Tabs - USI Interim Asset Management

Transition from AJO

A client of ours, wanting to get out of a global mandate, initially tasked us with building a full representation of the MSCI All Country World Index. Our team was able to analyse the client’s portfolio and build an optimized portfolio of individual securities and a few ETFs, tracking the index within 35 basis points (bps) of annualized tracking error. We were able to retain a significant amount of the legacy portfolio by only purchasing approximately 1,200 names in the index – leading to dramatic savings in trading costs and custody fees. After the initial optimization, the client used this as an implementation account for the next six years. The account fluctuated between $200 million and $5 billion in value, depending upon what the client was doing, with the client transitioning in and out of the implementation account eight to ten times per year.

Case study 1

Case study 3

AJO Partners announced that it would be closing its doors at the end of 2020, meaning that clients would need to move their assets to another investment manager. Ultimately, we were hired by seven clients to take over their AJO portfolios, trim the tracking error risk from around 4% of the benchmark to somewhere around 1.5% to 2% of the benchmark, and then manage the assets on an interim basis until the clients could find a long-term solution with another investment manager. The clients chose to go with a 1.75% tracking error to the benchmark (with an estimated cost of 12.5 bps, +/-14.2 bps), which saved them an estimated 34 bps in transaction costs versus going all the way to the index. We were able to achieve these results with only a 15% turnover in the portfolio, while still maintaining their desired investment exposure.

In early 2020, a public pension plan approached us as they wanted to terminate an emerging market debt manager but did not have a new manager contracted yet. We helped evaluate a few options, to provide various risk and cost scenarios. This analysis also factored in various turnover scenarios, ranging from 5% turnover to 20% turnover – and the risks and cost impacts associated with each scenario. In the end, we were able to reduce the tracking error by approximately 40% by turning over just 5% of the portfolio, while preserving the desired investment exposure.