At Liberty Gateway we apply a bottom-up approach to portfolio construction by first selecting managers. Managers are sourced in a number of ways which include, but are not limited to, private databases, introduction by marketers and industry networking. Our manager evaluation process is as follows:
- Relevance of Strategy:
- Is the strategy relevant for a high alpha absolute return portfolio;
- Strategy’s relevance to current and forecasted market conditions – both global and sector;
- Does the strategy have sufficient capacity – both manager and sector;
- Level of portfolio liquidity;
- Level of portfolio transparency.
- Integrity:
- In-depth criminal/regulatory background check;
- Is management ethical;
- Industry and/or investor references;
- Verification of service providers [prime brokers, auditor, administrator and outside counsel].
- Competency:
- Genuine experience in managing the strategy;
- Coherent application of strategy;
- Professionalism and depth of management team;
- Strength of risk control methodologies;
- Competitive edge;
- Financial strength/competency of service provides.
Employing the data-base of Liberty Gateway approved managers; Liberty Gateway constructs an optimal portfolio of hedge fund strategies and managers applying the following disciplines.
- Strategy Allocation Considerations:
- Risk Tolerance and Volatility Sensitivity
- Return Objectives and Consistency of Returns
- Correlation to Market Factors
- Correlation/Sensitivity to Other Investments
- Quantitative Analysis:
- Alpha: Historical performance relative to S&P 500/Merrill Lynch High Yield Bond Index;
- Beta: Historical correlation to S&P 500/Merrill Lynch High Yield Bond Index;
- Standard Deviation: Portfolio’s performance sensitivity;
- Sortino Ratio: Drawdown risk.
- Diversification:
- Liberty Gateway believes that the single most important consideration for a properly balanced hedge fund portfolio is high diversification among individual managers, sectors and styles.
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