Innovest’s Investment Philosophy

Process over Prediction

A common link that separates great athletic programs from merely good ones is process. Great programs are like a well-oiled machine. The program must be consistent, disciplined, and intense. A successful investment program is no different. The common link to all successful investors is that they are process oriented. Fiduciary law grasps process as the sound approach to managing investments because it is time tested and proven. There are a number of successful processes that are likely to generate better results for investors, institutions, and wealthy families and individuals alike.

The best investors are process oriented and realize they cannot consistently predict the future. Many unsuccessful investors, on the other hand, rely too much on predictions and timing the markets and not enough on process.

Portfolio Design

Innovest looks forward when evaluating the capital markets, including potential trends and changes in the global economy and asset class fundamentals and valuations. Using a thoughtful and methodical approach, Innovest designs investment portfolios on a forward-looking basis by combining client-specific objectives with our long-term projections for risk, returns, and asset class correlation.

Portfolio Risk Management

Innovest’s approach to downside risk is a differentiator from our competitors. We believe that effective portfolio construction starts with clients identifying their risk tolerance first, not striving for return objectives. We believe it is critical for clients to understand the volatility risks associated with their portfolio and be comfortable with that risk budget. Risk lies in the eyes of the beholder; no asset is ever truly and permanently “safe” or “risky.”

Diversification Through Asset Allocation

Asset allocation, the most important decision investors make, is an art, not a science, and the appropriate portfolio can only be determined through dialogue with our client.

Portfolio risk is best mitigated through effective portfolio diversification. We believe that output of any computerized optimization asset allocation model will only be as good as the inputs. Projecting historical performance into the future results in inaccurate and unrealistic projections. Our asset allocation modeling instead utilizes a forward-looking approach to the capital markets environment and asset class returns. Diversification among and within asset classes and strategies is essential to reducing investment risk and meeting long-term objectives.

Selection of Investment Products, Strategies, and Managers

Innovest’s approach to money manager selection is conducted on a forward-looking basis. Our research focuses on understanding whether an investment manager’s strategy has an advantage in adding value in the future. The research is time-tested and proven. We do not believe that a computer can successfully choose managers that will outperform going forward. We rely on our in-house investment professionals to do so.

Alternatives and Non-Daily Liquid Structures

Investment research of alternatives and uniquely structured products requires in-depth due diligence, due diligence questionnaires (DDQs), and ongoing communication with the managers. Onsite due diligence is essential for these products and strategies.

Active and Passive

Both active and passive management have a place in a diversified portfolio. The preferences assigned to active or passive strategies depends on several factors, including asset class liquidity, efficiency, taxable distributions, fees, and client preferences.

Qualitative and Quantitative Focus

Innovest believes that while many measures can be employed to formulate investment recommendations, ultimately the professional judgement of our investment professionals is paramount. Our ongoing research and monitoring process includes a variety of quantitative and qualitative analyses that are summarized in our search books, manager scorecards, and reports to clients.

Fees

We strongly prefer low-cost products, including when comparing a product’s expenses to peers in a similar investment style. Lower fees can have a dramatic, long-term benefit on a product’s performance, as well as the performance of the portfolios that hold it. For taxable investors, what clients keep, after taxes, is critical. Manager due diligence includes the historical pattern of realized short-term and long-term gains. Portfolio design includes the location of less tax-efficient asset classes and managers in tax-deferred accounts, when possible.

Investment Policy Statements and Quarterly Reviews

The ultimate result of our stewardship philosophy is reflected in each client’s Investment Policy Statement (IPS) and ongoing quarterly reports. The IPS includes portfolio objectives, time horizon, risk tolerance, return objectives, liquidity needs, and any other client-specific considerations. Investment Policy Statements are reviewed on an annual basis and in concert with the annual asset allocation review. Quarterly reviews build the ongoing trust between clients and consultants. Our reports are not a simple regurgitation of performance versus benchmarks, but an intense analysis to understand “why” performance happened, good or bad. This enables us to make better forward-looking decisions about products and managers.

Outsourced Chief Investment Officer Services

Outsourced Chief Investment Officer (OCIO) is the role Innovest fills for many of our clients. OCIO is a discretionary approach to investment management where Innovest is hired to make all investment decisions. However, we do not believe in a “one size fits all” approach, which is often characteristic of many large national companies. Our work is custom. We work with our clients to determine the level of discretion that is best suited for your organization. Our investment philosophy, internal investment processes, advice, and reporting are the same regardless of whether we are collaborating with you in a discretionary or non-discretionary model.

The key differences between non-discretionary and discretionary models lie in the final decision-making process and implementation of investment decisions. Clients can choose from little involvement to significant, or any combination thereof.