Successful investors tend to be unemotional, allowing the greed of others to play into their hands. By having confidence in their own analysis and judgment, they respond to market forces not with blind emotion but with calculated reason.”
— Seth Klarman
Our understanding of your investment preferences helps us evaluate the best ways to implement an investment strategy for you. We work through a discovery process that begins by identifying your goals, objectives, and concerns. We ask a series of questions to learn about your ever-evolving financial picture so we may invest in sync with your life. These questions cover topics such as:
Investment objectives, risk tolerance, return expectations, and time horizon
Personal preferences and biases
Personal and family circumstances
Liquidity parameters such as near-term cash flow needs and tax constraints
Long-term objectives, such as lifetime income needs, wealth transfer, and charitable intentions
This framework creates the basis for us to design an appropriate investment strategy for you. The more we know about our clients, the better we are able to advise them.
Keystone Investment Committee
The Keystone Investment Committee meets regularly to oversee the firm’s investment policies, process, and decisions. The Investment Committee 1) performs fundamental macro-economic and capital markets research which helps form the basis of our asset allocation recommendations, 2) performs in-depth due diligence on investment managers we may consider or currently work with, and 3) stays abreast of the latest industry developments, academic research, and investment products to ensure Keystone continues to be at the forefront of wealth management practices. As an additional measure of protection, the Investment Committee will elect a “Red Team” to provide a case against all significant decisions to ensure that all options are explored and the best path forward is taken on behalf of our clients.
The first layer of our investment strategy is asset allocation. We use asset allocation strategies to capture the long-term investment returns of global capital markets. Our allocations diversify investments across multiple asset classes which is key to successful risk and investment management. We then underweight or overweight asset classes based a combination of macro-economic analysis and capital market assessments with the goal of raising a portfolio’s return potential, lowering the risk profile, or both.
Manager Due Diligence
We identify the highest quality investment managers and funds through a rigorous due diligence process that narrows down thousands of managers to the select few that we work with. Our due diligence process is outlined below and involves a variety of quantitative and qualitative criteria.
Various sophisticated risk measures and in-depth analysis on historical performance metrics are reviewed to help determine a manager’s ability to perform through up, down and sideways markets. Given the breadth of Keystone’s quantitative analysis, few managers make it past this first step.
For those that do, we continue our diligence by focusing on qualitative factors such as investment process, risk management practices, depth of staff, firm operations, and growth trends in the firm's asset base. We conduct on-site visits or interviews with key portfolio managers, analysts, and other personnel to select final managers we work with.
We also place emphasis on combining different managers in client portfolios to diversify risk factors, generate several separate return streams, and attain a complimentary set of investment strategies.
For situations where we are unable to find a manager who meets our standards, we will invest in passive index strategies.
Where possible, we negotiate reduced fees and minimums for our clients. We receive no compensation or 'kick-backs' from managers we work with, thus avoiding all conflicts of interest.
We invest along the full spectrum of asset classes. Core Fixed Income primarily includes domestic government, municipal, and corporate credit. Core Equity includes traditional allocations to large and small cap equities in domestic markets as well as developed countries. We also allocate towards Satellites which may include public real estate, emerging market equity and fixed income, commodities, and other similar investments. The Alternatives asset class includes more absolute return orientated investments such as long/short equity, merger arbitrage, or global macro investment strategies. This section also includes private equity, venture capital, and private real estate investments.
Keystone constructs a portfolio customized to each client’s financial situation. Client specific factors such as risk tolerance, time horizon, cash-flow needs, investment objectives, and other client portfolio constraints underlie this building process. Portfolios incorporate our macro-economic and capital markets analysis. We evaluate the full range of investment strategies being applied across equities, fixed income, satellites, and alternatives, from concentrated active management to passive index-matching strategies. Manager selection creates an additional lever used to optimize the portfolio’s risk/return profile. These different factors are all brought together to create a well-structured portfolio designed to meet a specific clients’ goals and objectives.
Portfolio Monitoring and Review
Our regular portfolio monitoring and management efficiently adapts your portfolio to changes in the market environment as well as changes in your life. We determine when any strategic or tactical portfolio reallocations are necessary. For example, if an opportunity arises in a particular asset class, there may be a tactical opportunity to change to an investment option better suited to capture the upside, or if your portfolio's risk/return profile deviates from our expectations, we will reallocate and realign it with your objectives. If a client inherits assets or sells a business, a portfolio’s objective can be similarly affected and the strategic allocation may be adjusted to reflect new goals and objectives.