design/Menu Review
Investment fund Analysis
Industry Trend Analysis
Discretionary Consulting Products
The pressure to seek greater absolute returns combined with expanding regulations and increasingly complex investment strategies has led many institutional investors to retain a discretionary consultant for help. DeMarche has been assisting clients with their investment outsourcing needs since 2003.
We have created turnkey fund-of-funds services for Small Cap, Core Alternatives, Dynamic Fixed Income, and Global Tactical Asset Allocation (GTAA).
Today’s investor looks for more than performance results. Strong performance expectations are key to the decision, but working and living in a responsibly managed environment is also important. DeMarche offers fiduciaries services that help them establish and maintain a sustainable investment philosophy including:
Investment Policy review and integration of sustainable investment criteria
Investment Manager Search
Sustainable Investing Trend Updates
White Papers and Workshops
Convening opportunities with like-minded investors
Fee Analysis & Benchmarking
Fees play an important role in overall portfolio considerations. Choosing between active and passive investment management strategies, hiring a reasonably priced manager within their given market capitalization, and ensuring recordkeeping or administrative fees are in line with industry-standard are just a few of the responsibilities taken on by the fiduciaries of the plan. DeMarche provides guidance on fee reviews and benchmarking for all plan types, protecting plan participants from paying unreasonable fees and subsequently bolstering the fiduciary review process on behalf of trustees.
Investment Fund Analysis
Ensuring the presence of high-quality funds in a defined contribution plan is a key step to success. DeMarche Investment Fund Analysis utilizes our firms’s investment manager and asset allocation research to evaluate mutual funds and assist fund sponsors who provide a number of investment options to employees through not only a 401(k) plan, but also through a traditional pension plan or a corporate-owned life insurance plan.
In this process, DeMarche reviews quantitative data directly from external databases and the investment managers. Our experienced investment staff conducts a subjective review of the information and separates funds into “competitive” and “non-competitive” categories.
Also available at the clients’ request, competitively ranked funds may be examined more closely by the DeMarche Manager Review Committee. These funds are eligible for consideration for DeMarche’s “Approved” designation, our highest rating.
Investment Policy Development & Revision
Investment Policy is a combination of philosophy and planning and expresses trustees’ attitudes toward various investment management issues. It serves as a form of long-range strategic planning that defines specific investment goals. Our approach uses an interactive process with clients that covers detailed discussions regarding the fund’s mission, investment risk tolerance, investment objectives (absolute and relative), the right policy asset allocation, investment management structure and performance evaluation guidelines. All decisions leading to adoption of investment policy are documented. This helps assure continuity in the fund’s operations and structure and establishes a base for future decisions.
By analyzing both long-term and shorter-term views, we position our clients to most appropriately structure their portfolios given their specific views on risk and return tradeoffs.
Documentation of all decisions
All asset allocation decisions leading to the adoption of investment policy are documented. This helps assure continuity in the fund’s operation and structure despite future changes in trustees or investment committee members.
Establish a base for future decisions
The establishment of an investment policy and long-term targeted asset allocation serves as the foundation on which all other decisions can be made with confidence.
Perhaps the most important benefit of working with DeMarche is the ideal environment our consultants create for making crucial policy decisions about your fund. Our resources and expertise enable you to understand the variables of asset optimization and explore varying investment approaches to achieve your fund’s objectives. In the end, you will have total confidence in your decisions, and you will have complete documentation of the thought process used to reach them.
Depending on the level of service you engage, we can perform an asset mix study, work with you to develop your investment policy, determine appropriate asset allocations for your funds, evaluate your current managers, replace non-performing managers and hire new managers as appropriate. Thereafter, we will provide continuous oversight and evaluation services. Your involvement and workload can be reduced to quarterly review and audit meetings with your DeMarche consultant.
Investment Policy Statement
Manager Search and Selection
Tactical Asset Allocation
Performance Monitoring & Reporting
Ongoing Manager Due-Diligence
Manager Retention / Replacement
If the implementation of an optimal portfolio is the final goal of an investment plan, then it requires key manager decisions to take place. The trustees of the plan, with the help of DeMarche’s consultants, will review portfolio decisions and control for diversification, costs, and a plethora of additional investment metrics. Walking you through the manager and portfolio optimization process, DeMarche is able to utilize proprietary tools and modeling which allow for a fully-informed decision. Manager analysis must take place at the individual and group levels. Said another way, a single manager might impact a portfolio in one way, but can also influence risk-return metrics differently at the portfolio level when paired with specific managers. Understanding the friction or unison between managers is one of the ways in which DeMarche helps to add value to overall returns.
Manager Search & Selection
With thousands of investment managers registered with the Securities and Exchange Commission, finding the manager best suited to your fund may seem like an overwhelming task. DeMarche has conducted hundreds of manager searches for institutional funds throughout the country, earning a reputation as the most knowledgeable search and selection firm in the industry.
Our in-depth approach to conducting manager searches is designed to identify highly qualified managers that are well suited to meet your plan’s needs and ensure that you are better informed.
DeMarche’s manager research and search activity is a primary component of added value for our clients. The process is facilitated through our proprietary open-architecture database of investment managers, started long before any national or subscription database became available. To be included in our database, a manager must complete a DeMarche Manager questionnaire, provide quarterly composite performance results, and agree to notify us immediately in writing when significant changes occur within their firm. The DeMarche database presently includes over 2,600 managers and 9,000 products.
DeMarche’s Manager Review Committee (MARC) leads our manager search and ongoing due diligence process. Composed of the firm’s most experienced consultants, MARC analyzes managers much in the same way a manager’s investment committee analyzes securities. MARC meets weekly to evaluate managers, assigning them to proprietary peer universes based upon portfolio characteristics.
DeMarche’s research professionals and consultants perform on-site due diligence on a regular basis. Our consultants and manager research group assesses investment managers through a number of qualitative and quantitative measures. Managers are assessed through a profiling process, which includes the completion of asset class-specific due diligence questionnaires and interviews with key investment management personnel. The qualitative review facilitates an understanding of the investment manager’s organization, personnel, investment strategy, and process. We’re most often looking for continuity of people, process, and results.
Through a robust database and process of manager research, due diligence and ongoing monitoring, DeMarche has been able to provide proof of added value for clients. Our manager search process can be executed through a traditional search process (semi-finals, finals, manager selection) or via discretionary search, which consolidates the time necessary for manager implementation.
Manager Search & Selection is one of the principal ways we add value to your investment process. We assess investment managers through a number of qualitative and quantitative measures, beginning with a qualitative review based on our investment manager questionnaire and profiling process. This process includes the completion of asset class specific due diligence questionnaires, interviews with key investment management personnel and on-site visits, as appropriate.
Qualitatively, we focus on a number of key ‘Leading Indicators of Performance’ when placing a firm on our approved list. This includes firm-wide factors as well as investment product-specific characteristics such as portfolio managers, philosophy and process. Quantitatively, we evaluate managers based upon performance versus peers, absolute and relative return versus broad market and style specific investment objectives, aggressive/defensive performance orientation relative to a proprietary scoring system, Sharpe based performance style analysis, and security-level holdings review.
Portfolio holdings are processed through our proprietary Fund Diversification Monitor, which evaluates securities by aggressive/defensive, growth/value, market cap, Price-to-Earnings, Price-to-Book, and sector orientation to identify portfolio management style and performance attribution.
Through our ongoing research, over the course of our history, we have developed a suite of proprietary Factor Models. Together, these models more accurately measure market inefficiencies, portfolio risk exposures, and firm-specific risk exposure than traditional models. As a result, they produce accurate expected return calculations for each manager considered. We seek to better explain within which market environment investment managers will be expected to best perform; this is extremely valuable when evaluating manager performance in light of capital market conditions and market leadership (style or market cap size, for example). This process helps us partner with the best investment manager that fits your investment risk and return goals and objectives. In summary, our Factor Models help us monitor investment managers in three ways:
Performance Projections – You can actually project a manager’s relative performance and the overall relative performance of your fund.
Manager Search – Expected return analysis provides better insights for evaluating a prospective manager’s security-selection skills.
Performance Evaluation – Similar techniques enable you to evaluate more precisely a manager’s ability to select securities with the highest expected return.
Upon completion of all qualitative and quantitative due diligence steps, we draft a profile of the investment management strategy for review by the Manager Review Committee (MARC). With over 150 years of combined investment experience, MARC is made up of senior consultants and portfolio managers that serve as the internal due diligence review board.
During investment strategy review meetings, MARC reviews the strategy profile accompanied by performance and holdings analytics to assess any due diligence concerns and opine on the appropriateness of use by clients. After the strategy has been reviewed, ongoing due diligence is maintained with periodic profile updates and continued monitoring of noteworthy, strategy-related news.
We build and maintain ongoing relationships with client-related investment managers, opening clear lines of communication to convey any developments that would impact our opinion of an investment management firm or specific investment strategy. As part of our ongoing due diligence, we perform on-site due diligence of managers on an ongoing basis.
Outsourced Investment Office
Our process begins with you prioritizing key investment challenges and objectives. Together we develop a tailored investment policy that optimally balances return, risk, liquidity, and time horizon. Once the policy is set, you delegate the implementation to us. We take actions related to manager selection, tactical positioning, fee negotiation and continuous oversight.
Performance Review & Measurement
As fund assets fluctuate in today’s volatile stock market, how can you be certain your investment managers are providing maximum value for your investments, while maintaining established guidelines? By conducting a reliable, timely measurement and evaluation of your portfolio manager’s performance.
DeMarche’s quarterly manager performance analysis includes three reports: Capital Market Review, Performance Appraisal Report and Fund Diversification Monitor.
Together, these serve as the basis of all reviews and recommendations regarding your Fund or fund managers.
Capital market review
The Capital Market Review addresses general issues such as investment industry trends and capital market conditions. This report defines the economic and market environment within which your managers operated for the previous quarter and helps to put fund and manager performance in perspective.
Performance appraisal report
DeMarche introduced performance attribution to the manager performance industry in 1974 via our Performance Appraisal Report (PAR). The PAR is an executive summary that provides a total fund summary, asset class summary and individual manager summary with appropriate benchmark and peer universe comparisons. To ensure quality and accurate fund and manager returns each quarter, our portfolio accounting team reconciles custodial transaction statements with asset statements and manager-provided returns. Confidence in both the determination of the data as well as the comparisons to peers and benchmarks are crucial to effective decisions.
Fund diversification monitor
The Fund Diversification Monitor (FDM) contains a comprehensive, factor-based, attribution analysis of each manager. DeMarche was the first consultant to use attribution analysis. Our FDM analyzes your managers’ abilities to add value by four skill sets: Market Timing, Sector Diversification, Security Concentration and Security Selection.
DeMarche brings extensive market and individual manager research to the labor-intensive provider search process. Our comprehensive 401(k) request for proposal is customized to address the specific needs of your plan, enabling candidates to develop competitive fee proposals. Responses are compiled, evaluated, and summarized for your review. DeMarche also participates in final interviews and provides the selection committee with input and advice.
Record Keeper Search
Have you been using the same recordkeeper for your defined contribution plan for many years? As a fiduciary, do you know if your provider provides competitive services and pricing? Many plan sponsors’ plans change significantly over time in terms of size and participant demographics, which is germane to obtaining the right recordkeeper. The process and documentation of selecting a recordkeeper is a fiduciary function that should not be taken lightly. It should be conducted with the same rigor and diligence as any other service provider (Investment Manager, Consultants, ERISA Counsel, etc.) In choosing a consultant to partner with on this seemingly daunting task, you should look for a firm with a wide depth and breadth in terms of working with 401(k) and 403(b) plans. DeMarche has the experience and independence required to find the best recordkeeper that fits your specific needs. We have developed a proprietary database of providers who provide unbundled and bundled recordkeeping/administration and trustee/custody services for all types of employer-sponsored defined contribution plans. As with our due diligence of investment managers, the process is dynamic and continual. We don’t just find the right provider, we provide on-going due diligence to ensure that they are the best fit for your needs.
Institutional Investment Management Focus Team | Endowments & Foundations