Investment Philosophy & Process

The investment philosophy for LASSO is that it is just as important to manage risk as it is to aim for returns. Preserving capital is the first step to growing capital: Controlling portfolio volatility and drawdowns can help improve compound rates of return and long-term results.

At Lake Partners, we pursue a continuous rather than linear investment process. We take a comprehensive approach to ongoing review and implementation.

  • First, well-defined risk parameters serve as the foundation for LASSO's portfolio construction and allocations.
  • Second, we identify investment opportunities based on top-down, strategy, and manager considerations.
  • Finally, manager selection is based on a combination of quantitative and qualitative analysis as well as due diligence.

The process is iterative: We are continually reexamining and rethinking strategy allocations and manager selections.

Portfolio Construction and Allocations

Risk Parameters

  • Volatility
  • Equity Exposure
  • Diversification
  • Risk Monitoring

Risk management is the foundation of the LASSO portfolio:

  • Volatility: We manage volatility subject to three key guidelines:
    1. a daily volatility band of +/- 1%;
    2. a target maximum calendar month drawdown of -4%; and
    3. a "stop loss" calendar month trigger of -3% to evaluate whether to reduce net equity exposure.
  • Equity Exposure: Our guideline is to keep composite net equity exposure in a band between 20% and 50%.
  • Diversification: The portfolio typically has 15–25 underlying funds, with a maximum allocation per individual manager of 20% (at purchase).
  • Risk Monitoring: Performance of each underlying fund is monitored daily. Statistical analyses and qualitative assessments are conducted on a recurring basis.

Identify Opportunities

  • Markets
  • Strategies
  • Managers

The LASSO process is an ongoing search for opportunities within clear risk parameters for the overall portfolio. We seek opportunities and analyze risk across multiple dimensions, to drive both portfolio construction and the selection of underlying funds:

  • Markets: top-down analysis of opportunities and risks
  • Strategies: assess cycle of risk/return dynamics
  • Managers: bottom-up search for value-added

Manager Selection

Quantitative Analysis

Quantitative analysis includes:

  • Measures of Consistency/Variability: performance, volatility, correlations, drawdowns, etc.
  • Assessment of Value-Added: Sharpe ratios, information ratios, alpha, etc.
  • Examination of Track Record: periods of outperformance/underperformance (extent and duration)

Manager Selection

Qualitative Analysis

Qualitative analysis includes:

  • Investment Style: philosophy and approach (and how these may have changed); portfolio characteristics
  • Character: background and profile; ability to communicate
  • Organizational Characteristics: quality, continuity, and depth of staff and resources; size, growth, and impact of AUM

Manager Selection

Due Diligence

Due diligence includes:

  • Review of fund documents and reports
  • Regulatory filings
  • Manager interviews
  • On-site meetings
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