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Consulting Group

Institutional Investors

Meeting the Needs of the Institutional Investor

Our investment consulting division was founded because we recognized the significant challenges that prudent investment management posed to even the most sophisticated institutional investors.

We designed our services to address the concerns faced by institutional investors. We follow a disciplined process to deliver our customized advice.

Institutional Process

Consulting Group Institutional ServicesQuestions — Please contact:Bonnie L. Baker, CIMADirector of Institutional ServicesPhone: (800) 215-9639Email: bonnie.l.baker@citigroup.com

Phase 1: Needs Analysis

Establish Investment Objectives Effective planning begins with a realistic analysis of the budget needs and expected resources of your organization. We start by evaluating your fund's return target relative to its projected financial needs, and we examine the anticipated timing of your contributions and distributions relative to your assets. Other key factors taken into consideration include the duration of the program(s) to be funded by the portfolio and whether costs within your organization are fixed or variable.

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Phase 2: Investment Policy

Document Investment Objectives and Portfolio Guidelines Based on the goals determined by the needs analysis, specific guidelines for the portfolio's strategy are established through a written investment policy statement.

Duties of all parties involved in asset allocation strategy, portfolio management, portfolio constraints, manager selection criteria, ongoing review guidelines and other details are documented.

Statement of Purpose Statement of Responsibility General Principals and Objectives
Define and assign the responsibilities of all involved parties Define who is responsible for directing and monitoring the fund's assets Adhere to prudent investment standards
Establish a clear understanding of the overall investment goals Outline the delegation of responsibilities to investment consultants and firms Discuss allowable assets including the use of alternative investments
Discuss how the investment policy statement will meld with the spending policy statement Detail the responsibilities of the fund's custodian Define the annual spending policy and liquidity requirements
Establish the relevant investment horizon for which the assets will be managed   Establish a process for the selection, hiring, and monitoring of investment managers

Working with your Financial Advisor advisor, your customized policy statement will be regularly reviewed, updated, revised and adopted to serve as a prudent roadmap to your organization's financial future.

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Phase 3: Asset Allocation

Determine Asset Allocation Morgan Stanley Smith Barney provides you with the expertise of the Investment Committee to help you determine what allocation and investment vehicles are right for you. The Investment Committee is made up of many seasoned investment professionals from across Morgan Stanley Smith Barney who can expertly help you determine what asset allocation balance is appropriate to help you achieve your desired results.

Institutional Process

Strategic Asset Allocation Your fund's strategic asset allocation is primarily affected by the specific needs of your fund and is defined as the long-term "targeted" allocation that optimizes the tradeoff between your return needs and risk tolerances. Using "normalized" return and risk estimates that help to remove the influence of short-term cyclicality, Investment Committee helps you to evaluate the impact of various asset allocation choices over your investment horizon by leveraging the extensive analytical capabilities of Morgan Stanley Smith Barney.

Active asset allocation is primarily driven by market conditions. In shifting assets among various groups of securities, investors seek to add value by taking advantage of market opportunities. Of course, all allocation changes are made relative to your strategic asset allocation and within boundaries established in your investment policy statement. The Investment Committee generates "forward-looking" estimates of return and risk. These form the basis for recommended allocation changes designed to increase risk-adjusted returns. All asset shifts are made gradually and do not alter your overall risk profile.

Portfolio Structure Once your asset allocation strategy is established, your Financial Advisor advisor will help you evaluate your current investment vehicles for any redundancies or missing components. For example, your existing portfolio may include two growth managers while your updated asset allocation strategy may call for a value component and a growth component. Your Financial Advisor advisor, backed by the analytics and advice of the Investment Committee, will advise you on any necessary changes, including adding or replacing specific managers.

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Phase 4: Manager Selection

Robust Research Featuring Quantitative and Qualitative Factors Evaluating investment firms is a cornerstone of our organization and we draw upon the strength, resources and experience of the Morgan Stanley Smith Barney Investment Advisor Research Committee. This committee is composed of more than 80 dedicated manager evaluation analysts and reviews nearly 900 investment products each quarter, including separately managed strategies, mutual funds and alternative investment products.

A critical factor in our evaluation and selection process of managers is the degree to which it is free from favoritism, bias and potential conflicts of interest. To help ensure the purity of our process, the Investment Advisor Research Committee adheres to strict standards and guidelines:

  • Qualitative Analysis. Our research process enables us to evaluate qualitative criteria, such as the quality and depth of personnel, the definition of investment discipline (both purchase discipline and sell discipline), the consistency of investment process implementation and quality of research. We also evaluate each advisory firm for overall business strengths and weaknesses and for their capacity to accommodate new relationships.
  • Quantitative Analysis. Almost any manager candidate can illustrate superior performance over some time period. Our task is to evaluate each candidate without any biases and to present each manager on level ground. We analyze managers' performance records to identify the magnitude and consistency of value-added performance, the amount of risk in relation to an appropriate benchmark, and performance in adverse market conditions.
  • Customized Manager Searches and Selection Consultation. Our search focuses on managers who have been screened through our proprietary manager evaluation process. From this group, we present lists of preliminary candidates who we believe have the capacity to manage your assets successfully. In consultation with you, final candidates are selected for formal presentations. Your Financial Advisor advisor will help you identify those managers that represent the most appropriate fit for your organization's unique requirements.
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Phase 5: Portfolio Monitoring

In today's fast-paced financial markets, information is a critical component of success. For investors, that means having access to accurate, timely reports on the performance of their portfolios. To help you and your organization meet this need, Morgan Stanley Smith Barney has developed a powerful performance reporting tool.

Our customized business reports cover virtually every aspect of your organization's investment program.

Portfolio Monitoring
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Phase 6: Review and Rebalancing

Importance of Rebalancing Investors need to understand that asset allocation isn't a one-shot deal. Over time, market forces will tend to push portfolios away from their original targets. This may leave investors exposed to more risk than they want or expect.

Wise investors monitor their portfolios frequently and have procedures in place to make course corrections as needed. This process is known as rebalancing, and it is a critical — if frequently misunderstood — aspect of the investment process.

Types of Rebalancing Strategies In recent years, financial professionals have proposed a variety of rebalancing approaches. Most of these strategies fall into one of five broad categories:

  • Periodic Rebalancing. Portfolios are reset to their target allocations on a fixed schedule — such as annually, quarterly or monthly.
  • Threshold Rebalancing. Portfolios are adjusted if and when a particular asset class deviates from its target allocation by more than a certain amount.
  • Range Rebalancing. This approach is similar to threshold rebalancing, except that when an asset class rises or falls more than the allowed amount, it is rebalanced back to the maximum, not the target, allocation.
  • Volatility-Based Rebalancing. Triggers are based on the expected volatility of the portfolio as a whole. When volatility rises above a certain predetermined threshold, higher-volatility asset classes are sold and lower-volatility asset classes are purchased.
  • Active Rebalancing. Portfolios are rebalanced to the original target allocations as needed, based on analysis of expected market conditions.

Working With Your Financial Advisor Advisor For some investors, the rebalancing equation must cover not just the allocation of funds among asset classes, but among portfolio managers as well. This may add yet another layer of complexity to the process. Fortunately, your Financial Advisor advisor can help. By working with Morgan Stanley Smith Barney, investors can better manage their rebalancing strategies — and all the other aspects of their investment programs. Some of the benefits:

  • A customized rebalancing strategy
  • Performance monitoring
  • Asset allocation advice
  • Individually managed accounts
  • Asset-based fees
  • Manager research
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To learn more about our disciplined process for fiduciary investors, please speak to a Financial Advisor an advisor.

Consulting Group, a business of Morgan Stanley Smith Barney, provides advisors with investment advisor research and capital markets analysis to assist in planning your personal investment strategy. This site describes asset management services provided to U.S. persons and entities by firms that are registered as investment advisers under the Investment Advisers Act of 1940. This site is not a solicitation on the part of Consulting Group or any asset management firm recommended by Consulting Group to provide asset management services to non-U.S. persons and entities. This site is for informational purposes only and does not constitute either investment advice or recommendations on the part of Consulting Group or any asset management firms described herein.

Although the statements of fact and data herein have been obtained from, and are based upon, sources that the Firm believes to be reliable, we do not guarantee their accuracy, and any such information may be incomplete or condensed. All opinions included herein constitute the Firm's judgment as of the date indicated and are subject to change without notice. This material is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Past performance is not a guarantee of future results.

Please contact your advisor for more information about available products, services and research.

For more information, please contact your Financial Advisor.

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