Our process is fully transparent for clients. We identify the names of managers and their respective allocations in our funds; we provide daily estimated NAVs, fully accruing all fees and expenses, and we provide daily risk reports identifying sources and levels of portfolio risk. Information is available daily to clients on our secured website, where clients may access their own account information and our proprietary analytics for their portfolio.

The chart above illustrates the progression of constructing and managing a multi-manager hedge fund portfolio. Portfolio Setup includes the first and second stages of product development – portfolio design and portfolio implementation. Once the product is operational, the third stage, Ongoing Management, commences.

Portfolio Design

Portfolio design begins with PGS profiling the client, determining the rate of return objective, risk tolerance, time horizon, any legal and regulatory issues, and unique considerations. After defining the investment guidelines, PGS’ Research and New Product Development team propose the strategies, managers, and allocations. Next, the Investment Committee approves or adjusts the proposed portfolio. Once the client signs off on the portfolio, the implementation process begins.

Portfolio Implementation

The Implementation Committee is responsible for implementing the portfolio, including designing the structure of the investment, (i.e. corporation, trust, capital guarantee). The Committee is also responsible for documenting the transaction including such items as the offering memorandum and counterparty agreements. PGS selects counterparties for the transaction and negotiates terms and conditions with hedge fund managers and other counterparties to the transaction. The implementation process also includes setting up PGS monitoring systems for the portfolio, designing NAV and risk reports, and web based client reporting.

Manager Due Diligence Process

Research

The firm’s research and new product development team combines both quantitative and qualitative research methodologies to perform asset allocation and portfolio optimization including strategy, manager and market analysis as well as benchmark development. PGS has developed a proprietary database of 2000 managers, worked on a number of structured products, and constructed proprietary manager indexes. Including FX, Asian, Japanese Equity Long Short, Energy, and Green Hedge Funds. PGS’ experience of monitoring managers in the markets on a daily basis has improved our due diligence process for hiring managers, strengthened asset allocation techniques, and expedited response times to performance, risk and operational issues with managers. PGS’ research is often published in industry books and journals due to the firm’s credibility and expertise in the area of alternative investment strategies. In addition, Ms. Parker is a frequent speaker at industry conferences on topics including portfolio construction, risk management, manager sourcing and due diligence, and benchmark development.

Quantitative research is where consideration begins. We analyze manager performance relative to market opportunity and operational demands as well as analyzing risk in terms of variance of returns, amplitude of drawdowns and recovery, liquidity, operational and market factors.

Qualitative research is where the decision is made. We perform rigorous due diligence including the background and experience of key professionals, depth of staff, operational controls, reporting capabilities and industry reputation.

Sourcing New Managers

As investment capacity with strong hedge fund managers becomes increasingly scarce, a firm’s strength in sourcing new hedge fund managers becomes increasingly important. PGS is dedicated to this important skill. The firm’s data gathering on new managers requires that PGS rely on our global network with which the firm shares important qualitative information about managers. This information exchange serves PGS in identifying new managers and in avoiding troublesome managers. The firm’s staff speaks regularly to prime brokers, other allocators, broker/dealers, investors, other managers and people who have previously worked for other managers, legal counsel, and auditors.

Asset Allocation Techniques

Our complex portfolio engineering applies proprietary techniques to bridge Value at Risk (VaR) limits with allocations to managers. Our other allocation tools include:

• portfolio optimization combining quantitative and qualitative inputs;
• scenario analysis based on expected returns, risks and correlations across strategies, markets, and economic cycles;
• marginal risk analysis; and,
• alpha overlay for traditional indexes.