CASE STUDY

Strategic Portfolio Design

Saudi Arabian Endowment Fund | 2021

Engagement at a glance

Open-Ended Core Infrastructure A Saudi Arabian endowment sought to revamp its investment policy statement to reflect its evolving financial goals—and then develop a Shariah-compliant strategic asset allocation (SAA), accompanied by a multi-year deployment plan, to initiate the portfolio implementation process.

Client-specific Concerns

The investor was particularly concerned with adhering to Shariah law and sought to structure the investment policy statement and SAA with sufficient flexibility to allow the internal management team to take advantage of investment opportunities within a defined financial framework. The team sought to keep the portfolio predominantly invested within local markets without accumulating disadvantageous asset exposures or risk overweights due to its geographic focus.

Outcome

  • Defining the terms of transformation: As part of its preparatory work with the client, bfinance assessed the existing set-up and governance of the endowment and assisted its management team in defining the fund’s investment objectives and desired constraints; this process led to the clarification and finalisation of a new investment policy statement.

  • Mapping the range of available opportunities: bfinance worked closely with the endowment’s team to review the asset classes available under a Shariah investment framework and tested different ways of investing across them to achieve the desired regional focus while maximising returns and preserving capital. With the aid of market-leading software modelling, the final SAA emerged from this iterative process with sub-asset classes identified and suitable allocations defined.

  • Stress-testing the proposed SAA: The portfolio redesign was tested and refined by considering the requirements of deploying fresh capital into new sub-asset classes alongside the legacy portfolio holdings; further adjustments were made in consideration of extraneous factors such as changes in contributions to the endowment and the effect of inflation.

  • Optimising implementation: bfinance devised a real-time deployment plan in collaboration with the client; the plan set out quarter-by-quarter investment priorities and demarcated a clear path for full implementation—and realisation—of the new SAA.

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