Page 39 - Transforming To Stay Successful

ith our transformation, which brings in a new investment and
business model, we’ll see some changes to our costs. Our returns
W are reported net of all fees and expenses, so costs are important
to us, and always will be. We remain committed to providing our clients with
cost-effective investment management services.

FIRST THINGS FIRST

Before we go over how our costs are changing, we need to talk
about the why.
As you know, we’re operating in a complex, low-return environment. In
response to the changing capital markets, our clients are allocating more to
illiquid assets, as they aren’t subject to the day-to-day volatility of the stock
markets, and provide stable returns and consistent cash flows over the long-
term. It’s a shift that will significantly increase the probability of meeting their
actuarial rate of return. This approach also aligns well with our clients’ long-
term obligations.

So, what does this have to do with our costs?

Illiquids, by nature, are more expensive to manage than publicly-traded stocks
and bonds. The due diligence and post-investment activities are resource
intensive, involve teams from different disciplines, and require regular face-to-
face with the portfolio company’s board and management. In short: investing
more in illiquids means our costs will rise. Plain and simple. Nonetheless, it’s
a necessary step towards increasing the probability of meeting our clients’
returns.

But, just because our costs will go up, doesn’t mean there isn’t anything we
can do about how much they go up...

Stick with us here as we talk about how our costs are changing…

COSTS MATTER 39