Prepared for change

Constantly adapting

We think of our investment process as a workflow. What started out over 27 years ago as a framework to assess investment opportunities has evolved into a highly efficient, focused and collaborative process. Our technique brings together several different areas of expertise and technologies to undertake a holistic appraisal of the investment environment and the opportunities and risks. We bring together qualitative and quantitative analysis; examination of data and observation, rigour and questioning.

Our approach is designed to look beyond the numbers.

We continually question and re-examine investment decisions; reassessing the premise on which the decision to invest was made in the first place to ensure the investment remains relevant. We are always seeking confirmation that we are on the right path. Our portfolios are agile enough to allow for rebalancing as and when required.

Our approach to investment analysis is always evolving; we are flexible and aim to continue to refine and improve our approach to enhance investment outcomes.

An investment process designed to look beyond numbers

1 1StrategyReview 2 2IdeaGeneration 3 3PrimaryScreening 4 4Peer GroupAnalysisand initialreview 5 5DetailedDueDiligence 6 6InvestmentGuidanceandSign Off 7 7 7OngoingMonitoring

Strategy Review

Regular strategy and portfolio reviews and ongoing weekly research meetings inform our perspective; both strategy based, top down and manager based bottom up. In these meetings we consider:

  • Strategy review and outlook
  • Risk advisory committee findings
  • The primary factors that are driving returns across our investments
  • Structure of each portfolio going forward
  • Areas for focus or potentially requiring change either at a portfolio or strategy level
  • Portfolio specific changes: Early subscription dates, capacity etc.
  • Review of primary and focused peer groups
  • Analysts’ best portfolio ideas
  • Review of manager monitoring and site visits

Idea Generation

We currently monitor several thousand funds using a proprietary system to capture and analyse performance and portfolio data.

Aurum has a large, diverse network of industry contacts, built up over 27 years, this is a valuable source of idea generation and market intelligence, which utilises a powerful relational database to suggest connections between people, firms and funds.

Primary Screening

Once funds have been sourced, there is an initial screening process, which includes both qualitative and quantitative review. Funds are assigned to one or more custom peer groups. Aurum’s peer groups are not generic peer groups, they are defined as managers with similar investment strategies to the fund being considered.

Peer Group Analysis and initial review

Once assigned to a group, a fund is actively monitored by a dedicated analyst.

Qualitative review at this stage includes an assessment of the investment strategy, the manager experience and track record.
The results of the above are used to produce an initial fund review scoring and the most interesting funds are followed up with calls and/or manager meetings and these along with the results of the initial qualitative and quantitative review are discussed at weekly research meetings.

For those funds that we identify as compelling, a direct meeting between our CIO and the manager will be arranged. We do not continue with full investment due diligence unless the CIO has had direct contact with the manager and agrees we should proceed.

Detailed Due Diligence

Investment due diligence comprises detailed qualitative and quantitative analysis of both the fund and the manager.

Quantitative review: A quantitative report is produced, explaining in detail defining periods of performance for the manager. Extreme losses or gains are examined in the context of the fund’s strategy and market price behaviour.

Qualitative review: Detailed qualitative review of the manager’s experience and the experience of the investment team.

Aurum’s job is to take investment risk in order to get returns; we do not take operational risk. Operational due diligence is vital – it may not create returns, but it does help to prevent loss.

Aurum’s operational due diligence team has the right to veto any investment recommendations at any stage of the due diligence process should operational processes and controls not meet Aurum Fund Management Ltd’s expectations. This veto includes invested funds, and has been exercised several times, resulting in a sell recommendation being made.

Investment Guidance and Sign Off

Investment recommendations are put before the Executive Portfolio Advisory Committee for review. The Executive Portfolio Advisory Committee has a remit to discuss investment recommendations, from both an investment and operational perspective, and address any queries raised by the directors in Bermuda, acting as a challenge mechanism to the CIO.

Finally, investment recommendations are reviewed and decisions approved by the Investment Committee who meet monthly in Bermuda to consider proposals and take investment decisions.

Ongoing Monitoring

We constantly monitor managers and funds, checking for divergence from the expected investment or operational thesis. Ongoing monitoring is essential and often knowing when to sell is as important as initial selection.

Risk is reviewed weekly and monthly, both in portfolios and in underlying invested hedge funds and an investment monitoring report is produced twice a year for all invested funds. A full operational due diligence review is completed of all invested funds every 6-24 months. The frequency of the review is determined by the operational risk represented by the fund.



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