On behalf of each client, Geneva Partners makes investment decisions according to predetermined levels of risk. Risk tolerance, reflecting the concept of volatility (standard deviation), is the basis that we use to determine expected returns.  One way to make the concept of risk more concrete is to think in terms of a tolerance for potential loss.

A flexible approach 

This approach differs from the traditional asset management notion of generating a return relative to a benchmark.  We believe that managing against benchmarks can result in following a reference point which often remains unchanged for long periods of time. Many asset managers regularly shift their investment positions just  to conform to benchmarks such as market indices; thereby, ensuring that the performance of their portfolios is in line with general market behaviour.

Performance

Investment management based on risk tolerance enables a portfolio manager to quickly make adjustments in a client’s portfolio without necessarily following the general market tendencies.  General Partners’ goal is to generate absolute annual returns no matter what happens in the financial markets. In choosing an absolute return, it is important to differentiate between a desire to preserve capital and the likelihood of reaching a given return, a 90% chance in the case of our balanced accounts. Still, even with the most prudent management, experience shows that losses are still possible (2008 is an example).

There are three factors to determine the level of risk and volatility in a portfolio—the percentage of equity securities, currency risk, and whether “hedge” techniques are employed.

1. The most volatile asset class is equity securities, with risk increasing according to the percentage such holdings in a portfolio.  However, even among equity securities, it is possible to choose among different types of investments (small or large cap companies, those in emerging markets, etc….) Typically, General Partners’ investment mix reflects a percentage of equity holdings inferior to general standards of asset management.  We target equity holdings of roughly 35%, but it can increase or decrease dramatically to take advantage of special situations.
2. A significant portion of risk in a client’s portfolio is the degree of investments in foreign currencies (for example, positions in US dollars for an account based in Euros). As a rule, Geneva Partners does not risk exposure in foreign currencies on behalf of its clients unless the expectations of a potential return in a particular investment are superior.
3. The use of hedging techniques can increase potential return in a client’s portfolio without a proportional increase in risk.  The term “hedge” refers to the use of different sophisticated investment techniques and approaches.  The hedge fund manager makes investment decisions using traditional securities (equity and debt securities, options, etc…) in a non conventional manner.  For example, a manager might decide to simultaneously  take a position in the securities of a company while selling another borrowed on loan.  The primary objective is to take advantage of market inefficiencies in how the various securities trade in relation to each other with a goal to generate a profit. The risk levels that a hedge fund manager take varies from the most conservative to the most “exposed.”  Therefore, it is imperative to know the investment approach of each type of hedge fund manager.

Comparison between the investment approach of Geneva Partners and traditional asset managers:

Investment Allocation

Our process for making investments consists of 4 steps :

1. The first step is to develop an asset allocation plan according to a study of market performance and various financial instruments yields over the last 15 years.  Our base case client portfolio consists of 35% equities, 35% hedge funds and 30% fixed income and cash.
2. Next, we select investment products/instruments to meet the risk and asset allocation objectives of each client. We consider all possibilities, from the most economical to run (Exchange Traded Funds or index futures) to high value-added products (including funds, hedge funds or funds of funds).
3. We adjust the asset allocation of portfolios after meeting with our clients and studying the economic environment and market forces.
4. Finally, we make short term “bets” supported by our technical analysis on an opportunistic basis.  Our objective in these instances is to take advantage of what we believe to be short term predictable moves in currencies, equities and commodities.  Such bets constitute a small percentage of a client’s portfolio at any given time.