Investment advisers play a crucial role in helping individuals and institutions make investment decisions. As absolute investment advisers, they have a fiduciary duty to act in the best interests of their clients. This article will explore the key responsibilities of absolute investment advisers, including developing investment policies, asset allocation, portfolio construction, manager selection, performance evaluation etc. Proper understanding of the role and workings of absolute investment advisers can help investors select the right adviser to meet their financial goals.
absolute investment advisers help formulate investment policy statements
A key responsibility of absolute investment advisers is helping clients develop comprehensive investment policy statements (IPS). A robust IPS sets clear objectives, constraints, risk tolerances, time horizons to govern the investment program. It also lays out roles and responsibilities of various parties involved. By ensuring thoroughness in governance, oversight, benchmarking and portability, absolute investment advisers can create durable IPS to guide investment activities over long term even when circumstances change.
absolute investment advisers determine optimal asset allocation
Absolute investment advisers utilize approaches like modern portfolio theory, monte carlo simulations etc. to determine optimal asset allocation tailored to client’s return objectives, risk appetite, time horizon etc. This strategic asset allocation forms the long-term core of client’s investment portfolio. Factoring in rebalancing costs, taxes etc. absolute investment advisers build portfolios resilient to different market environments.
absolute investment advisers construct customized investment portfolios
Leveraging the strategic asset allocation, absolute investment advisers construct customized portfolios of appropriate investment vehicles to match client needs. This includes selecting high quality fund managers through rigorous due diligence of factors like investment philosophy, stability, performance record etc. Portfolio construction also entails decisions on active vs passive management, vehicles like ETFs etc. Continual monitoring ensures portfolios remain optimized over time.
absolute investment advisers regularly evaluate investment performance
Core to the role of absolute investment advisers is regular evaluation of portfolio’s performance relative to client objectives and risk tolerances. This requires defining appropriate benchmarks and measuring performance against them periodically. Shortfalls can trigger strategy changes to get investments back on track. Such measurement and course corrections are essential for absolute investment advisers to successfully steward client assets.
In summary, absolute investment advisers shoulder significant responsibilities like formulating investment policies, asset allocation, portfolio construction and performance evaluation. Adequately fulfilling these helps them prudently manage client assets as per individual financial situations and objectives over the long run.