Process Summary

At Carolinas Investment Consulting, we focus on our responsibility to help clients design, implement, and maintain a portfolio of investment assets that increases the probability of accomplishing their goals.

Our four-step continuous process affords our clients the ability to seek better risk adjusted performance, to better understand that performance, to eliminate the frustration of not knowing what to do next, and to understand what did and did not work.

The process consists of designing an investment policy, formulating an asset allocation, selecting money managers, and evaluating performance with back testing. This process is important for all our clients whether they are a family, an endowment, a foundation, or a corporate retirement plan.

Policy Statements

The process begins with an examination of our client’s goals, time horizon, risk tolerances, spending needs, preferences, and asset base. This leads to the construction of an investment policy centered around those variables and based on our adherence to Modern Portfolio Theory (MPT).

Review of each of these components provides a solid foundation for the rest of our work. Whether the goals are to spend 5% of an endowment annually or retire in 10 years, we must have a clear understanding of what our clients are trying to achieve.

Asset Allocation

The next step is the formulation of the asset allocation. This is a process through which different asset classes – such as bonds, large cap stocks, growth stocks, hedge funds, and other investment vehicles – are blended together to seek higher risk adjusted returns. The process is centered around Modern Portfolio Theory (MPT), which helped Dr. Harry Markowitz of the City University of New York win a Nobel Prize in 1990.

MPT points out that it is possible to combine two assets of different risk characteristics in order to create a less risky pool of assets. If two assets have a low correlation with one another (meaning the two assets do not move in sync), the two assets may take volatility away from one another thereby creating a less volatile pool of assets.

Evaluate/Select Investment Managers

After the unique asset allocation is formulated for the client, a three-step manager and investment vehicle selection process begins.

First, we screen money managers, mutual funds, and hedge funds – both US and international – for performance and risk. If a manager has not performed well relative to his peers and/or benchmarks, he is not considered for inclusion in the portfolio.

Next we further screen the remaining managers by conducting interviews and reviewing stock selection methods, manager and analyst tenures, style drift, and other qualitative and quantitative aspects of a manager or firm.

Once a manager passes the first two screenings, we follow Modern Portfolio Theory and use correlation analysis to blend the appropriate managers.

Portfolio Monitoring

The fourth step of our ongoing process is to review performance. This includes comparing the results to various benchmarks, identifying strong performers, revealing any weaknesses, and assessing what changes may be needed in either managers or asset allocation. This generally leads to going back through the process again. It is a continual process that helps us and our clients to address needs and to make changes when and where appropriate.