Bespoke Portfolio Construction Partnership
Build investment solutions backward from each institution's needs
- Difficulty
- Expert
- Time to result
- ~months to results
- Steps
- 7
- Confidence
- 94%
The framework starts with an institution's objectives, liabilities, exposures, and operating constraints rather than with a fund the manager wants to sell. The manager analyzes whether the existing portfolio behaves as intended, including whether supposedly independent holdings contain hidden correlations. It then selects and combines suitable quantitative, discretionary, credit, or private-market strategies. The solution can be further shaped through a separately managed account, added transparency, liquidity terms, leverage, tail protection, or an overlay hedge. Because each component is evaluated inside the client's full portfolio, the output is a tailored mandate rather than an isolated product. Continued collaboration lets the institution and manager refine assumptions, improve their tools, and remain jointly accountable for results.
Origin
Extracted from Masters in Business through Robyn Grew's explanation of Man Group's institutional solutions business.
Core principles
- 01Start with the client's objectives rather than an existing product
- 02Evaluate strategies in the context of the whole portfolio
- 03Combine capabilities when one strategy cannot meet the need
- 04Customize liquidity, transparency, leverage, and protection
- 05Treat portfolio construction as a long-term partnership
How to run it
- 1
Define the client outcome
Establish what the institution must achieve, including return targets, future liabilities, liquidity needs, and nonfinancial constraints.
Pro tip Separate mandatory obligations from preferences.
Watch out Do not begin by selecting a product.
- 2
Map the whole portfolio
Document current holdings, factor exposures, risk concentrations, cash requirements, and relevant time horizons.
Pro tip Include exposures created indirectly through multiple managers.
Watch out An incomplete map can make diversification appear stronger than it is.
- 3
Test intended behavior
Use portfolio tools and scenario analysis to determine whether the portfolio behaves as stakeholders believe it does.
Pro tip Pay particular attention to correlations during stressed markets.
Watch out Historical labels such as asset class or strategy name do not guarantee independent behavior.
- 4
Identify the missing capability
Specify the risk, return, liquidity, or transparency problem the tailored allocation must solve.
Pro tip Express the gap as a portfolio function rather than a preferred fund name.
Watch out Do not add complexity without a defined purpose.
- 5
Combine complementary strategies
Select quantitative, discretionary, credit, or private-market components that address the identified gap together.
Pro tip Evaluate the combined exposure, not each component in isolation.
Watch out Multiple strategies may still share the same underlying risk.
- 6
Engineer mandate terms
Customize the account's transparency, liquidity, leverage, tail protection, or overlay hedge to fit the institution.
Pro tip Use the simplest structure that satisfies the actual requirements.
Watch out Customization can add cost and operational burden.
- 7
Review as partners
Monitor outcomes and revisit assumptions with the client as liabilities, markets, or portfolio exposures change.
Pro tip Share tools and analysis so the client becomes a stronger evaluator.
Watch out A bespoke mandate becomes stale if treated as a one-time design exercise.
In the wild
An institutional client asks whether its portfolio is doing what its investment team expects. The manager analyzes the holdings and discovers correlation between strategies thought to be independent, then designs a complementary allocation with an overlay hedge and greater transparency.
→ The institution reduces unintended concentration and gains a clearer view of portfolio behavior.
A pension fund maps its future payments, current liquidity, and stressed-market risks. Instead of buying another standard fund, it combines complementary strategies in a separately managed account with tailored liquidity and tail protection.
→ The mandate better supports the pension's liability schedule and portfolio-wide risk limits.
Common mistakes
Leading with the product
Starting with an existing fund encourages the manager to fit the client's needs to the product rather than designing backward from the outcome.
Ignoring cross-portfolio correlation
Strategies that look different can respond to the same underlying factor and fail together under stress.
Customizing without purpose
Bespoke structures add little value when every modification is not tied to a defined client requirement.
Is it for you?
Best for
Institutions with complex portfolios, future liabilities, or requirements that standard pooled products cannot satisfy.
Not ideal for
Small investors who need inexpensive, standardized exposure rather than a resource-intensive bespoke mandate.
From the transcript
“These are long strategic relationships where we are investing time and effort in partnership within these institutions to understand what their portfolio construction needs to…”
“Maybe it's the combination of strategies. Maybe it's a combination of strategies with additional transparency or additional liquidity. Maybe it's leverage. Maybe it's a tail…”
“we'd really like your help in understanding our portfolio construction and whether what we think it's doing is what it's doing, or whether we've got…”
From the episode
Robyn Grew on Portfolio Construction
Robyn Grew