Bespoke Investment Planning

A bespoke portfolio is a group of reference securities that serve as the tranches of a synthetic CDO arranged by an investment bank and specified by a particular investor. Bespoke portfolios allow investors to specify the specific reference securities and their attachment and detachment points. They also make it much easier for CDOs to be set up. For this reason, bespoke portfolios have become a popular form of collateralized debt obligation (CDO) issuance. This link theinvestorscentre.co.uk

Traditional UK wealth managers’ websites and glossy brochures tell you that if you bring your pension and ISAs to them, they will ‘carefully construct’ your bespoke portfolio in accordance with your ‘unique objectives’ and then manage it for you with a direct line to your ‘personal investment manager’. Or, they will offer to put your pots into one of the firm’s model portfolios, which are run by their ‘central team of specialist investment managers’ and that reflect the ‘best thinking’ of these professionals for a given risk-reward profile or set of constraints.

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The issue with the latter approach is that it makes no sense to use a central team of specialist investment managers to run client bespoke portfolios. They are, after all, paid to spend their time researching and analysing markets, assessing the economic outlook and making asset allocation decisions for model portfolios that are intended to appeal to a broad range of clients with varying risk-reward preferences. If a bespoke portfolio is to meet its objective, it must be calibrated to observable data such as credit index tranche prices. But matching a bespoke portfolio to the corresponding index tranches is difficult.