Fiducient Advisors

We believe our proprietary capabilities add measurable value many times the cost we charge. We think our high client retention and unconditional satisfaction guarantee speak for themselves. We align our interest with those of our clients and earn no commissions or “back door” revenues.

Clients are serviced by an experienced team, supported by the full resources of the firm and our pragmatic intellectual capital that we believe adds significant value. We have many years of investment experience, so we not only understand the theory, but also how investment management really works. We believe our expertise is second to none and our size is ideal. We have large-firm capabilities yet mid-size firm flexibility and access. Our approach is prospective rather than retrospective, with a primary focus on advancing ideas that add to your bottom line. Our clients can benefit from our:

Aligned Interests – No managers or vendors pay to be in our database.

Depth of Resources – You will be serviced by a consulting team, which includes at a minimum, a Senior Consultant, a Consulting Analyst, a Client Service Associate and a Performance Analyst with support from the Chief Investment Officer and our various research teams. This structure is designed to deliver the highest level of service to you.

Commitment to Client Satisfaction – Our commitment is to “exceed your expectations.” We back this up by offering an unconditional satisfaction guarantee on all our services. We are passionate about client satisfaction and our client retention rate is over 98 percent!

At the heart of each of our client relationships is a deep dedication to putting your needs first. If at the end of any quarter, you are dissatisfied with our service, we agree to waive or reimburse your fees for that quarter.

Intellectual Capital – We have a “pragmatic” understanding of the capital markets which has led to several proprietary innovations:

The Portfolio Engineer® – a proprietary rebalancing overlay designed to produce excess return with little or no increase in portfolio risk compared to traditional rebalancing methods. We believe, this service alone may pay our fee several times over.

The Frontier Engineer® – is an evolutionary improvement to the Markowitz asset allocation model. The Frontier Engineer® output is not only more intuitively acceptable to clients but also produces more broadly diversified portfolios than the traditional models.

Investment Research – We believe our research capabilities lead to fortuitous recommendations. We strive to deliver thoughtful and constructive recommendations that add material value for clients.

Culture – The firm is passionate about adding value. Consultants, analysts, and other Associates are meaningfully compensated based on the service they provide. Consultants are expected to not only saturate clients with service but to bring them the pragmatic research that is our hallmark.

People – Experienced and enthusiastic service has been a hallmark of Fiducient Advisors for over 26 years. We seek to attract exceptional people and provide them with opportunities for personal and professional growth we believe they can find nowhere else.

Broad Investment Philosophy:

We believe that investment success requires a disciplined and systematic approach. Our investment philosophy is grounded in the academic tenets of Modern Portfolio Theory tempered by pragmatic investment experience.

• Broad diversification
• Thoughtful use of active and index strategies
• Vigilant in controlling costs

Consultant Philosophy:

Great client service relies on wisdom and dialogue. Our Associates bring talent and drive to every relationship. We seek professionals with outstanding character, strong financial acumen and the ability to communicate effectively with people at all levels. Clients look to us for guidance and leadership - not to be a passive source of reports. At Fiducient Advisors exceeding clients' expectations begins by exceeding our own.

Asset Allocation Philosophy:

We believe that strategic asset allocation is the main driver of performance. How much to allocate to stocks (large, mid, small, growth, value, domestic, foreign developed, emerging foreign), bonds (investment grade, inflation-indexed, short, intermediate, long-term, domestic, foreign, etc.) and alternative investments (REITS, infrastructure, hedge funds, private equity, etc.) is the most important decision. While still crucial to success, manager selection explains a far smaller component of performance. We believe that alpha can best be quantified and is more persistent (skill is more identifiable) in alternative asset classes / investment strategies. We do not believe timing the market is effective as a long-term source of excess returns (net of expenses and opportunity costs).

Manager Selection Philosophy:

A number of core principles are embedded in our consideration of an investment manager. These include:

• Controlling cost (explicit and implicit) is essential
• Alignment of incentives is critical
• Quantitative and qualitative analysis are stronger together and limited apart
• Competitive differentiation is rare
• Poor operational controls often override a good investment thesis

Our research process is based on these foundational ideas and seeks to answer the question: does this strategy have a competitive differentiator and why is it sustainable?

Most of our clients utilize both active and passive (index) strategies. We believe active management can add value in certain market segments. In selecting active managers, we seek managers who demonstrate a quantifiable competitive differentiator sizeable enough to justify active management fees within their niche. In highly efficient market segments (e.g., large cap U.S. equity) where persistency (repeatability of excess performance) is more challenging and competitive advantages are difficult to identify (and perhaps don't exist), we frequently advocate low cost, passive (index) management. In the areas where active management is used, it is still crucial to minimize fees. Our research paper entitled, "The Next Chapter in the Active versus Passive Management Debate", provides additional insights into our manager selection philosophy.

Our mission is to help clients prosper by placing their interests first and providing straightforward advice built on practical intellectual capital.We strive to help our clients:

• Be good fiduciaries and stewards
• Improve performance (enhance returns, reduce risk or both)
• Reduce or control expenses

Experience and a passion to serve have been hallmarks of Fiducient Advisors since inception. The firm is intentional about adding value and our success directly relates to the extraordinary commitment demonstrated by our 189 professionals. All Associates are expected to not only saturate clients with service but to make thoughtful recommendations that help clients achieve real-world goals. We offer an unconditional satisfaction guarantee on all services.

Fiducient Advisors was named a 2020 Best Places to Work in Money Management and a Top 25 Worldwide Consultant, as ranked by worldwide institutional assets under advisement as of June 2021, by Pensions & Investments. Fiducient Advisors is also recognized as a leading investment advisory firm by Barron's ranking first on their 2020 Top Institutional Consulting Teams. Members of the firm have authored numerous research papers and published articles as well as the following four textbooks on investment management: Designing a 401(k) Plan, Asset Management for Endowments & Foundations, The Practical Guide to Managing Nonprofit Assets and Nonprofit Asset Management.

• Experienced Team
• Depth & Breadth of Public and Private Market Research
• Aligned Interests

Robust risk management has been an integral part of our philosophy, culture and practices since the firm’s inception. One of our primary roles is to help clients define risks, then go about identifying, monitoring, measuring, managing and ultimately mitigating them everywhere possible.

Risk comes in many forms and has varying definitions depending on each investor’s unique objectives and constraints. Our risk identification and mitigation functions are present at many different levels of our investment and portfolio construction process. From the top down, we categorize our clients’ risks as Investment Policy Risks, Asset Allocation Risks, Traditional Investment Manager Risks and Alternative Investment Manager Risks. Each category has its own list of underlying risks. The following are the sources of different types of risks and how we go about identifying, monitoring, measuring, managing and ultimately mitigating them everywhere possible.

Investment Policy Risks:

We believe that the greatest risk an investor faces is that they fail to properly define their investment objectives (and constraints). If the proper objectives and constraints are not properly defined, it is difficult to create an effective investment strategy, and it becomes just a matter of time before painful symptoms emerge. At opposite ends of the spectrum, symptoms may include suffering investment losses greater than the institution can afford in adverse market environments, or generating insufficient long-term investment earnings to fund a critical spending need.

The risks that result from such a misalignment between the organization’s needs and a fund’s objective are limitless and must be avoided. As a result, we take our clients through a robust three levers exercise, which at its core is a disciplined and systematic risk mitigation process.

The Three Levers are (1) inflows, (2) outflows and (3) required investment returns. The balance among these three components is unique to each investor. Whether a fund’s purpose is to finance a perpetual spending need, pension obligations, a project over a finite period, act as a reserve for a “rainy day,” or for any other purpose, the three levers exercise is critical to determining the appropriate objective.

The process begins with a deep dive into the organization’s purpose, goals, limitations and priorities, which leads to a discussion of not just of an organization’s willingness to take risk, but just as importantly, an organization’s ability to take risk. We think it is critical to thoroughly understand what risk really means for an organization and quantify the “risk budget” before starting any conversations about asset allocation strategy or investment managers.

Asset Allocation Strategy Risks:

Armed with the findings of a robust Three Levers process, we move on to determining the proper asset allocation strategy using our proprietary Frontier Engineer® asset allocation methodology. The Frontier Engineer® is an evolutionary improvement to traditional asset allocation models because it elevates the importance of ‘tail outcomes’ around median expectations. It simulates fat tails, serial correlations and unstable correlations (of asset classes) and accounts for them in the portfolio optimization process. As a result, we believe it is better at identifying, measuring, managing and ultimately mitigating investment risks during the portfolio construction process as compared to more conventional (and naïve) mean-variance frameworks used by most of our competitors.

At least annually and sometimes more often, we use the Frontier Engineer® methodology to update the optimal allocation (as capital market expectations evolve). In the intervening period, we use our Portfolio Engineer® rebalancing overlay, which is another proprietary asset allocation risk-budgeting and management tool we use to measure and mitigate risk. The Portfolio Engineer® takes the risk budget developed during the Three Levers Exercise and quantified during the Frontier Engineer™ optimization process and creates optimal portfolio rebalancing bands. These bands are based on the expected risk and reward of target allocation versus the actual portfolio as markets push the portfolio from its target over time.

We believe our proprietary Frontier Engineer® asset allocation optimization process and our proprietary Portfolio Engineer® rebalancing overlay are vastly superior to competing risk-mitigating asset allocation systems in the marketplace.

Core or Global Public Markets Investment Manager Risks:

Our proprietary manager research process is geared towards identifying subtle qualitative and quantitative characteristics of seemingly strong-performing managers that have significant “blow up” risk, and it winnows them out. We understand and appreciate that a single terrible (or catastrophic performing) manager is capable of destroying all alpha generated by the other managers within a portfolio. The emphasis we put on fully understanding the context behind a manager’s historical excess performance as well as mitigating “tail risks” in our manager research process has been instrumental in helping our clients dodge bullets. For example, managers that generate incremental outperformance only by taking on additional esoteric risks (i.e., less liquid securities, shorting volatility, pushing the credit envelope, etc.) are frequently removed from consideration, regardless of what naïve Modern Portfolio Theory metrics are supposed to indicate. We understand that robust manager risk evaluation goes beyond a naïve historical standard deviation or beta measure.

Alternative Investment Manager Risks:

Defining, identify, monitoring, measuring, managing and ultimately mitigating risks in our alternative investment manager selection process is a multi-faceted qualitative and quantitative process.

We start by evaluating the controls around the process of trading, reconciling, and valuing holdings for alternative investment managers. We must be comfortable with the controls across the entire trading process; from the time the portfolio manager initiates the trade with their trading desk, through the settlement and reconciliation process, and ultimately through valuation and the striking of a net asset value. Key operational processes for hedge funds are performed by outside service providers, including the prime brokers, administrators and auditors.

Our investment due diligence process requires us to understand portfolio construction, including concentration, leverage, liquidity constraints, factor exposures, and constraints such as maximum sector and position limits.

We have recommended non-traditional investments since our firm's inception in 1995. We believe alternative investments serve critical functions in well-diversified portfolios in cases where the client can accommodate some illiquidity. Of our clients that use alternative investments, many allocate between 10 to 40 percent of total portfolio assets to alternative investments including marketable alternatives (hedge funds), real assets and private equity, depending largely on each client's unique objectives and liquidity constraints.

We believe the role of alternative asset classes within a portfolio is two-fold:

• To add alpha (or excess return not levered to market risk factors)
• To add esoteric betas (or risk-premiums that are less correlated to the aggregate traditional portfolio's return stream)

We have more than 40 experienced professionals involved in our investment research teams including more than 20 contributing to our process in alternative investments. Our Marketable Alternatives Research team covers all marketable alternatives (hedge fund) strategies, sub-strategies and investment styles. Our Global Public Markets team covers REITs, timberland, infrastructure, commodity strategies, natural resources and other real asset categories. Our Private Markets Research team covers all private equity strategies, including buyout, venture capital, distressed and private credit. The team also covers private real estate strategies.

Our alternative investments research process combines both top-down and bottom-up elements. From a bottom-up perspective, our Marketable Alternatives, Real Assets and Private Markets manager research teams seek top managers that we believe are positioned to consistently prosper through market cycles. From a top-down perspective, our Capital Markets research team identifies investment themes and opportunities, and it also models alternative investments in an aggregate portfolio context to match each strategy with the purpose in each client's aggregate portfolio. Our capital markets research team also partners with each of our firm's consultants and clients to determine how each alternative investment strategy fits within the context of the client's investment policy and aggregate diversified portfolio. By design, the capital markets research team includes individuals from each of the three alternative investment research teams.