Updating a Successful Strategy to Meet New and Changing Investor Goals
The Westwood Managed Investment Solutions team has helped countless institutional investors using a consultative process to develop unique rules-based, outcome-oriented investment solutions for their specific needs and goals. The following case study illustrates how they created a solution for an institutional client with a specific set of challenges.

Administrators of a large corporate-sponsored defined contribution plan offered participants an investment option that addressed environmental, social and governance (ESG) issues. However, the plan saw significant shortcomings with the existing ESG index strategy, including dated thinking around ESG objectives as well as no exposure outside of U.S. markets. The plan’s goal was to offer an ESG option open to global investments that reflected the current best thinking on ESG investing and specifically reduced the portfolio’s effective carbon footprint.
Plan administrators soon realized that the incumbent manager’s capabilities would not be able to evolve with the plan’s new objectives. Plan administrators also wanted an investment manager who could adapt to changing conditions, as the conditions and objectives of ESG have changed and will likely continue to change in the future.

The team at Managed Investment Solutions (MIS) and plan administrators held detailed discussions to determine the preferred definitions and criteria for ESG factors. They were able to agree on parameters focused on reducing or eliminating exposure to certain companies with questionable ESG characteristics. At the same time, it established temperature alignment goals it hoped to achieve with its ESG portfolio option.
The MIS team designed a stock selection methodology aligned with the plan’s stated goals, investment parameters and desired ESG characteristics. The plan also identified critical risk metrics they wanted the MIS team to address in portfolio construction and implementation.

The plan expressed concerns about the potential of having to make frequent changes to asset managers as their ESG requirements evolved. The MIS team helped them map a strategy that would be capable of adapting and evolving to the changing demands of plan administrators and participants to eliminate the need to change investment managers, which would increase costs and create other headaches for administrators.
Further, it was clear that over time, the requirements for ESG investing have evolved. Moreover, it was recognized that the needs of plan administrators and participants will likely change over time as well, in tune with the latest thinking around ESG. The plan put forth by the MIS team was adaptable to changing ESG mandates, in addition to changing investment mandates.

In putting together the ESG-focused global strategy, the MIS team customized the portfolio to address the key objectives laid out by plan administrators. This included a focus on effective risk management as well as a determination to avoid significant sector or country biases in the asset mix. Special attention was placed on identifying companies that actively meet the plan’s temperature alignment goals, while avoiding prominent positions in firms that did not fit those parameters.
Another critical aspect of achieving the successful transition to the new portfolio was to manage trades in order to minimize costs. Transitioning from one asset manager to another can often result in significant implementation costs, as one portfolio is sold and another is created, impacting both plan administrators as well as plan participants. The MIS team developed detailed procedures for strategy implementation that helped alleviate their cost concerns; the process could be used again if plan administrators chose to change the strategy at a later date.

Once the new portfolio was in place, the plan experienced improved ESG and climate footprint results compared to the previous manager. The portfolio’s tracking error remained consistent with the previous investment policy. Several other characteristics demonstrated improvement over the previous strategy as well, thanks to the customized methodology put in place by the MIS team, including global participation and attention to risk metrics. The plan now had an ESG-oriented portfolio in place that could adapt to its changing requirements for the long term.
Investment solutions that work for you
Your needs and objectives are specific. You deserve an investment solution that is best suited to accomplish your goals. The experienced professionals of Westwood’s MIS team take the time to work with you, understand the challenges you face, and design a customized approach that specifically aligns with your unique goals, beliefs, and objectives. Our MIS team is in a unique position to choose the tools and data sources required to achieve your desired outcomes.