Overlay
Candlefocus EditorUnder traditional asset management methods, decisions for a portfolio are made independently by the asset managers, without consideration for the overall impact of such adjustments. In contrast, overlay asset management puts investment decisions into the hands of an experienced portfolio manager, who encourages collaboration between the asset managers and ensures the portfolio’s objectives are all being met. This manager oversees the entirety of the portfolio, striving to maintain a uniform asset allocation which is in line with an investor’s risk tolerance, tax situation, and overall financial goals.
At its core, overlay implements a ‘One-Stop-Shop’ approach that allows all parties to manage the portfolio in an integrated fashion. The portfolio manager has a complete view of the portfolio, allowing him or her to better execute rebalancing strategies, identify any issues and respond in a more efficient manner. All of the asset managers are then able to view the same global asset allocation from one convenient place, reducing the ambiguity and complexity that can hinder the successful implementation of investment strategies.
An overlay asset management system can also facilitate portfolio optimization. The portfolio manager can analyze portfolio data to verify the portfolio is aligned with the investor’s quantitative and qualitative goals. Any discrepancies are then addressed and strategies optimized to help the investor achieve their investment objectives. The managers can benefit from a better understanding of the investor’s climate risk, better measure and manage liquidity, and create more transparency about portfolio performance.
Overall, overlay asset management alleviates tension between asset managers, simplifies the portfolio management process, and makes disciplined investment decisions easier to execute. By creating a unified approach to portfolio management, overlay provides portfolio managers with greater visibility, improved accuracy and more efficient execution of rebalancing strategies. With the additional analytical capabilities available, investors can create more sophisticated portfolios and ultimately make better investment decisions.