Highland has made large investments into its data, systems, and risk modeling capabilities. We have access to global securities data from most major market providers in addition to data access directly from most global securities exchanges. We have also made substantial investments into long term index data, some of which goes back over a hundred years. In some cases where historical market data is limited or unavailable through conventional sources, we have endeavored to build and model our own proxies. We attempt to use our understanding of history and other markets to understand how assets would have likely performed in key scenarios.
We use our data to help us develop ongoing return, volatility, correlation and stress test assumptions for various asset classes. Ultimately, those estimates must be forward looking and cannot be an extrapolation of the past. Often the asset classes that have performed best in the past do not continue to perform as well in the future. We use fundamentally oriented factors consistent with industry best practices to derive long term estimates. Highland formally reviews and publishes these estimates at a minimum of annually, but continually monitors them on an ongoing basis.
Many external software providers have asset allocation products. Our solutions are proprietary and developed in-house. Because we have full control over our tools, they are far more customizable to meet the needs of our clients. Our systems allow us to optimize portfolios relative to any liability, evaluate the sources of risk in investment portfolios, and stress test portfolios exhaustively for multiple scenarios. For example, our systems can accommodate customized tax implications for specialized investment programs, incorporate the impact of pensions onto company financial statements, and address key concerns of endowments and foundations such as capital raising, liquidity and spending risk.
Although we have a robust quantitative capability, we take a holistic view of risk when examining both investment strategies and portfolios. We believe that statistical and computational rigor can be helpful in asset allocation, but we recognize that models do not fully capture market behavior. For each manager our clients use and for every portfolio our clients implement, we qualitatively underwrite the scenarios that would lead to losses that are above and beyond what quantitative models would suggest.
We act as a solutions provider and partner for a diverse array of client types. Highland has a demonstrated capability for optimizing investment programs subject to complex regulatory or governance frameworks. Our analytical and technological expertise allow us to customize models and scenarios to help solve the emergent problems of many clients as they arise on an ongoing basis.
Highland’s research team utilizes a proprietary database that covers tens of thousands of investment managers in all traditional and alternative asset classes.
Highland’s dedicated research team conducts in-depth regular reviews of every investment manager used by our clients as well as other best-in-class managers that may be available. Managers are monitored for not only performance and risk but also other measures such as positioning and attribution, as well as legal, firm and personnel changes.
Highland analysts conduct qualitative due diligence and participate in hundreds of meetings with managers per year over the phone, in our offices and during on-site visits in managers’ offices. With every touch point, our database is updated with notes, documents, ratings and supporting analytics. This data forms the basis for helping clients construct portfolios with a target mix of styles, approaches and desired exposures.
We have a proprietary internal database on an enterprise quality data server. To support this effort, we have dedicated programmers on staff that support research data and systems. Because we have full control of our data and systems, we have access to a far wider array of data than simply reported manager performance. Some examples of proprietary data include position level data of managers, their exposures over time, meeting notes, documents and information about their trading practices and costs.
Highland covers a comprehensive array of alternative strategies, including but not limited to various marketable alternatives, real assets and private equity. We also cover more niche strategies. Strategies in these spaces tend to be much more capacity constrained, with far fewer professional asset managers offering funds targeting these markets. Those fewer managers are less able to accept larger allocations. Accordingly, these strategies are typically below the radar and investability thresholds of the largest institutions. We believe that research coverage of these strategies is less comprehensive in our industry because of these thresholds. These strategies have the potential to avail our clients through return enhancement and diversification benefits beyond that available through mainstream alternatives.
From the beginning, we have insisted on full transparency with managers. Our organizational structure is helpful in that regard. Understandably, managers may be reticent to share position data with organizations that may use that information to harm them, such as with broker-dealers that have their own trading functions. As part of our conflict free structure, we have none of those divisions or activities. We also have a strong reputation for safeguarding sensitive data that managers have entrusted to us and our clients.
Our analysts’ research efforts and travel are global in nature. Operational due diligence is an integral aspect of our research process. Safeguarding our clients' assets from fraud or misappropriation is a core mission of our research.
Highland’s research and Investor Advocacy program also extends into more qualitative issues such as investment policy and institutional investor governance matters. Highland regularly assists clients with issues such as board or committee communications, education and stakeholder communications. Clients also benefit from Highland’s advocacy in negotiating with and managing various other services providers such as custodian banks, actuaries, auditors and third party administrators.
With service providers, Highland systematically tracks market prices and service offerings. Clients of Highland avail themselves of valuable insights and an informed basis for discussion with service providers
With asset managers, Highland has leveraged its reputation with investment managers. In many cases, clients of Highland have access to managers who are otherwise closed to new investors. They also often have access to managers with high stated minimum investments with more modest allocation amounts.
With stakeholders, Highland has an active research agenda with regard to matters of governance. Clients of Highland have access to extensive written materials on matters of policy, risk based investment policy and best practices in institutional governance. Highland also can act as a facilitator or educator for various stakeholder groups.