Global Investment Manager Analysis (GIMA)
At A Glance
Global Investment Manager Analysis (GIMA)
At A Glance:
The Global Investment
Manager Analysis (GIMA)
team was formed to
allow Morgan Stanley to
centralize its due diligence
efforts. The Firm maintains
an open architecture
advisory platform which
includes a wide variety
of investment products
including alternatives,
separately managed
accounts, mutual funds
and exchange-traded
funds (ETFs) across most
asset classes.
The Global Investment Manager Analysis team consists of:
Dedicated professionals
with an average industry
experience of 17 years
within traditional longonly and alternative
investment products
Within the traditional
product group, 30 investment analysts, specialized
by asset class, review and
monitor a broad universe of
investment products that
are offered through the
firm’s various investment
advisory programs
The alternative investment team consists
of 16 investment and
operational due diligence
professionals who cover
a variety of different
structures to ensure
product agnostic advice
In addition, GIMA works closely with an affiliated group within Morgan Stanley
Investment Management whose focus includes single manager hedge funds. This team
includes 32 investment, operational and quantitative professionals dedicated to hedge
fund manager selection. These analysts are responsible for initial due diligence, manager
selection and ongoing monitoring of firms and funds in the investment universe.
All information as of May 2015 and subject to change.
2
GIMA’s Breadth of Resources
The team, with 42 years
of delivering investment
manager analysis, applies
a common framework
in its review of all
investment products
under consideration:
Resources
Access
Ability to leverage the Firm’s Global
Investment Committee to integrate
asset allocation and thought leadership
into advisory programs. In addition,
GIMA utilizes the resources of
Morgan Stanley & Co.’s Global Research
organization with over 400 analysts.
The size and industry status of
Morgan Stanley, with $2.2 trillion
in firmwide assets, a top position
in prime brokerage1, and among
the top firms in institutional equity
trading provide us with exceptional
access to primary decision makers.
It also allows direct contact with
business leaders at investment
management firms throughout
the industry.
Breadth
We cover a wide range of investment
products that we make available to
advisory clients.
Dedication to Client Service
A focus on client needs, including
reporting and implementation.
Leadership
We are among the first to market
in many investment advisory
platforms and products and we’re
a leader in manager analysis.
All information as of May 2015 and subject to change.
1
Source: Prequin- December 2014. Survey of over 100 hedge fund managers.
3
An Industry Leader in Manager Analysis
42
Year History
Investment Advisory 1 assets
under management
1,300+
strategies monitored/year
500+
Separately
Managed
Accounts
45+
ANALYSTS
analysts
DEDICATEDto
TO
dedicated
MANAGER
manager
ANALYSIS
analysis
450+
onsite
visits /
Year
150+
100+
New Products
Launched Per Year
2
mutual
funds
alternative strategies
ETF Strategies
All information as of May 2015 and subject to change.
1
Advisory Platforms and Solutions is a business of Morgan Stanley Smith Barney LLC.
2
Includes Private Equity.
4
A Comprehensive Process for Manager Analysis
Extensive Universe
Rigorous Analysis
Strong Governance
Engage with a broad array of investment
managers from both large and boutique firms.
From a universe of over 14,000 options
(separately managed accounts, mutual funds
and ETFs), the universe is narrowed down to
approximately 1,300 investment strategies
from over 300 investment firms.
Our thorough process includes a detailed review
of a firm and its investment capabilities and
resources, investment process and philosophy,
personnel and business structure. Alternative
strategies include an operational risk review
which evaluates a firm’s business processes,
infrastructure and controls.
GIMA adheres to a formal governance process
on all investment decisions for all products that
are made available on the advisory platform.
Decisions are highly governed by an experienced
eight-member committee which meets at least
twice weekly to review each investment decision.
Library of Analysis
Ongoing Monitoring
Patented Methodology
The team maintains an extensive library of
written manager analysis that is available to
Financial Advisors and clients.
Investment products undergo continual review.
In addition, the team continues to have multiple
points of contact with investment managers,
at periodic intervals to reaffirm conviction
in the manager.
The team developed and implemented the
proprietary Adverse Active AlphaSM screening
and scoring methodology into the overall
manager selection process to improve our odds
of adding alpha to client portfolios. This patented
screening and scoring tool helps identify products
with characteristics that may lead to future
outperformance relative to indexes and peers.
All information as of May 2015 and subject to change.
5
A Patented Ranking Process Seeks to
Identify Strong Managers
An exclusive approach…
In 2014, Morgan Stanley Wealth
Management received a patent
grant on the “Adverse Active Alpha”
manager ranking process.
…that is compelling
in our view
Highly-ranked strategies outperformed
benchmarks and peers since implementation,
despite difficult environment for
active management.
Adverse Active AlphaSM Characteristics
Adverse
Active
Alpha
Historic outperformance
in market environments
when conditions
were difficult for
active managers
High active share — conviction-based
portfolios that look
different from index
Difference between
expected and actual
returns — i.e., the
value added by active
management
+
=
Outperformance of
“Adverse Active Alpha” Strategies*
Annualized performance since implementation
December 31,2012 – March 31, 2015
3.6 %
1.6 %
Excess return vs.
benchmark indexes1
Excess return vs.
peer managers2
*Does not reflect advisory fees.
Source: Performance analytics, Morgan Stanley Wealth Management as of March 31, 2015. Includes only equity mutual funds and separately managed account (SMA) strategies on the GIMA
Focus List that also rank in the top two quintiles according to the Adverse Active Alpha ranking process. The number of products meeting the criteria is currently approximately 130 out of
the approximately 1,300 products covered by GIMA and is subject to change. Includes mutual fund performance net of expense ratio but gross of advisory fee and gross of advisory fee SMA
performance. Please note that the ranking analysis is derived from back testing which has the benefit of hindsight. The performance that the ranking analysis is based on would have been lower
if advisory fees were included and would have had a different outcome. Past performance is not a guarantee of future results. Indices are unmanaged and not available for direct investment.
1
Performance is relative to each product’s appropriate style benchmark.
2
Performance is relative to funds in the Morningstar equity universe.
6
Traditional Manager Analysis:
Three Levels of Conviction
The team conducts rigorous qualitative and quantitative evaluations to develop
opinion-based analysis that is substantiated by conviction level.
Approved List
• Responsive to client needs and industry trends
• Information on a broad universe of investment managers
and products
• Meets GIMA’s qualitative and quantitative standards
Approved List
FOCUS LIST
Focus List
• Higher level of conviction
• Explicit focus on identifying potential to add value over time
• Intensive due diligence process, generally including
on-site visits, business reviews, etc.
• Detailed reporting, including portfolio and
performance analysis
TACTICAL
OPPORTUNITIES
LIST
Tactical Opportunities List
• Draws from both the Focus and Approved Lists
• Leverages manager analysis capabilities, as well as capital
markets analysis by the Global Investment Committee (GIC)
• Based on potential short-term performance
7
Alternative Investment Types
To complement traditional investment portfolios, the team evaluates a wide array of funds and strategies from
the top names in the industry and specialty boutique firms to offer qualified investors with access to vehicles
across the alternative investment landscape:
In-depth experience with Hedge
Equity, Credit, Global Macro,
Arbitrage, Infrastructure,
Distressed Debt, Corporate
Buyout, Impact / Social
Investing, Commodities,
Energy Exploration and services,
Asset-backed Securities,
Real Estate, Venture Capital
• Client-appropriate strategies
across the liquidity landscape
• Hedge fund strategies in daily
liquid mutual funds
• Hedge fund and fund of hedge
funds with semi-liquid themes
• Longer-dated private
commitments in equity,
debt and real estate
Real Estate
Managed Futures
Private investments in real
estate through single manager
or fund of funds investment
vehicles that may offer diversification and risk-adjusted returns,
while potentially serving as a
hedge against inflation.
Professionally managed
investments in global currencies,
interest rates, equities, metals,
energy and agricultural markets
directed by a professional
trading manager known as a
Commodity Trading Advisor.
Fund of Hedge
Funds
Professionally managed
portfolio of individual hedge
funds or other alternative
investments that may offer
diversification across
managers, strategies, styles
and/or sectors.
Single Manager
Hedge Funds
Professionally managed investment funds that use sophisticated
strategies to potentially offset
losses during a market downturn,
often seeking to generate returns
higher than traditional stock
and bond investments.
Private Equity
Unique investment
opportunities in privately held
companies through single
manager or fund of funds
investment vehicles that may
offer diversification and
attractive long-term
return potential
8
Meet the Global Investment Analysis Team
Global Investment Manager Analysis leverages quantitative, qualitative and operational due diligence
conducted by 45+ dedicated analysts on more than 14,000 investment managers.
MANAGEMENT
Lisa Shalett
Lisa Shalett is head of Investment &
Portfolio Strategies and a managing
director for Morgan Stanley Wealth
Management and a member of both
the Global Investment Committee and
the Investment Products & Services
Executive Committee. In her current
role, she works to develop portfolio
solutions that leverage the Firm’s
strategic and tactical asset allocation
advice to meet client goals. In addition,
Lisa is responsible for Morgan Stanley
Wealth Management’s thought
leadership agenda and publishes
white papers on topical themes for
practitioners and clients.
Alper Daglioglu, CAIA®
Alper Daglioglu is co-head of Global
Investment Manager Analysis and a
managing director for Morgan Stanley
Wealth Management. He currently
leads the analysis and due diligence
efforts on liquid alternative strategies
which include hedge funds, fund of
hedge funds, managed futures and
alternative mutual funds. Previously,
Alper was the chief investment
officer for Managed Futures within
Morgan Stanley Wealth Management.
He is also a CAIA® charterholder.
Govind Kilambi
Govind Kilambi is co-head of Global
Investment Manager Analysis and a
managing director for Morgan Stanley
Wealth Management. He currently
leads the analysis and due diligence
efforts on illiquid alternative strategies which include private equity,
private real estate, and real assets.
Additionally, he serves as chief
investment officer for the Alternative
Investments Group.
Paul Ricciardelli, CFA®
Paul Ricciardelli is co-head of
Global Investment Manager
Analysis and a managing director for
Morgan Stanley Wealth Management.
He currently leads the analysis and
evaluation process for traditional
investment management strategies
across Morgan Stanley Wealth
Management Consulting Group’s
investment advisory programs.
He is also a CFA® charterholder.
All information as of May 2015 and subject to change.
9
Meet the Global Investment Analysis Team
THE TEAM
Grant Badura, CFA®, CAIA®
Grant Badura is an executive
director and senior operational
due diligence analyst within the
Global Investment Manager
Analysis team at Morgan Stanley
Wealth Management. He currently leads the team is responsible
for providing operational due
diligence analysis on alternative
investments. He is also both a
CFA® and CAIA® charterholder.
Jeffrey Frederick, CFA®, CAIA®
Jeff Frederick is an executive
director and senior analyst within
the Global Investment Manager
Analysis team at Morgan Stanley
Wealth Management. He currently focuses on due diligence for
illiquid strategies, which includes
private equity, private debt and
real estate. He is also both a CFA®
and CAIA® charterholder.
Eric Kim
Eric Kim is an executive director
and senior analyst within the
Global Investment Manager
Analysis team at Morgan Stanley
Wealth Management. He is
responsible for analysis, due
diligence and vetting external
investment managers with a
focus on credit, fixed-income
and macro strategies.
Thomas Leeds
Thomas Leeds is an executive
director within the Global Investment Manager Analysis team at
Morgan Stanley Wealth Management. He currently manages the
team of analysts responsible for
evaluating traditional investment
products that are offered in
investment advisory programs at
Morgan Stanley.
Daniel Maccarrone
Dan Maccarrone is an executive
director and investment officer
for single manager strategies
within the Global Investment
Manager Analysis team at
Morgan Stanley Wealth Management. He is responsible for the
evaluation and selection of
managers and funds across multiple strategies with an emphasis
on single-manager funds.
Michelle Morris
Michelle Morris is an executive
director and senior analyst within
the Global Investment Manager
Analysis team at Morgan Stanley
Wealth Management. She is
responsible for investment due
diligence of illiquid investment
strategies, including private
equity, real estate, private debt
and infrastructure.
Matthew Rizzo
Matthew Rizzo is an executive
director and head of investment
strategy and content within the
Global Investment Manager
Analysis team at Morgan Stanley
Wealth Management. He is
responsible for publishing timely
thought-leadership content
and for leading analysis and
investment-related strategic
initiatives within the group.
Drew Soffer
Drew Soffer is an executive
director and provides oversight
of the decision-making process
across traditional strategies within
the Global Investment Manager
Analysis team at Morgan Stanley
Wealth Management. He is also
responsible for the Tactical
Opportunities List that
implements tactical, opportunistic
recommendations intended to
enhance investment performance
by focusing on the timeliness of
investment options given current
and projected market conditions.
Laura Thomas
Laura Thomas is an executive
director and head of operations
within the Global Investment
Manager Analysis team at
Morgan Stanley Wealth Management. Laura is an investment
officer and team leader who
currently manages the team of
investment analysts focused on
evaluation of non-US investment management firms and
strategies. She is also responsible
for business operations within
the team, working closely with
various business leaders.
Al Troianello, CFA®
Al Troianello is an executive
director and investment officer
for Multi-Manager Strategies
within the Global Investment
Manager Analysis team at
Morgan Stanley Wealth Management. He is responsible for
investment analysis and manager
selection with an emphasis on
alternative multi-manager funds.
He is also a CFA® charterholder.
All information as of May 2015 and subject to change.
10
Meet the Global Investment Analysis Team
THE TEAM (Continued)
Joanna Berg, CFA®
Joanna Berg is a vice president
and investment analyst within
the Global Investment Manager
Analysis team at Morgan Stanley
Wealth Management. She is
responsible for manager selection
and due diligence across illiquid
strategies, including private
equity and private real estate.
She is also a CFA® charterholder.
Diptee Borkar
Diptee Borkar is a vice president
and senior investment analyst
within the Global Investment
Manager Analysis team at
Morgan Stanley Wealth Management. She is currently responsible
for analyzing and evaluating value
equity investment products.
Jeffrey Chapracki
Jeffrey Chapracki is a vice
president and senior investment
analyst within the Global
Investment Manager Analysis
team at Morgan Stanley Wealth
Management. He currently
focuses on the analysis and
evaluation of US growth equity
investment managers. Previously,
he covered domestic equity
managers across a variety of
investment styles.
Mary Beth Cheloha, CFA®
Mary Beth Cheloha is a vice
president and investment
officer within the Global
Investment Manager Analysis
team. Mary Beth oversees the
investment analysts responsible
for evaluating fixed income,
real estate, commodity,
natural resource, quantitative,
and tactical asset allocation
investment products. She is
also a CFA® charterholder.
Jose Cruz
Jose (Jay) Cruz is a vice
president and senior investment
analyst within the Global
Investment Manager Analysis
team at Morgan Stanley Wealth
Management. He is currently
responsible for reviewing and
evaluating core equity, growth
equity and convertible bond
strategies for investment
advisory programs.
Daniel DeBonis
Daniel DeBonis is a vice
president and a member of the
Global Investment Manager
Analytics team at Morgan Stanley
Wealth Management. He
currently focuses on hedge fund
manager and alternative mutual
fund coverage for both singleand multi-manager strategies.
Rafique DeCastro
Rafique DeCastro is a vice
president and investment
analyst within the Global
Investment Manager Analysis
team at Morgan Stanley Wealth
Management. He is currently
responsible for manager selection
and due diligence across illiquid
strategies, including private
equity and private real estate.
Michael Delli Paoli
Michael Delli Paoli is a vice
president within the Global
Investment Manager Analysis
team at Morgan Stanley Wealth
Management. Michael is an
investment officer and team
leader focused on domestic
growth equity investment
products. He is also responsible
for the analysis and evaluation
of energy infrastructure/Master
Limited Partnership (MLP) and
other alternative investments.
Keith Fortmiller
Keith Fortmiller is a vice
president and operational due
diligence analyst within the
Global Investment Manager
Analysis team at Morgan Stanley
Wealth Management. He is
currently responsible for assisting in the operational due
diligence analysis of alternative
investments.
Niloy Ganguly
Niloy Ganguly is a vice
president and senior manager
investment analyst within the
Global Investment Manager
Analysis team at Morgan Stanley
Wealth Management. He is
responsible for the analysis and
evaluation of liquid alternative
managers across multiple
asset classes. Additionally, he
is responsible for the review of
exchange-traded funds.
All information as of May 2015 and subject to change.
11
Meet the Global Investment Analysis Team
THE TEAM (Continued)
Vipul Gautam
Vipul Gautam is a vice president
and senior investment analyst
within the Global Investment
Manager Analysis team at
Morgan Stanley Wealth
Management. He currently
covers Investing with
Impact investments.
Aloke Ghosh
Aloke Ghosh is a vice president
and operational analyst within
the Global Investment Manager
Analysis team at Morgan Stanley
Wealth Management. He
is currently responsible for
operational due diligence for
the alternative investments
platform for both new and
existing products.
Brian Glanz
Brian Glanz is vice president and
senior investment analyst within
the Global Investment Manager
Analysis team at Morgan Stanley
Wealth Management. He is
currently responsible for the
analysis and evaluation of
separately managed accounts
and mutual funds that utilize
quantitative, commodity-related,
REIT, or tactical asset allocation
investment strategies.
Charles Hahn
Charles Hahn is a vice president
and investment analyst within
the Global Investment Manager
Analysis team at Morgan Stanley
Wealth Management. He is
currently focused on evaluating
investment strategies and
products for Global Investment
Solutions (GIS), a firm-wide
initiative that seeks to harness
the collective resources of
Morgan Stanley to deliver
innovative investment
programs to our wealth
management clients.
Bill Bridge
Bill Bridge is a vice president
and senior investment analyst
within the Global Investment
Manager Analysis team at
Morgan Stanley Wealth
Management. He currently
focuses on the review and
evaluation of growth equity
strategies. He is a CIMA®
certification holder.
Rafael Kilayko, Jr.
Rafael Kilayko is a vice president
and investment analyst within
the Global Investment Manager
Analysis team at Morgan Stanley
Wealth Management. He
currently focuses on reviewing
and evaluating fixed income
investment managers.
Anita Kharwadkar
Anita Kharwadkar is a vice
president and senior investment
analyst within the Global
Investment Manager Analysis
team at Morgan Stanley Wealth
Management. She currently
focuses on the analysis and
evaluation of asset management
firms and funds in international
and emerging markets strategies.
Douglas Kim
Douglas Kim is an assistant
vice president and due diligence
analyst within the Global
Investment Manager Analysis
team at Morgan Stanley Wealth
Management. He is currently
responsible for analysis and
due diligence for fund of
fund hedge funds and liquid
alternative products.
Steven Lee, CFA®
Steve Lee is a vice president
and senior investment analyst
within the Global Investment
Manager Analysis team at
Morgan Stanley Wealth
Management. He currently
focuses on reviewing and
evaluating fixed income
managers. He is also a
CFA® charterholder.
Susan McDowell, CPA®
Susan McDowell is a vice
president and senior analyst
within the Global Investment
Manager Analysis team at
Morgan Stanley Wealth
Management. She currently
focuses on the evaluation of
fixed income strategies and
products. She is also a CPA®.
All information as of May 2015 and subject to change.
12
Meet the Global Investment Analysis Team
THE TEAM (Continued)
Jeffrey Mekulski
Jeffrey Mekulski is a vice
president and senior investment
analyst within the Global
Investment Manager Analysis
team at Morgan Stanley Wealth
Management. He currently
focuses on the review and
evaluation of US value equity
investment strategies.
John Meyer
John Meyer is a vice president
and senior investment analyst
within the Global Investment
Manager Analysis team at
Morgan Stanley Wealth
Management. He currently
focuses on the analysis and
evaluation of US growth
equity investment managers.
Anthony Natale, CFA®
Anthony Natale is a vice
president within the Global
Investment Manager Analysis
team at Morgan Stanley Wealth
Management. Anthony is an
investment officer and team
leader who currently manages
the team of investment analysts
focused on value equity
investment products. He is also
a CFA® charterholder.
Adriane N. Parris, CFA®, CAIA®
Adriane Parris is a vice president
and senior investment analyst
within the Global Investment
Manager Analysis team at
Morgan Stanley Wealth
Management. She specializes
in the evaluation and selection
of non-US equity strategies.
She is also both a CFA® and
CAIA® charterholder.
Olga Pujara, CFA®
Olga Pujara is a vice president
and senior investment analyst
within the Global Investment
Manager Analysis team at
Morgan Stanley Wealth Management. She currently focuses on
the evaluation of investment
managers and funds for fixed
income strategies. She is also
a CFA® charterholder.
Ann Marie Rogan
Ann Marie Rogan is a vice
president and senior investment
analyst within the Global
Investment Manager Analysis
team at Morgan Stanley Wealth
Management. She is currently
responsible for reviewing and
evaluating US core equity and
convertible managers. Previously,
she covered various asset classes
including international/global
fixed income and global
equity strategies.
William Ryan
William Ryan is a vice president
and investment analyst within
the Global Investment Manager
Analysis team at Morgan Stanley
Wealth Management. He
currently focuses on the review
and evaluation of international
equity strategies.
Adnan Sabih, CAIA®
Adnan Sabih is a vice president
within the Global Investment
Manager Analysis team at
Morgan Stanley Wealth
Management. He is currently
a manager analyst and is
responsible for analysis and
due diligence for alternative
investments strategies. He is
also a CAIA® charterholder.
Christina Shorts
Christina Shorts is a vice
president within the Global
Investment Manager Analysis
team at Morgan Stanley Wealth
Management. She currently
manages communications and
is responsible for disseminating
manager analysis materials
throughout Morgan Stanley.
Previously, she held various
roles within the manager
analysis and relationship
management teams.
Jeffrey Stein, CFA®
Jeffrey Stein is a vice president
and senior investment analyst
within the Global Investment
Manager Analysis team at
Morgan Stanley Wealth
Management. He currently
focuses on the evaluation of
investment managers and funds
for the stable value asset class.
He is a CFA® charterholder.
All information as of May 2015 and subject to change.
13
Meet the Global Investment Analysis Team
THE TEAM (Continued)
Michael Suchanick, CIMA®
Michael Suchanick is a vice
president and senior investment
analyst within the Global
Investment Manager Analysis
team at Morgan Stanley Wealth
Management. He currently
focuses on the evaluation of
international equity strategies.
He also holds a CIMA® certification.
James Szestowicki
James Szestowicki is a vice
president and senior
investment analyst within the
Global Investment Manager
Analysis team at Morgan Stanley
Wealth Management.
He currently focuses on
fixed-income managers.
Lori Villatoro
Lori Villatoro is vice president and
senior investment analyst within
the Global Investment Manager
Analysis team at Morgan Stanley
Wealth Management. She is
currently responsible for the
analysis and evaluation of US
value equity strategies.
All information as of May 2015 and subject to change.
14
Important Disclosures
Morgan Stanley Smith Barney LLC (“Morgan Stanley Wealth Management”)
This material was not prepared by the research departments of Morgan Stanley & Co. LLC
or Morgan Stanley Smith Barney LLC.
The sole purpose of this material is to inform, and it in no way is intended to be an
offer or solicitation to purchase or sell any security, other investment or service, or to
attract any funds or deposits. Investments mentioned may not be suitable for all clients.
Any product discussed herein may be purchased only after a client has carefully reviewed
the offering memorandum and executed the subscription documents. Morgan Stanley
Wealth Management has not considered the actual or desired investment objectives,
goals, strategies, guidelines, or factual circumstances of any investor in any fund(s).
Before making any investment, each investor should carefully consider the risks
associated with the investment, as discussed in the applicable offering memorandum,
and make a determination based upon their own particular circumstances, that the
investment is consistent with their investment objectives and risk tolerance.
Sources of Data
Information in this material in this report has been obtained from sources that we believe
to be reliable, but we do not guarantee its accuracy, completeness or timeliness.
Third-party data providers make no warranties or representations relating to the accuracy,
completeness or timeliness of the data they provide and are not liable for any damages
relating to this data.
Asset Class and Other Risks
• Lack of liquidity in that there may be no secondary market for a fund;
• Volatility of returns;
• Restrictions on transferring interests in a fund;
• Potential lack of diversification and resulting higher risk due to concentration of trading
authority when a single advisor is utilized;
• Absence of information regarding valuations and pricing;
• Complex tax structures and delays in tax reporting;
• Less regulation and higher fees than mutual funds; and
• Risks associated with the operations, personnel, and processes of the manager.
Interests in alternative investment products are offered pursuant to the terms of the
applicable offering memorandum, are distributed by Morgan Stanley Smith Barney
LLC and certain of its affiliates, and (1) are not FDIC-insured, (2) are not deposits or
other obligations of Morgan Stanley or any of its affiliates, (3) are not guaranteed by
Morgan Stanley and its affiliates, and (4) involve investment risks, including possible loss
of principal. Morgan Stanley Smith Barney LLC is a registered broker-dealer, not a bank.
The Securities Investor Protection Corporation (“SIPC”) provides certain protection
for customers’ cash and securities in the event of a brokerage firm’s bankruptcy, other
financial difficulties, or if customers’ assets are missing. SIPC insurance does not apply
to precious metals, other commodities, or traditional alternative investments.
Investing in stocks, mutual funds and exchange-traded funds (“ETFs”) entails the risks
of market volatility. The value of all types of investments may increase or decrease over
varying time periods.
Diversification does not assure a profit or protect against loss in a declining market.
Indexes are unmanaged, and it is not possible to invest directly in an index. Past
performance is no guarantee of future results. Actual results may vary.
Alternative investments often are speculative and include a high degree of risk. Investors
could lose all or a substantial amount of their investment. Alternative investments are
suitable only for eligible, long-term investors who are willing to forgo liquidity and put
capital at risk for an indefinite period of time. They may be highly illiquid and can engage
in leverage and other speculative practices that may increase the volatility and risk of loss.
Alternative Investments typically have higher fees than traditional investments. Investors
should carefully review and consider potential risks before investing. Certain of these risks
may include but are not limited to:
• Loss of all or a substantial portion of the investment due to leveraging, short-selling,
or other speculative practices;
Global Investment Manager Analysis (GIMA) defines Adverse Active Alpha
(AAA) as follows:
Adverse refers to the demonstrated ability to outperform in a variety of market
environments and when conditions were difficult for active manager relative performance.
“Difficult” periods were times when active management did not perform well relative
to the index, as opposed to down market periods. At various times, active management
has experienced difficult relative performance periods in up, down, and flat markets. We
developed a set of factors to help discern which periods were more difficult for active
managers that we utilize to identify managers that were able to overcome these headwinds
and outperformed in the face of adversity.
15
Important Disclosures
Morgan Stanley Smith Barney LLC (“Morgan Stanley Wealth Management”)
(Continued)
Active refers to managers with high active share – i.e., managers whose portfolios looked
different from the index – and had moderate to low tracking error. In this way, the ranking
seeks to find managers that were active, but not taking outsized factor bets, such as large
sector or industry bets and that had some degree of style consistency. The combination of
high active share and low tracking error is fairly uncommon among active managers, but
we believe these traits may point toward managers with strong stock picking skills.
Alpha refers to the demonstrated ability to add value relative to an index and/or peers.
Back tests indicate that highly ranked managers as a group outperformed the index and
style peer group over subsequent periods and relative to active share alone. By combining
the “adverse” component with the “active” component, we believe we increase the odds
of finding some of the most proficient stock pickers.
Important Considerations Regarding the Adverse Active
Alpha Ranking Process:
Global Investment Manager Analysis, formerly Consulting Group Investment Advisor
Research (CG IAR), provides comprehensive manager analysis for Morgan Stanley’s
investment advisory platforms on a wide range of investment products, including
separately managed accounts, mutual funds and exchange-traded funds in the equity,
fixed income and alternative investment categories.
In our view, the Adverse Active Alpha manager ranking model is an important part of
evaluating managers for consideration. However, we do recognize that AAA cannot,
in and of itself, tell us which managers’ strategies to invest in or when to buy or sell
the strategies. While highly ranked managers historically performed well as a group in
our analysis, past performance is not a guarantee of future results for any manager or
strategy. Index returns assume reinvestment of dividends and, unlike fund or strategy
returns, do not reflect any fees or expenses. Indices are unmanaged and not available
for direct investment.
It is also important to keep in mind that just because a manager has high active share, a
portfolio that looks different than the index (benchmark) doesn’t necessarily mean the
portfolio had or will have better performance than the index. Being different than the
index does not consider factors such as: the timeliness of data provided by the manager,
the appropriateness of the benchmark used for comparison to the portfolio, the relevancy
of the period(s) being analyzed between the portfolio and the benchmark, knowing the
difference between the securities and their concentration in a manager’s portfolio vs. the
benchmark and the potential that the data provided by the manager looked significantly
different in periods before and after the performance snapshot(s) used for analysis. While
the preceding considerations are not part of the AAA ranking model, GIMA’s strives
to evaluate other material and forward looking factors as part of the overall manager
evaluation process. Factors such as but not limited to manager turnover and changes to
investment process can partially or fully negate a positive Adverse Active Alpha ranking.
Additionally, highly ranked managers can have differing risk profiles that might not be
suitable for all investors. For more information on AAA, please see the Adverse Active
Alpha Ranking Model and Selecting Managers with Adverse Active Alpha whitepapers.
The whitepaper are available from your Financial Advisor or Private Wealth Advisor.
ADVERSE ACTIVE ALPHA is a registered service mark of Morgan Stanley and/or its
affiliates. U.S. Pat. No. 8,756,098 applies to the Adverse Active Alpha system and/or
methodology.
The Global Investment Manager Analysis (GIMA) Services
Only Apply to Certain Investment Advisory Programs
GIMA evaluates certain investment products for the purposes of some – but not all –
of Morgan Stanley Smith Barney LLC’s investment advisory programs (as described in
more detail in the applicable Form ADV Disclosure Document for Morgan Stanley Wealth
Management). If you do not invest through one of these investment advisory programs,
Morgan Stanley Wealth Management is not obligated to provide you notice of any GIMA
status changes even though it may give notice to clients in other programs.
Focus List, Approved List and
Tactical Opportunities List; Watch Policy
GIMA uses two methods to evaluate investment products in applicable advisory programs:
Focus (and investment products meeting this standard are described as being on the Focus
List) and Approved (and investment products meeting this standard are described as being
on the Approved List). In general, Focus entails a more thorough evaluation of an investment
product than Approved. Sometimes an investment product may be evaluated using the
Focus List process but then placed on the Approved List instead of the Focus List.
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Investment products may move from the Focus List to the Approved List, or vice versa.
GIMA may also determine that an investment product no longer meets the criteria under
either process and will no longer be recommended in investment advisory programs
(in which case the investment product is given a “Not Approved” status).
GIMA has a “Watch” policy and may describe a Focus List or Approved List investment
product as being on “Watch” if GIMA identifies specific areas that (a) merit further
evaluation by GIMA and (b) may, but are not certain to, result in the investment product
becoming “Not Approved.” The Watch period depends on the length of time needed for
GIMA to conduct its evaluation and for the investment manager or fund to address any
concerns. GIMA may, but is not obligated to, note the Watch status in this report with
a “W” or “Watch” next to the “Status” on the cover page.
Certain investment products on either the Focus List or Approved List may also be
recommended for the Tactical Opportunities List based in part on tactical opportunities
existing at a given time. The investment products on the Tactical Opportunities List
change over time.
For more information on the Focus List, Approved List, Tactical Opportunities List and Watch
processes, please see the applicable Form ADV Disclosure Document for Morgan Stanley
Wealth Management. Your Financial Advisor or Private Wealth Advisor can also provide
upon request a copy of a publication entitled “Manager Selection Process.”
Strategy May Be Available as a Separately
Managed Account or Mutual Fund
Strategies are sometimes available in Morgan Stanley Wealth Management investment
advisory programs both in the form of a separately managed account (“SMA”) and
a mutual fund. These may have different expenses and investment minimums. Your
Financial Advisor or Private Wealth Advisor can provide more information on whether
any particular strategy is available in more than one form in a particular investment
advisory program.
The Securities Investor Protection Corporation (“SIPC”) provides certain protection
for customer’s cash and securities in the event of a brokerage firm’s bankruptcy, other
financial difficulties, or if customers’ assets are missing.
© 2015 Morgan Stanley Smith Barney LLC. Member SIPC.
In most Morgan Stanley Wealth Management investment advisory accounts, fees are
deducted quarterly and have a compounding effect on performance. For example, on
an advisory account with a 3% annual fee, if the gross annual performance is 6.00%,
the compounding effect of the fees will result in a net performance of approximately
3.93% after one year, 12.25% after three years, and 21.23% after five years.
Conflicts of Interest
GIMA’s goal is to provide professional, objective evaluations in support of the
Morgan Stanley Wealth Management investment advisory programs. We have
policies and procedures to help us meet this goal. However, our business is subject to
various conflicts of interest. For example, ideas and suggestions for which investment
products should be evaluated by GIMA come from a variety of sources, including our
Morgan Stanley Wealth Management Financial Advisors and their direct or indirect
managers, and other business persons within Morgan Stanley Wealth Management
or its affiliates. Such persons may have an ongoing business relationship with certain
investment managers or mutual fund companies whereby they, Morgan Stanley Wealth
Management or its affiliates receive compensation from, or otherwise related to, those
investment managers or mutual funds. For example, a Financial Advisor may suggest
that GIMA evaluates an investment manager or fund in which a portion of his or her
clients’ assets are already invested. While such a recommendation is permissible,
GIMA is responsible for the opinions expressed by GIMA. See the conflicts of interest
section in the applicable Form ADV Disclosure Document for Morgan Stanley Wealth
Management for a discussion of other types of conflicts that may be relevant to GIMA’s
evaluation of managers and funds. In addition, Morgan Stanley Wealth Management,
MS&Co., managers and their affiliates provide a variety of services (including research,
brokerage, asset management, trading, lending and investment banking services)
for each other and for various clients, including issuers of securities that may be
recommended for purchase or sale by clients or are otherwise held in client accounts,
and managers in various advisory programs. Morgan Stanley Wealth Management,
managers, MS&Co., and their affiliates receive compensation and fees in connection
with these services. Morgan Stanley Wealth Management believes that the nature and
range of clients to which such services are rendered is such that it would be inadvisable
to exclude categorically all of these companies from an account.
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