The success of any investment program hinges on a well-constructed investment policy. Five questions that must be answered, when developing an investment policy, include:

• Can fluctuations in portfolio value trigger any unanticipated consequences to the investor?
• What is the investor’s emotional reaction to a severe market drawdown?
• How much investment experience and expertise does the investor have?
• How important is the portfolio to the investor’s overall financial situation?
• Are there any trust/legal restrictions on the portfolio?

Once we’ve answered these critical questions, we build an investment policy that includes risk and return objectives, portfolio constraints and any type of special circumstances that should be addressed.

Risk is the most dangerous variable in the investment process. We define risk more simply than most; to us, risk means losing money and not meeting our clients’ objectives. Of course, the most effective tool for mitigating risk is diversification.

Traditional models of asset allocation too often stop at a balance of equities and bonds. We believe true diversification comes through a prudent mix of economic risk and return drivers, not conventional asset class labels.

For each client, we look at a full range of tools to help them reach their goals. It could be a mix of equities and bonds, or, we might find a more attractive solution through conservative alternative investments.

To help clients establish an appropriate custodial relationship, we offer a number of services to make the search for a custodian as painless and productive as possible. We help clients review the capabilities of their current custodians; we also help to search, interview and select a new custodian when necessary.
Some of the qualities we look for in an effective custodian include:

• Commitment to master trustee/custody business
• Leading edge technology
• Stable, competent team assigned to account
• Superior account manager
• Understanding of client’s accounting/reporting requirements
• Willingness to “do what it takes”
• Superior securities lending and cash management services
• Aggressive pricing
• Superior services available in other areas of the bank

For our individual clients, we work with a preferred custodian who possesses all of the qualities listed above. Should our clients, however, prefer to work with their own custodian, we are more than happy to coordinate with their current one.

We believe that people are the most critical element in the investment process. The value of identifying and working with proven professionals cannot be overstated. We spend considerable energy on manager searches each year. We focus our efforts on managers’ investment philosophy, the process undertaken to implement that philosophy and the consistency of each, as well as the continuity of the investment team. While historical performance is an input to the process, we recognize that a manager’s ability to repeat past success is the key element that must be evaluated.

An overview of our search process includes:

We take a systematic approach to measuring performance and reporting results. Our Performance Analysis & Reporting Information Systems (PARis) gives us enhanced reporting capabilities, including:

• Client Portfolio Data Management
• Performance Measurement
• Performance & Risk Attribution
• Access to Integrated Market Databases

We believe that education is an integral part of our role as investment consultants and crucial to the success of a long term investment program.  Highland offers training on a variety of investment related topics including investment policy (which would include the roles of fiduciaries), specific asset classes, asset allocation, analysis of different types of risk, and many other investment related topics.  We have found that it is helpful to educate new clients as to our investment approach to establish the framework for the implementation of the investment program and proper areas of focus in the ongoing monitoring of the portfolio.  Typically, one of the consultants assigned to the relationship will conduct an educational session. Often, these topics may be covered in more detail in a white paper prepared by Highland Associates and distributed to our clients.