22 Investment Program Implementation: Realities and Best Practices J.

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Douglas Kramer T he structuring of a thoughtful investment program is a time-consuming and complex task that requires not only the adherence to sound theoretical investment philosophy described throughout this book but also the navigation of practical realities during implementation. This chapter will address the interrelationship among the following practical issues: How does the size of an investment program impact the ability to implement investment policy? How should investors think about fees? What are the most cost-efficient methods to rebalance or transition managers? What are the real risks of asset allocation drift? In the context of those risks, how often should investors rebalance their asset allocation and manager lineup? The size of an investment program is the single largest determinant of how an investment program can be implemented. Most significantly, the size of the plan can have a material impact on the distribution of risk in an investment program. Furthermore, plan size has a significant role in determining not only manager selection but also how funds will be invested with the managers: direct separate accounts or commingled vehicles (e.g., mutual funds, partnerships, etc.). Lastly, plan size determines the economies of scale and hence investors must adjust their implementation choices according to plan size in order to maximize after-fee total rate of return. Classifying investment plans into four sizes facilitates the discussion of the impact of plan size on implementation.1 1.    Superlarge programs: >$10 billion. 2.    Large programs: Si billion to $10 billion. 3.    Medium-size programs: $100 million to $1 billion. 4.    Small programs: <$100 million. Please note that the following discussion applies generally to institutional portfolios. Individual investors should consider the concepts discussed throughout this chapter taking into consideration the issues of taxes, financial planning, and trust and estate work, as well as other idiosyncratic needs.

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