Newport Capital Advisers

Strategy

Effective Client Communications

A significant point about how we structure our investment process is that it begins and ends with effective client communication. At the outset we need to understand each client’s requirements and establish an optimal communication plan specific to each client.

At the end each of a reporting period we deliver customized performance reports to our clients and a letter that specifically addresses their near and longer-term performance relative to their goals and compliance with their own investment policies and guidelines. We also address any exceptions to expectations and provide our recommendation about what should be done, if anything in the case of consultative engagements.

Institutional Discipline & Consistency

We apply institutional discipline with a distinctive approach characterized by early adoption of ideas that are attractively valued due to the lack of investor discovery and that have improving fundamentals. We utilize both qualitative and quantitative analytical tools in the ongoing effort. We believe consistency is paramount in both our process as well as that of any investment manager that we engage or fund in which we invest.

Breadth & Depth of Manager Research

Newport Capital Advisers is a research platform. Our long-standing relationships with top managers across all asset categories combined with our willingness to discover new managers we believe are a distinct advantage that differentiates us. The knowledge network of individuals and firms that we have developed over many years gives us the bandwidth that we believe is necessary to access opportunity and to manage risk. We note that we have always avoided leverage-dependent strategies and those based on arcane, statistical theories or financial engineering. The reasons for this became blindingly clear in the summer of 2007 and more dramatically in the financial market meltdown of late 2008 and early 2009. Newport Capital Advisers’ clients engage a number of specialized investment firms that have been subsequently engaged by major endowment funds. The primary reason for this is that we conduct research into those firms that have the most promise, regardless of their size or time in business. The willingness to be flexible and embrace the inevitably subjective and idiosyncratic manager selection process has materially defined the investment experience of our clients.

Embracing Subjectivity - Monitoring Results

With regard to manager selection, we embrace the subjectivity of the process, because what is important about manager selection is not what they have done in the past, but the consistency of the process that they employ to produce superior results in the future. We systematically monitor each manager once engaged. We will release a manager if there is a departure from its particular discipline and will review a firm if there is a significant personnel change.

Undervalued vs. Underperformance

An underperforming manager does not automatically mean that that manager should be released. It may simply be the sign of an undervalued portfolio. So, we will as often as not advise our clients to add the allocations that have underperformed. We recognize that this is emotionally counter-intuitive, but consistent with tenets of behavioral finance that have served investors well over time.

Our Unconventional Approach

We prefer independent research to avoid the groupthink that often influences investment decisions. It is usually difficult to separate the familiar tendency to be attracted to that which has performed best most recently from the most promising strategies that may have performed poorly recently. We consider ourselves a contra-institutional firm in portfolio construction and recognize the risks—and rewards of being distinct. Our experience has been that our most successful decisions and recommendations are usually uncomfortable decisions for our clients at the outset.

We also believe, and this is different from the conventional view, that asset allocation and manager selection are approximately equal in importance. We believe diversification and rebalancing allocations to strategic targets is essential, if often counterintuitive. We do not believe that market timing has a consistently high probability of success so prefer to engage managers focused on individual security selection, as it is a global market of stocks, not an undifferentiated amalgam. While such an approach requires resolve, it validates our conviction that the tendency for variants to return to their average after deviations from it is a powerful force.