AMps provides the solution to the current problems of market benchmark dominated active and passive management.
In portfolio construction, the client can model (with a large number of portfolios) the range of investment alternatives that they are comfortable with at an acceptable risk profile (the ‘opportunity set’). Once this risk budget is set for the total client portfolio it can then be allocated, in similar fashion through mandates, to the underlying managers or funds in a way that is complementary and optimises the structure of the total account.
Unique to the AMps process, multiple investment objectives can then be set for the client total portfolio and each of the underlying managers that correctly reflect the risk and return profile for the client and target an ideal outcome. The same process, which is used to construct the portfolio and set the mandates is then used to ‘manage’ the total account and to subsequently measure the actual performance and risk whilst providing extensive information on other portfolio statistics. The managers’ performance and risk can be graded monthly by percentile rankings over a series of different time periods relative to what was available under their mandate.
Analysis of results can identify opportunities for improved returns, which were missed or areas where decisions were correct. Critically, this introduces the manager to a completely different perspective on the way they make investment decisions.
AMps confronts the issue of semi-passive or passive investment head on. It challenges the manager to exceed a real rate of return target over a reasonable time horizon and to maximise investment returns within a client risk profile. This is preferable to managers matching an index, which might or might not be relevant to the client’s risk profile and might or might not provide the client with an acceptable nominal or real return or access the potential of their mandate.
Control in a benchmarked portfolio is based on FOMO – fear of missing out on the index return. But this does not represent true investment objectives and risk control. Only an active manager can provide this, and only by using the AMps system can fund managers be freed to consider opportunities outside the index while being monitored in a controlled way for the client against agreed portfolio guidelines.