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Fairbairn Private Bank has built its discretionary investment management services around three fundamental investment principles:

1. Asset allocation is the key driver of investment performance.
2. Multi-asset class investing diversifies risk and maximises the opportunities to deliver attractive risk-adjusted returns.
3. Passive or index tracking funds will commonly outperform actively managed funds in developed markets.

In addition to these principles, we understand that your overriding expectation is the delivery of investment performance.

Investment return is achieved by taking risk. We will review and agree your tolerance to risk ahead of building an investment solution and we will regularly monitor this ‘risk tolerance’ to ensure it is maintained in accordance with your changing circumstances and objectives.

Asset allocation

A series of academic papers published over the last two decades has concluded that asset allocation is the major determinant of investment performance*. We use this evidence as the cornerstone of our wealth management approach: building portfolios that ensure you have access to a wide range of asset classes. We define five major asset classes: cash, bonds, property, equities and alternative investments. The latter asset class includes hedge funds, structured investments, private equity and commodities.

Depending on your requirements and the prevailing investment environment, we will decide on the most appropriate allocation to each asset class, a process known as tactical asset allocation. We believe this adds value to investment performance and we adopt this investment style to optimise returns. Exposure to each asset class is ordinarily achieved through the use of collective investment vehicles.

* Brinson, Beebower and Singer Financial Analyst Journal June 1991; Ibbotson & Kaplan AIMR 2000

Diversifying risk and achieving return

Clients invest to achieve a financial goal, which can vary from securing a source of income to building a substantial lump sum over a long investment term to finance set objectives, such as retirement. Investors face a variety of risks in attempting to achieve their objectives and these risks must be managed effectively to prevent a disappointing outcome.

Asset class diversification diffuses investment risk and wealth managers have successfully employed this process for a number of years. However, the increasingly complex array of financial vehicles and strategies available means considerable skill and expertise is needed in order to deliver attractive ‘risk-adjusted’ returns. We will regularly review the risks created, for example, by volatility, liquidity, inflation, interest rate movements and geopolitical events, to ensure the designated risk and reward balance is achieved.

Risks of the discretionary investment management service

• Within the multi-asset class strategy, there will be some exposure to equity markets and hedge funds and capital risk is inherent with these markets. This means the value of assets could fall, although we have structured a blend of assets to help manage these risks.
• Past performance is not necessarily a guide to future returns. The value of investments can go down as well as up and you may not get back the amounts originally invested.
• Exchange rate changes may affect the value of international investments.
• Income withdrawals from the multi-asset class strategy can erode the value of your capital, and investment returns may be less than those shown in illustrations.
• From time to time we may use structured products to gain access to an asset class or market, and on such occasions these will be issued by a counterparty bank. Investors may therefore be exposed to the creditworthiness of a counterparty bank which may vary over the term of the investment. If the counterparty bank defaults on the structured note, then investors may lose their equity investment, albeit we will only structure such notes through banks with a minimum ‘A’ credit rating.
• On certain elements of the investment portfolio, especially where hedge funds are involved, withdrawal proceeds may take up to 90 days to be received.