Fiduciary Asset Management

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Nov 18, 2013 (3 years and 11 months ago)

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Fiduciary Asset
Management
A Discretionary Investment Management Solution

The Fiduciary Asset Management program is designed to provide
a customized, discretionary solution to help you meet your investment
objectives and fi duciary obligations.
01 / MORGAN STANLEY

Introducing a Discretionary
Investment Management Solution
Investors face enormous challenges in today’s complex
financial markets — whether they are managing their own
money or the institutional funds entrusted to their care.
These challenges include accurately assessing investment
objectives, developing investment policy and asset
allocation strategies, selecting and implementing
appropriate investments, monitoring portfolio performance
and conducting disciplined rebalancing strategies.
The Fiduciary Asset Management program is designed
for investors who seek to delegate decisions to a team
of professionals responsible for implementing a fully
discretionary investment management program that is
based on your objectives.
MORGAN STANLEY / 02
Our Fiduciary Asset Management Program
Fiduciary Asset Management provides investment advisory services along with
the processes and systems to help meet your fi duciary and / or regulatory obligations.
The program represents an integrated approach to investment management
accomplished through a single relationship with Morgan Stanley and your
Financial Advisor.
In essence, through the Fiduciary Asset Management
program, we can assist you with investment functions
that may previously have been solely managed
by your staff. These functions include managing
relationships with asset-management fi rms, custodians,
administrative and record-keeping fi rms and other
fi nancial entities.
The result of the collaboration is a customized
program that delivers an integrated investment
management program in a cost-effective manner.
Potential benefi ts include:
• Disciplined investment policies
• Improved risk and return effi ciency
• Reduced costs
• Improved audit transparency
• Investment and fi duciary decision-making
Our Fiduciary Asset Management program offers the
convenience and security of an advisory relationship
with an experienced investment-consulting organization,
while at the same time providing access to independent
money-management fi rms and other high-quality
investment services.
The result is a comprehensive and fl exible program
suitable for all types of investors requiring professional
investment management advice.
03 / MORGAN STANLEY
Diversifi cation does not assure a profi t or protect against loss.
Robust Investment Services
Modern, effective portfolio management often requires more expertise and extensive
time and attention than many private investors, trustees or families can afford to
devote on their own. On the other hand, delegating investment decisions to a series of
third parties creates new demands including oversight of responsibilities, coordination
of activities, consolidating reports and much more.
The Fiduciary Asset Management program is designed
to manage these key responsibilities by delivering
solutions that include:
• Initial and ongoing analysis of your
investment objectives
• Strategic and tactical asset allocation decisions
• Investment policy statements
• An open-architecture approach to investment
management including customized manager
searches and implementation
• Comprehensive risk management oversight
• Coordination of services with third-party custodians,
banks and other fi nancial service providers
Many types of investors have recognized the benefi ts of
this comprehensive, discretionary investment service
including private individuals, families, multi-family
offi ces, endowments and foundations, Taft-Hartley
funds and other institutional investors.
MORGAN STANLEY / 04
Introducing Portfolio Advisory Services
The Consulting Group at Morgan Stanley has a long history of leadership in the delivery
of investment advice. In fact, Consulting Group has consistently ranked as a leader in
managed account services.
1
Consulting Group’s Portfolio Advisory Services (“PAS”) team leverages the fi rm’s strategic
and tactical asset allocation advice, manager research and evaluation services, and
portfolio construction capabilities to deliver a suite of discretionary investment solutions,
including the Fiduciary Asset Management program.
This team oversees every aspect of Fiduciary Asset
Management program to provide tailored strategies and
a wholly integrated, discretionary investment approach.
The team is comprised of investment professionals
from within Consulting Group and Morgan Stanley and
also taps into the thought-leadership of investment
professionals from academia and other organizations.
The Portfolio Advisory Services team follows a
risk-budgeting approach to portfolio construction.
This process helps guide portfolio structuring decisions
and in turn the manager selection decisions to help
assure the overall “fi t” of each investment strategy used
in clients’ portfolios.
The risk-budgeting approach allows the team to
strategically allocate where risk is taken. Furthermore,
Portfolio Advisory Services team uses an ongoing risk-
management oversight process so that no “undesired”
risks are assumed. Risks are monitored across a
number of factors such as sectors, market capitalization,
portfolio characteristics, macro economic factors,
country and currency exposures, among other factors.
In this manner, Portfolio Advisory Services, with
support from its Advisory Board, employs a disciplined
portfolio construction process with an intense focus on
investment risk.
05 / MORGAN STANLEY
1
Cerulli Associates. Past performance is not a guarantee of future results.
A Disciplined Portfolio Construction Process
Portfolio Advisory Services uses a series of six comprehensive, repeatable steps that
represents a disciplined and repeatable process for portfolio construction:
1.Strategic Asset Allocation. A strategic, long-term
diversifi cation strategy is determined for each client.
Fiduciary Asset Management uses traditional (stocks
and bonds) and alternative asset classes such
as commodities, hedge funds, global real estate
investment trusts, infl ation protected bonds and
managed futures to help diversify client portfolios,
when appropriate.
2. Tactical Asset Allocation. Tactical “tilts” may deviate —
either underweight or overweight — from the strategic
asset allocation to help capitalize on current and
prospective market conditions or to reduce risk in
the portfolio.
3. Implementation Approach. Portfolio Advisory Services
then determines the specifi c portfolio implementation
approach for each client — this may include all
active management or a blend of active and passive
investment strategies.
4. Risk Budgeting. At all times, Portfolio Advisory Services
focuses on risk budgeting or the allocation of risk to
various asset classes. The process is referred to as an
“active” core-satellite approach. The team takes an
active view on allocation of risk to the core asset classes
relative to the asset classes designated as satellites.
5. Manager and Fund Selection.

The team then leverages
the extensive research and evaluation services of
Investment Advisor Research to select from traditional
money managers, mutual funds, exchange traded funds
and alternative investment strategies as appropriately
determined based on each client’s strategy and risk
budget. Portfolio Advisory Services uses a proprietary
tool known as “alpha driver analysis” to help identify
characteristics and sub-styles that the team believes
can deliver value to clients in the future.
6.
E
valuation of Portfolio Risk. The team conducts
detailed and ongoing analysis into the evaluation and
measurement of the portfolio’s overall risk levels across
95 distinct risk factors.
Strategic Asset
Allocation
Manager and Fund
Selection
Tactical Asset
Allocation
Implementation
Approach
Evaluation of
Portfolio Risk
Risk Budgeting
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1
MORGAN STANLEY / 06
The Power of Global Capital Markets Insights
and Money Manager Research
To deliver discretionary advice to Fiduciary Asset Management clients, Portfolio Advisory
Services leverages the extensive investment analytics and advisory solutions available
through the fi rm. These capabilities include tapping into the intellectual capital of:
The Global Investment Committee at
Morgan Stanley
The Global Investment Committee is comprised of
seasoned professionals with deep levels of expertise
spanning the global spectrum of asset classes,
instruments and investment techniques to deliver
extensive investment and economic analysis and
leadership on diversifi cation strategies.
Normally, the committee meets monthly to survey the
economic landscape, to update its base-case outlook
and discuss bullish and bearish scenarios thereof, and to
recommend tactical adjustments intended to capitalize
on short-term opportunities. In addition, the committee
delivers a wide array of strategic model portfolios
designed to accommodate different risk profi les and
liquidity requirements.
Portfolio Advisory Services leverage the Global
Investment Committee’s advice to develop each client’s
strategic and tactical asset allocation recommendations.
Consulting Group Investment Advisor Research
Choosing the appropriate investment manager is one of
the most important decisions any investor can make.
Given the thousands of managers and funds available,
there’s no question fi nding the right investment manager
can be a bewildering challenge.
The Fiduciary Asset Management program helps
investors make these diffi cult decisions by tapping into
Consulting Group Investment Advisor Research team’s
disciplined process for evaluating investment managers.
Investment Advisor Research consists of a team of
experienced manager research analysts who conduct
extensive due diligence on traditional investment
managers, selected alternative investment strategies and
a series of mutual funds and exchange-traded funds.
07 / MORGAN STANLEY
The Importance of Ongoing Risk Management
Risk can take many forms such as individual securities risk, capital markets risk,
geopolitical, economic and environmental risks, human errors, fraud and others. While
some events may be uncontrollable — such as environmental risk or terrorism, a prudent risk
management and oversight process can help manage any negative impact on portfolios from
unexpected risks.
The Fiduciary Asset Management program uses a
disciplined approach to risk management. Specifi cally,
the PAS team looks at several critical areas:
• Due diligence of investment management fi rms. The
Portfolio Advisory Services team selects the investment
fi rms recommended to Fiduciary Asset Management
clients, leveraging the work of Consulting Group
Investment Advisor Research. If a manager or strategy
no longer meets its objectives for the program, a
replacement manager is quickly selected. Recurring,
regular due diligence on investment management fi rms
delivers a consistent oversight process way to help ensure
compliance with the highest ethical standards.
• Ongoing factor analysis and forecasts. A signifi cant risk
management component entails checking for “undesired”
factor bets in the portfolios. Risk forecasts are developed
across a number of factors including sector allocation,
market capitalization, portfolio characteristics, e.g., yield,
P/E ratios, macro economic factors, country and currency
exposures and individual holdings. PAS regularly monitors
these factors across portfolios and requires timely
information and full transparency of holdings from all
investment fi rms. If signifi cant risk factors are developing
with investment management fi rms or asset allocation
strategies, changes are nimbly enacted.
• Monitoring of style drift. From time to time, investment
fi rms may stray or “drift” from their stated investment
process. The Portfolio Advisory Services team monitors
style drift regularly to determine whether asset managers
remain true to their investment discipline. Given
that portfolios are constructed with managers that
have specifi c style biases, if a manager’s style drifts,
the manager in question may no longer “fi t” in the
portfolio. In addition, “style drift” may cause undesired
concentrations in the portfolio that may result in excessive
risk taking. Therefore, if a manager drifts or investment
fi rms become too similar in their approach to investing,
replacement managers may be selected.
• Capital Market Risks. The Global Investment Committee
continuously observes and analyzes the capital market
environment. Their insights and forecasts of risk and
return opportunities for various asset classes helps
Portfolio Advisory Services manage risk in portfolios. For
example, Portfolio Advisory Services may make periodic
adjustments to a client’s asset allocation to a risky asset
class, if the GIC views the asset class as signifi cantly
riskier than normal, in order to maintain portfolio
diversifi cation and portfolio risk. Portfolio Advisory
Services may also increase cash in a client portfolio if
the GIC recommends the risk asset classes to be
excessively risky.
• Rebalancing strategies. History has shown that more
volatile asset classes in a portfolio tend to have higher
returns over time. Consequently, their overall weight
in a portfolio may rise over time and, as a result,
investors may assume more risk than allowed within
their investment policy guidelines. The Fiduciary Asset
Management program offers active rebalancing strategies
on a regular basis to adhere to a client’s asset allocation
strategy and help maintain the appropriate level of
portfolio risk.
MORGAN STANLEY / 08
09 / MORGAN STANLEY
The Matter of Cost
Fiduciary Asset Management would be of little value if the costs outweighed the
benefi ts. The Fiduciary Asset Management program may be able to help reduce
total costs by closely supervising all of your investment-related expenses, including
custody fees, investment advisory fees and trading costs. Our size and considerable
market presence allows even smaller investors to benefi t from cost effi ciencies
normally available only to the largest investors.
Because of the cost effectiveness of the Fiduciary Asset
Management program, the services are particularly
important to:
• Institutional investors seeking to outsource their
investment management responsibilities and greater
fi duciary oversight
• Midsized pools of funds such as small companies
and insurance pools that may lack the proper staffi ng
levels to meet today’s market challenges
• Private individuals and institutional investors in need
of experienced management, professional portfolio
management and investment oversight
• Investors seeking more timely execution of investment
decisions and an integrated, cost-effi cient solution
MORGAN STANLEY / 10
Integrated, Discretionary
Investment Strategies;
Comprehensive Portfolio Advice
Investment management is a difficult business, with much room
for error. Mistakes can be costly, for private individuals and
the institutional organizations they serve. The Fiduciary Asset
Management program may help you improve your chances of
reaching your desired financial objectives while helping you manage
legal or regulatory liabilities.
Our Fiduciary Asset Management program provides clients with
a fully equipped solution for all your investment needs. It is
designed to help you build, manage and supervise all of your
investment decisions and responsibilities. Learn more about how
Fiduciary Asset Management can help you meet your investment
responsibilities by speaking with your Financial Advisor. He or she
will also be happy to provide more information on the program’s
customization capabilities.
Investing in alternative investments is speculative, not suitable for all clients, and intended for experienced and sophisticated investors who are willing to bear
the high economic risks of the investment, which can include:
• loss of all or a substantial portion of the investment due to leveraging, short-selling or other speculative investment practices;
• lack of liquidity in that there may be no secondary market for the fund and none expected to develop;
• volatility of returns;
• restrictions on transferring interests in the fund;
• potential lack of diversification and resulting higher risk due to concentration of trading authority with a single advisor;
• absence of information regarding valuations and pricing;
• delays in tax reporting;
• less regulation and higher fees than mutual funds; and
• advisor risk.
Morgan Stanley Smith Barney LLC, its affiliates, and its employees are not in the business of providing tax or legal advice. These materials and any tax-related
statements are not intended or written to be used, and cannot be used or relied upon, by any such taxpayer for the purpose of avoiding tax penalties. Tax-related
statements, if any, may have been written in connection with the “promotion or marketing” of the transaction(s) or matter(s) addressed by these materials, to the
extent allowed by applicable law. Any such taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor.
© 2012 Morgan Stanley Smith Barney LLC. Member SIPC. Consulting Group is a business of Morgan Stanley Smith Barney.
2010-PS-1003 CS24035 CLF77712-00 10/12 7245639
The Fiduciary Asset Management program is available for investors with a minimum of $2 million to invest. Professional, discretionary investment management
expenses are covered through an asset-based management fee.