Beyond Traditional Performance Metrics

Many believe that private clients buy performance, but at Fowler Drew, that is not the case. Instead, our clients buy confidence in the financial outcomes they want to achieve. Performance, as traditionally defined, is secondary to the satisfaction their money provides.

By using The Planner, investors can see first-hand how our approach shifts the focus from chasing returns to achieving defined financial goals. This transformation in mindset makes performance a function of individual success, not a competition between investment managers.

The Liability-Driven Approach

In institutional investing, liability-driven investing (LDI) is the standard for pension funds and insurance companies. It ensures that investment strategies are aligned with specific future financial commitments rather than arbitrary performance benchmarks.

At Fowler Drew, we apply the same liability-driven logic to private wealth. This means that every client’s portfolio is structured around their unique financial objectives, with investments falling into two categories:

1. Hedging Assets – Investments that match the expected liability in amount and time horizon, ensuring funds are available exactly when needed.
2. Return-Seeking Assets – Riskier investments that have the potential to exceed the required liability but may also underperform.

Because hedging assets are designed to deliver a set value at a specific time, their short-term performance is irrelevant. What matters is their value at maturity.

Return-seeking assets, on the other hand, do influence financial outcomes, but their importance lies in their impact on the client’s overall financial plan, rather than short-term performance fluctuations.

Shifting Focus from Performance to Outcomes

• Clients at Fowler Drew focus on outcomes, not isolated returns.
• Success is measured by whether a financial plan meets its intended objectives.
• The true measure of performance is whether the client’s future needs are met with certainty.

Understanding Performance in a Goal-Based Portfolio

A goal-based portfolio at Fowler Drew is structured differently from traditional investment accounts. It is:

• Virtual – A combination of multiple accounts (e.g., SIPPs, ISAs, taxable accounts) allocated to specific financial goals.
• Goal-Specific – The portfolio exists to achieve a defined outcome, such as retirement spending or intergenerational wealth transfer.

What Actually Drives Performance?

Performance reporting at Fowler Drew focuses on the goal-based portfolio as a whole, rather than individual accounts. The key factors that determine outcomes are:

1. The Split Between Risky and Risk-Free Assets
   
   • The most significant determinant of returns is how much is allocated to return-seeking assets (equities) versus hedging assets (cash or index-linked gilts).
2. The Choice of Equity Markets
   
   • Performance varies slightly depending on the specific global equity markets chosen, but all investments are low-cost index funds.
3. The Absence of Active Selection
   
   • Since Fowler Drew only uses index-tracking investments, there is no discretionary stock selection impacting performance.

Firm-Wide Performance Is a Statistical Outcome

Across all clients, the collective performance of Fowler Drew portfolios is a mathematical byproduct of individual goals, shaped by:

• Spending Plans: The mix of short-term and long-term spending goals.
• Portfolio Duration: Varying from 7 to 50 years, determining how assets are allocated over time.
• Risk Preferences: Each client’s comfort level with risk determines how much is allocated to equities vs. hedging assets.

This means that firm-wide investment performance is not a reflection of manager skill—it is simply the sum of the individual goals of clients.