IPS believes that asset allocation is the primary driver of investment returns for a benefit fund. Thoughtful consideration of a Fund’s asset allocation should include trustee education, reasonable inputs, and annual reviews of the expectations. Our asset allocation process begins with the identification of the pertinent inputs such as expected liabilities by year and expected return, risk, and correlation for assets. Furthermore, the current asset mix, plan cash flows, and investment return objectives are considered, in addition to the risk tolerance of the Plan’s trustees. Part of our process also includes interaction with the Plan’s actuarial/benefits consultant to determine risk tolerance of the fund, review of the participants’ demographics, consideration the Plan’s actuarial assumptions.
We utilize sophisticated optimization software for asset allocation modeling. Our process includes forward looking asset class assumptions for risk and return, establishing asset class constraints, and efficient frontier analysis. We work directly with clients in analyzing the risk/return of the current allocation, educate Trustees on new asset classes, and thoroughly review potential portfolio options that offer optimal risk/return tradeoffs in order to achieve long-term investment success.
Once the parameters are set and investment managers have been selected for the appropriate mandates, IPS monitors the asset allocation of the Plan and makes recommendations regarding rebalancing on a quarterly basis. In addition, IPS conducts a thorough asset allocation review on annual basis or if there are pertinent changes with the Plan such as changes in cash flows, risk tolerance, or investment objectives.