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Aon Retirement and Investment Blog

Our Global Investment Beliefs

The foundation of an investment company is its unifying core beliefs, and for Aon Hewitt, these are encompassed in the following.
 
Effective governance is a necessary condition for investment success.
 
Effective governance includes the application of the concepts of fairness, compliance with legal requirements, accountability, transparency, efficacy of actions, and efficiency. We believe that all of these are necessary, though not sufficient, conditions for lasting investment success, and as such we promote them in our actions and our advice to clients.
 
The appropriate resources in terms of knowledge and skill, as well as the decision-making framework and authority requisite to act effectively and in a timely manner (whether the resources and authority are possessed within the client’s organization or delegated to a third party in a particular area) are requirements for effectively governed institutions.
 
Our investment advice is customized to client circumstances, objectives and risk tolerance.
 
Our views on the relative merits of investment strategies are consistent across clients. However, our diverse client base exhibits a wide variety of characteristics, owing to their differences in governance, objectives, circumstances, type of institution, time horizon, portfolio size, geographic location, and other factors. Therefore, a particular strategy that may be optimal for one client may be inappropriate for another.
 
In advising clients, we take into account their individual circumstances, goals and risk tolerance, and present investment strategies in a way that is relevant to maximizing reward and minimizing risk for their particular investment program.
 
Clients who access the full global opportunity set improve portfolio diversification and efficiency.
 
The world market portfolio represents the aggregate views of global investors and should serve as a starting point for a client designing a long-term investment policy, subject to risk tolerance, time horizon, liquidity constraints and other considerations.
 
Careful diversification into a broad set of asset classes with attractive risk and return properties improves portfolio efficiency by reducing risk and increasing return potential.
Within asset classes, we advise using the broadest measure of the opportunity set as the benchmark portfolio to maximize diversification and opportunity.
 
Within asset classes, we advise using the broadest measure of the opportunity set as the benchmark portfolio to maximize diversification and opportunity.
 
Prevailing market conditions and outlook should influence portfolio construction in the long- and medium-term; no single investment strategy is ideal in all markets.
 
Our risk and return expectations for the global capital markets vary through time, reflecting market movements and current economic conditions, while maintaining a focus on the long term.
 
Specifically, the rewards for taking different types of market risk, such as equity risk, are more attractive in some market environments than others. Therefore, we advise clients to set long term investment policy using current market expectations as an input, and revise those policies when warranted by changing conditions.
 
Additionally, we maintain medium term views that complement our long term expectations; using them, we advise clients on determining timing of changes to long term investment strategy, rebalancing decisions, adjusting hedges of market exposures, and managing opportunistic mandates.
 
Success with active management requires strong conviction on the part of the investor, based on robust research, best expressed through: A significant allocation to alternative investments; Active traditional portfolios; Broad, unconstrained mandates. For clients who choose to minimize complexity or cost, passive traditional portfolios offer efficient capture of market returns.
 
The “arithmetic of active management”—the observation that active and passive management together comprise the total market, that active and passive managers in aggregate must therefore underperform the total market by the amount of their investment costs, and that active management fee and trading costs are significantly higher than passive—shows that success with active management depends on the ability to identify superior (skilled), not average, active managers.
 
We recommend active strategies only when we believe we can identify and implement active opportunities that are attractive relative to a low-cost passive approach.
 
We believe that there are ways in which clients can further improve their probability of success with active management. One approach is the removal of constraints on active management, in particular by employing broader mandates such as active global equity.
 
While constraints on active managers may reduce some risks and help enforce style purity, when managers are skillful in implementing a strategy, constraining them from fully employing that strategy reduces the potential for value added. Broadening mandates, on the other hand, allows managers to select the most attractive investments regardless of style, within appropriate active risk limits.
 
Additionally, alternative investment strategies such as hedge funds, private equity and non-core private real estate offer an efficient approach to active risk-taking owing to their breadth and flexibility, and as such we recommend that clients who are able to tolerate the associated risks allocate a significant portion of their total portfolio risk to these areas.


The information contained above is intended for general information purposes only and should not be construed as legal or investment advice. Please consult with your independent professional for any such advice. The blog content is intended for professional investors only. 

 


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