As New Zealand’s largest investors seek smarter, more efficient ways to manage their portfolios, traditional multi-manager strategies often fall short due to operational complexities. The Enhanced Portfolio Implementation (EPI) framework offers a solution—simplifying portfolio management while improving control, cost efficiency, and scalability. EPI provides a streamlined approach to implementing sophisticated strategies with greater agility.
In this article, Andrew Zenonos of Russell Investments shares a day in the life of an EPI Portfolio Manager and explores how this framework is transforming portfolio management.
A day in the life of an EPI Portfolio Manager
My role as a portfolio manager has changed with the introduction of our EPI framework. Tasks that once required days of coordination and calculation can now be achieved in real-time. Clients frequently ask how the portfolio management works in practice.
A new approach to multi-manager investing
Traditional multi-manager portfolios operate with each underlying manager independently managing a pool of capital according to their investment objectives. While this ensures diversification, it also comes with challenges—investors must oversee multiple managers, handle operational complexities, and manage compliance across different strategies.
EPI transforms this model by separating manager insight from portfolio implementation. Instead of each manager trading independently, they submit model portfolios—lists of holdings and their weights—which are aggregated into a composite target portfolio. This centralised approach retains valuable stock selection insights while reducing the operational complexity and cost.
Bringing manager insights together
To strike a balance between incorporating managers’ latest insights and minimising unnecessary trading, we typically request weekly model portfolio updates. These can be submitted via a web-based portal or automated FTP uploads. Our research suggests weekly rebalancing optimally balances tracking error with reduced turnover and transaction costs. Some managers provide more frequent updates in response to market events or strategy shifts.
For example, in a global equity EPI portfolio, we may ask all managers to submit their models on Wednesday, reflecting pricing as of Tuesday’s close. This helps ensure smooth implementation and avoids unnecessary friction in portfolio adjustments. Some managers however may submit more than one model a week if there have been material shifts in their portfolio.
Managing the EPI portfolio: Daily decisions
Every day, my role as an EPI Portfolio Manager revolves around three key responsibilities:
- Building the composite target – Combining manager models according to client-directed weightings.
- Assessing active risk – Evaluating how closely the portfolio aligns with the target.
- Making rebalancing decisions – Deciding whether to trade, ensuring efficient implementation.
Managing an EPI portfolio is much like managing an index portfolio, except our target is a carefully constructed multi-manager combination rather than a traditional index. Client-directed manager weights determine overall positioning, and these weights can be adjusted tactically or strategically.
Unlike rigid rebalancing to fixed weights, our approach allows manager allocations to fluctuate naturally with market movements, avoiding unnecessary trades. In the absence of new weight instructions, trades only occur when managers update their models, ensuring efficiency and cost control.
Leveraging technology for smarter rebalancing
To monitor portfolios in real-time, we use a rebalancing dashboard, a central hub that provides key metrics such as:
- Pre-trade vs. post-trade tracking error
- Active share relative to the composite target
- Proposed trade volumes and expected turnover
- Cash positioning changes
When new model portfolios arrive, we assess whether changes warrant trading. For example, a model update might increase pre-trade tracking error to 0.45%. By rebalancing, we typically bring it back in line, usually within 0.15%, maintaining a tight alignment with manager insights.
Rules-based trading for efficiency
Alongside our risk-based approach, we apply systematic trading rules to minimise unnecessary costs. These include:
- Trimming: Removing small, immaterial positions to keep the portfolio streamlined.
- Banding: Ensuring trades only occur above a meaningful threshold to avoid excessive transaction costs.
By centralising trading and offsetting trades across managers, we significantly reduce turnover and trading costs compared to traditional multi-manager structures, easing the management of large portfolios at scale with enhanced efficiency.
Collaboration and oversight
EPI is not just about efficient implementation—it’s about working closely with managers to ensure smooth execution. While managers focus on stock selection, we maintain regular dialogue, particularly during major market events like corporate actions or high volatility periods. This collaboration ensures that model updates reflect real-time market conditions and portfolio needs.
For New Zealand investors with large global exposures, this collaborative approach to EPI helps to ensure that portfolios remain managed to evolving market conditions, while operational costs are kept to a minimum.
ESG integration – decarbonisation overlay
As regulatory requirements have evolved with respect to climate change and carbon emissions, asset owners have had to act accordingly. For instance, a large UK-based asset owner required a portfolio strategy that would complement active management while solving for reduced carbon exposure, net zero commitments, and stakeholder focus on decarbonisation.
By adopting EPI, the asset owner was able to streamline ESG implementation while maintaining insights from underlying portfolio managers. This resulted in a 25% reduction in both carbon footprint and fossil fuel reserves relative to the benchmark. Additionally, EPI provided greater total portfolio control of decarbonisation and other ESG-related objectives, while enhancing implementation efficiency.
Final thoughts: Why EPI is a game changer for New Zealand’s largest investors
The EPI framework represents the future of portfolio management, but realising its potential requires a world class toolkit spanning manager research, portfolio construction and best-in-class implementation.
For New Zealand’s larger institutional investors, EPI offers a way to improve portfolio execution, reduce operational burden, and enhance efficiency. It also assists in the effective implementation of exclusion policies with Integrated Financial Products and other ethical investments which are becoming increasingly common in New Zealand.
With technology at the core and a collaborative approach with managers, EPI delivers a level of precision and flexibility that traditional multi-manager strategies cannot match. It simplifies the complexities of multi-manager investing, helping investors achieve their objectives with greater control, fewer operational headaches, and significantly reduced costs.
This is general information only and should not be relied upon in making an investment decision. It has been compiled from sources considered to be reliable, but is not guaranteed. Past performance is not a reliable indicator of future performance.