The Investment Research Department (IRD) is responsible for creating and communicating the investment philosophy embraced by C-PAS. The IRD is also responsible for monitoring the model portfolios and performing ongoing manager due diligence on the strategies that are available on the platform.

Manager Selection
The Investment Research Department has adopted a thorough approach to reviewing and analyzing investment options. Fifteen specific criteria are used to evaluate equity managers and 19 are used for fixed-income managers. To provide the most comprehensive guidance to clients, the IRD analyzes managers through two levels of screening. The first screen leverages sophisticated software, including Zephyr and Morningstar Principia, to eliminate the managers that do not meet our minimal threshold of required criteria. Managers are analyzed in detail during the second screen which uses designated quantitative metrics and qualitative observations. Each metric and observation is weighted and rated to assist in making a recommendation. The department's proprietary scorecard process is used to rank each manager that is evaluated. The process requires a minimum of eight screens to be generated that account for a manager's performance over the past one, three, five and ten year periods. It typically takes the department at least one week to complete scorecards for each investment category (i.e., large cap value, large cap growth, international developed, etc.). We may also contact the investment managers to obtain additional information about their style and approach to the investment process.

The metrics help determine whether or not the manager should be recommended to the IRD for approval or rejection. The final screening occurs at the committee level where the IRD presents its recommendations to the IRD Executive Committee (IRDEC). The committee will discuss the details and concerns surrounding a specific manager and the expectations for future performance. At that time, the IRDEC will accept or reject the IRD's recommendations. Approved managers will be used in model portfolio constructions and distributed to clients for incorporation into asset plans. A select group of additional managers may continue to be monitored in the event that one of the approved managers needs to be replaced.

Portfolio Allocation
The next process is to determine how those approved managers fit appropriately in a diversified portfolio*. We build these portfolios by primarily using a core and satellite approach that divides the portfolio into two distinct groups of holdings. The core holdings are the sectors, styles and managers that we believe should be consistently held in every portfolio over long time horizons. Additional value is then sought by adding satellite positions either through managers that we believe can add unique value or through specific sectors or styles we believe may be positioned to provide excess returns given current and expected economic conditions.

Risk adjusted metrics are also evaluated during the portfolio construction process. The Sortino Ratio is one such metric that is given a considerable amount of attention. The Sortino Ratio, similar to the Sharpe Ratio, measures excess return against a benchmark or minimally acceptable return. The Sortino Ratio, along with additional performance and risk measurements, assists us in creating the core holdings of our model portfolios.

The decision process regarding asset allocation is similar to the investment manager approval process. Portfolio adjustment recommendations are based on the review and analysis of multiple sources of information including macroeconomic factors and industry conditions. Strategies are continually monitored and reviewed, and if the underlying fundamentals of a holding or weighting begin to change, the exposure to the position may be adjusted.

*In addition to active management, we have the flexibility to use exchange traded funds and other low cost investments.