Risk Management

Algonquin’s open architecture investment philosophy and use of third party custodians to ensure the safe keeping of client assets are key differentiating components that many would describe as prudent and complete risk management programs.  Algonquin believes that there is more to a successful risk management program than simply having an objective investment approach and a separation of custody and investment decision making.  Ongoing risk management is critical to assess the effectiveness of the overall investment strategy, each component of the portfolio and to update client needs.  Each client’s investments are part of the firm’s comprehensive approach to risk management which is typically comprised of three distinct components:

1. Review the overall portfolio to confirm it is within the guidelines communicated in each client’s Investment Policy Statement (IPS).  Portfolios are regularly reviewed to confirm that they are within IPS guidelines, to achieve the investment goals of the client.  Items such as diversification of the portfolio are carefully monitored.  Algonquin confirms with each client and their trusted advisors, when applicable, that the current IPS continues to meet the investment needs for the portfolio.  Changes to an investor’s needs typically result in an updated investment plan and IPS.

2. Review the performance and risk profile for the overall portfolio, and for each component of the portfolio, versus an appropriate benchmark.  Algonquin has invested significant resources in a state-of-the-art performance reporting system that is both comprehensive and easy to understand. The firm’s monthly and quarterly performance reviews provide a framework for ongoing communication to review progress being made towards stated investment goals. At the portfolio level, performance and risk are reviewed in absolute terms and relative to a custom benchmark as identified in the client’s IPS. Changes in asset allocation are noted as determined by a modification in policy from an organization’s investment committee or the changing needs of the high net worth individual investor.  At the manager level, each component of the portfolio is reviewed relative to an appropriate market benchmark. 

3. Ongoing investment manager review.  During most quarters, risk management is typically comprised of the review of the portfolio relative to a client’s IPS and a review of the performance and risk characteristics relative to appropriate benchmarks.  However, Algonquin’s approach to risk management also includes the firm’s ongoing review of the managers responsible for components of a client’s portfolio. The firm pays keen attention to both qualitative and quantitative factors in their management research effort on an ongoing basis.  Quantitative factors such as performance and various risk measures are reviewed.  While certain types of change in investment management organizations are expected, Algonquin prides itself on understanding the nature of those changes.  In cases where Algonquin believes qualitative changes to a manager’s organization or investment process make it less likely that the manager will be able to replicate their past success, Algonquin will recommend a replacement manager or strategy. 

When required, Algonquin recommends changes of asset allocation, investment managers or both.  All such changes are made within the parameters outlined in the client’s IPS and are approved in advance by the client.  Real client value, however, comes in the form of client meetings and phone calls in which Algonquin helps clients understand recent history and the plans Algonquin is making on their behalf.

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