April 2023 / MULTI-ASSET INSIGHTS
Multi-Asset Collaboration and Due Diligence
How we actively monitor and fortify our building blocks.
Key Insights
- Our due diligence process is designed to evaluate the ongoing suitability of each of the underlying strategies in our multi-asset portfolios.
- Our process fosters collaboration between investment teams to review underlying strategies and the role each plays within our multi-asset strategies.
- We have strong building blocks to construct our multi-asset portfolios. While issues are rare, when they have arisen, we have taken action to address concerns.
For more than 30 years, T. Rowe Price has designed and delivered multi-asset strategies, each thoughtfully constructed to help meet the diversity of client needs that exist in a global marketplace. We employ a rigorous research process that carefully incorporates objectives, risks, and opportunities into a strategy built for a specific purpose. Once we’ve determined the long-term strategic allocation—the level of exposure to various asset classes—of a portfolio, we select suitable underlying building blocks from our proprietary strategies. We seek to use our proprietary strategies to add value over the long term in our multi-asset portfolios, leveraging the strength of our global research platform and insights across asset classes.
Because the long-term performance of the underlying building blocks has a direct impact on the long-term relative performance and rankings of our multi-asset portfolios, our comprehensive due diligence process is designed to continually evaluate the suitability of each building block. This process fosters collaboration between our Multi-Asset Due Diligence Committee (MADDC) and the managers of underlying strategies so we can understand and address any changes in or performance challenges of underlying portfolios as they may arise.
Ongoing Monitoring
Our multi-asset portfolio managers are supported by a robust governance framework driven by the Multi-Asset Steering Committee (MASC) and the MADDC. The MASC, made up of tenured representatives including portfolio managers across asset classes and senior leaders in research and product development, has governance and oversight responsibilities for all T. Rowe Price multi-asset strategies and processes, including due diligence.
Multi-Asset Due Diligence Committee
The seven-member MADDC, which consists of multi-asset investment professionals, provides ongoing oversight for due diligence of proprietary strategies used within T. Rowe Price multi-asset products, and is responsible for escalating concerns with underlying strategies to MASC. The process is overseen by the Multi-Asset Director of Due Diligence, who is a voting member of the MADDC.
Our formal monitoring process is both qualitative and quantitative in nature and includes:
- Performance and risk metrics, which are evaluated on an ongoing basis and formally reviewed monthly.
- Continuous monitoring of changes to underlying investment teams, concentrated exposures or heightened turnover within portfolio holdings, and other qualitative considerations.
- Meetings with the underlying investment teams that occur at least annually, and more frequently when strategies are deemed to require closer review.
This rigorous due diligence process can reaffirm our confidence in a strategy’s ability to fulfill its intended purpose within a diversified portfolio. Conversely, a review could prompt us to place a strategy on watch for additional monitoring. The MADDC’s decision to place a strategy on watch is informed by a variety of factors, such as changes to the investment process, changes in risk exposures, performance concerns, investment team turnover, or other conditions or events that have the potential to change the investment thesis. If concerns are not resolved following a period of additional analysis and enhanced monitoring, the MADDC formally escalates the concern to the MASC. The MASC then engages with the appropriate T. Rowe Price investment steering committee that has governance over the strategy to work collectively to ensure actions are taken to remedy the issues. Similar to the MASC’s oversight of multi-asset portfolios, T. Rowe Price has divisional steering committees that oversee our equity and fixed income strategies, which are integral to the due diligence process. The MASC will remove a strategy from the “watch list” once the area of concern has been successfully resolved.
Multi-Asset Due Diligence Committee's Process
Due Diligence in Action
In the rare instances when underlying portfolios have failed to meet our expectations, we have acted decisively to address the root cause of the issue(s). Each equity and fixed income steering committee performs regular reviews of performance, investment activity, style adherence, and portfolio structure. In addition, the asset class steering committees are responsible for reviewing the overall investment results produced by investment analysts. Generally, if a manager experiences challenges, the asset class steering committee evaluates the potential reasons for those challenges and determines the appropriate course of action. These actions, determined by the appropriate steering committee, can range from aiding that manager with additional support to replacing the manager, if deemed necessary. The respective steering committee then engages with the MASC and MADDC to discuss progress toward resolving the area of concern.
Due Diligence Case Study 1
2016–International Value
The International Value Equity Composite experienced a pronounced period of underperformance, which adversely impacted performance of some multi-asset portfolios. This resulted in the strategy being placed on watch. The International Equity Steering Committee, with input from the MASC, took remedial steps to enhance the strategy’s investment process, including:
- Additional oversight in security selection and mentorship from senior portfolio managers experienced in international and value-oriented equity strategies.
- Regular consultation with the equity risk team to reinforce benchmark-relative risk awareness within the investment process.
When performance did not improve, an interim portfolio manager was assigned. An external portfolio manager with a successful track record and distinguished process was hired, and performance for the composite and our multi-asset portfolios subsequently rebounded.
For illustrative purposes only. It is not intended to be investment advice or a recommendation to take any particular investment action. The past performance of other underlying strategies within multi-asset portfolios might differ significantly. Please see the GIPS® Composite Report for additional information on the composite.
Due Diligence Case Study 2
2021–U.S. Large-Cap Core
The portfolio manager of the US Large Cap Core Equity Strategy retired shortly after an allocation to the strategy was initiated within our target date strategies. Understanding the degrees of freedom for a large-cap core manager, the target date team elected to refrain from further increasing exposure to the strategy, pending a review of the new manager’s portfolio construction process. Throughout 2021 and 2022, we engaged in a rigorous review of the new portfolio manager’s investment process alongside quantitative factors, including portfolio holdings and characteristics and performance patterns.
This process strengthened our assessment that the strategy appeared well suited to meaningfully enhance our portfolios without introducing an undesired factor tilt or significant overlap in holdings or performance with our existing components. As a result, the target date strategies not only maintained an allocation to the strategy, but subsequently increased the size of the allocation over time.
For illustrative purposes only. It is not intended to be investment advice or a recommendation to take any particular investment action.
We believe our investment professionals and global research platform have been key contributors to the success of our multi-asset strategies. Our focus on due diligence and the ongoing monitoring of our underlying building blocks to ensure they are fulfilling their role in our multi-asset portfolios reflects our deeply held commitment to bringing our clients the best that T. Rowe Price has to offer.
FEE SCHEDULE
International Value Equity Composite
The International Value Equity Composite seeks long-term capital appreciation primarily through investment in established companies, in developed markets, with attractive valuations and prospects for improving earnings growth relative to market/ sector averages. The strategy generally includes 0-15% exposure to emerging-market stocks, as defined by inclusion in the MSCI Emerging Markets Index. (Created December 1998, incepted January 31, 1999.)
First $50 million 60 basis points
Next $50 million 55 basis points
Above $100 million 50 basis points on all assets*
Above $200 million 42.5 basis points on all assets*
Minimum separate account size $50 million
*A transitional credit is applied to the fee schedule as assets approach or fall below the break point
General Portfolio Risks
Capital risk—the value of your investment will vary and is not guaranteed. It will be affected by changes in the exchange rate between the base currency of the portfolio and the currency in which you subscribed, if different.
Equity risk—in general, equities involve higher risks than bonds or money market instruments.
Counterparty risk—an entity with which the portfolio transacts may not meet its obligations to the portfolio.
Geographic concentration risk—to the extent that a portfolio invests a large portion of its assets in a particular geographic area, its performance will be more strongly affected by events within that area.
Hedging risk—a portfolio’s attempts to reduce or eliminate certain risks through hedging may not work as intended.
Investment portfolio risk—investing in portfolios involves certain risks an investor would not face if investing in markets directly.
Management risk—the investment manager or its designees may at times find their obligations to a portfolio to be in conflict with their obligations to other investment portfolios they manage (although in such cases, all portfolios will be dealt with equitably).
Operational risk—operational failures could lead to disruptions of portfolio operations or financial losses.
ESG and Sustainability risk—May result in a material negative impact on the value of an investment and performance of the portfolio.
IMPORTANT INFORMATION
This material is being furnished for general informational purposes only. The material does not constitute or undertake to give advice of any nature, including fiduciary investment advice, and prospective investors are recommended to seek independent legal, financial and tax advice before making any investment decision. T. Rowe Price group of companies including T. Rowe Price Associates, Inc. and/or its affiliates receive revenue from T. Rowe Price investment products and services. Past performance is not a reliable indicator of future performance. The value of an investment and any income from it can go down as well as up. Investors may get back less than the amount invested.
The material does not constitute a distribution, an offer, an invitation, a personal or general recommendation or solicitation to sell or buy any securities in any jurisdiction or to conduct any particular investment activity. The material has not been reviewed by any regulatory authority in any jurisdiction.
Information and opinions presented have been obtained or derived from sources believed to be reliable and current; however, we cannot guarantee the sources' accuracy or completeness. There is no guarantee that any forecasts made will come to pass. The views contained herein are as of the date noted on the material and are subject to change without notice; these views may differ from those of other T. Rowe Price group companies and/or associates. Under no circumstances should the material, in whole or in part, be copied or redistributed without consent from T. Rowe Price.
The material is not intended for use by persons in jurisdictions which prohibit or restrict the distribution of the material and in certain countries the material is provided upon specific request.
It is not intended for distribution to retail investors in any jurisdiction.
USA—Issued in the USA by T. Rowe Price Associates, Inc., 100 East Pratt Street, Baltimore, MD, 21202, which is regulated by the U.S. Securities and Exchange Commission. For Institutional Investors only.
© 2023 T. Rowe Price. All rights reserved. T. ROWE PRICE, INVEST WITH CONFIDENCE, and the bighorn sheep design are, collectively and/or apart, trademarks or registered trademarks of T. Rowe Price Group, Inc.
April 2023 / FIXED INCOME
Kim DeDominicis is a portfolio manager of the target date strategies in the Multi-Asset Division. She also leads the College Savings Plan investment efforts. Kim is a vice president of T. Rowe Price Group, Inc., T. Rowe Price Trust Company, and T. Rowe Price Associates, Inc.
Amy Seman is the director of due diligence in the Multi-Asset Division. She is a vice president of T. Rowe Price Associates, Inc.
Toby Thompson is a portfolio manager in the Multi-Asset Division. He is a co-portfolio manager of the Balanced Fund, Global Allocation Fund and SICAVs, Spectrum Allocation Funds, Spectrum Diversified Equity Fund, Spectrum International Fund, Spectrum Income Fund, Multi-Asset Model Portfolios, and Small & Mid-Cap Core Trust. Toby is a vice president of T. Rowe Price Group, Inc., and T. Rowe Price Associates, Inc.
