Most institutional clients have determined that a "multi-manager" and multi-asset class investment approach is an appropriate strategy to reach their objectives. The key to this approach is to select managers and asset classes that complement each other, and then to allocate the assets according to specific targets. While it is relatively easy to do so at the inception of an investment program, the performance of the various managers and asset classes is likely to differ substantially over time, causing the account to be positioned significantly different than the target. Therefore, it is advisable to establish procedures for rebalancing the assets.

Such procedures ensure that the overall account will continue to be positioned consistent with the client's objectives, regardless of the performance of the individual asset classes and managers. Absent such procedures, there is a tendency to allow whichever manager or asset class that is performing well to dominate the account, or alternatively to rebalance at random, based upon the client's view of current market conditions. As neither approach is in the best long-term interest of the account, IPEX advises clients to establish a systematic rebalancing policy. 

From a procedural standpoint, IPEX recommends that the client establish maximum and minimum parameters (i.e., rebalancing points) around all of the target allocations. The market values of the various asset classes and money managers should then be reviewed according to a preset schedule, to determine whether any of the rebalancing points have been reached. The actual positioning of the rebalancing points, as well as the frequency of reviews, should be determined by each client individually. 

If any of the rebalancing points are reached, it is an indication that the account's asset allocation is significantly different than the target, and that the client should seriously consider rebalancing. When the client does elect to rebalance, IPEX recommends that the client review all targets and all current allocations, in order that multiple adjustments can be made simultaneously. When adjustments are made, it is normally advisable to transfer sufficient assets to bring the account back to its target allocation. 

While rebalancing may appear to be a routine process, it can have a dramatic impact on the positioning of a portfolio. Therefore, IPEX recommends that all clients formally approve any proposed rebalancing.