The officers and directors of an investment management program
need different kinds of performance reports than do portfolio managers
and analysts. The function of the Asset Allocation Audit is to reorganize
the presentation of investment results to serve the needs of those
The Audit arranges results into a value added format similar to
the reports executives use to manage a corporation's assets. This
puts fiduciaries, especially those who are not securities markets
professionals, into a stronger position to fulfill their oversight
responsibilities. It allows them to close the communication gaps
that so often frustrate their search for accountability.
The Audit separates a plan sponsor's responsibilities into two
areas: the Management of Policy and the Management of Managers.
The first deals with the asset classes and sub-classes authorized
for investment purposes. The primary policy is a percentage mix
of major classes that reflects the sponsor's long-term investment
return expectations. Other policy allocations can be made at several
levels when strategic and tactical departures are allowed.
The second area of responsibility is the Management of Managers.
One of its key components is the process of choosing the portfolio
managers who are to invest the fund's assets. The other is the allocation
of assets among the selected managers.
The Audit also calculates the values added and lost by portfolio
managers. These managers are viewed as quasi employees hired to
enhance the returns provided for by the sponsor's policy decisions.
Their aggregate results approximate the total value added from manager
selection and allocation decisions made by the sponsor. Several
charts and tables for each portfolio facilitate an examination of
its manager's value to the sponsor. These supplemental records separate
each manager's total impact into its primary components: market
timing, security selection and fees.