Sovereign’s Portfolio construction modelling is rigorous. We aim to ensure that the non- systematic risk targets are achieved efficiently and effectively. Our advice on strategic positioning and dynamic portfolio construction is based largely on our Medium Term Outlook.

Portfolio configuration is initially based on top-down return expectations and risk (volatility) modelling. This is then refined using fund specific return analysis including scenario testing. Risk budgeting and exposure modelling are important components as we assess a Fund’s overall total (absolute) and active (relative) risk and liquidity. Cash Flow modelling (including calls and distributions) is also useful in helping plan the transition to alternatives and/or increased commitments.

We conduct initial screens of a broad universe of prospective funds/managers and testing of possible “Model Portfolios”. Our portfolio configuration process is highly iterative. In particular, projected capital allocations and the associated risk and return characteristics of the portfolio are continually reviewed as each new manager is added and subsequent allocations to investee companies are made.