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Philosophy & Process Colony Capital Management is a growth-oriented investment management firm that seeks to identify fundamentally strong companies, while remaining conscious of short-term financial momentum as well as the relative valuation of companies. Colony Capital Management pursues a growth-oriented investment philosophy that is grounded in the belief that individual stock prices are largely determined by a company's earnings growth, and the prospect for accelerating future earnings. Recognizing and interpreting change, especially of a secular nature that is increasing earning power and cash flow, is an important part of this philosophy and process. We are as interested in identifying a company going from a nominal growth rate (i.e., less than 5% to an 8-10% rate), as we are a company going from 10% to 15%. In fact, because expectations are usually low, the change in valuation and, therefore the gain, is often greater in the first instance. We strive to identify companies with increasing earnings momentum by tracking a company's earnings surprise, earnings estimate revision, and earnings growth characteristics, including margin changes, inventory ratios and revenue growth. We begin by utilizing a sophisticated, multi-factor model to screen over 4,500 stocks. This screening assures all stocks eligible for further review have adequate institutional liquidity, are consistently analyzed on the same growth and valuation parameters, and eliminates biases that may have precluded an objective consideration. Additionally, the screening allows us to consider a broad range of issues thereby providing insight into the relative attractiveness of the various segments of the market. This screening and analysis also allows us to construct portfolios that are not totally dependent on the performance of any particular sector of the market. This diversification not only contributes to superior performance, but also decreases the volatility of investment returns. After the screening reduces the universe of over 4,500 companies to a working list of approximately 300, a qualitative analysis is undertaken to select the best investments for our clients' portfolios. This qualitative analysis is conducted by our investment professionals and is supplemented by research available in the marketplace. This combination of consistently applied quantitative screens and qualitative investment judgment provides the best aspects of technology and experience and assures a consistent, replicable stock selection process. Our approach leads to modest over or underweighting of sectors, but within very controlled parameters. Colony will typically limit sector weightings to +/- 5% of the S&P 500 sector weightings. For example, for a 10% S&P 500 sector weighting, the firm would target a 5% minimum and 15% maximum sector allocation. With regard to individual stock weightings, we will typically limit a purchase to 1-2% at cost, and limit the position size to 4-5% at market. The investment process begins and ends with the Investment Policy Committee (IPC), which is comprised of the firm's investment professionals. A consensus is required to approve all decisions of the IPC, and each member of the IPC expresses their judgment and expertise in this venue rather than through portfolio construction. After the most attractive purchase candidates are identified by the Investment Policy Committee, holdings are added to portfolios in a disciplined manner across all accounts.
Periods over one years are annualized. Performance results reflect total fund returns which include the reinvestment of dividends and interest. Past performance is not indicative of future results. Please see full disclosure. Performance shown is for periods ending 9/30/08.
Colony Capital Management has prepared and presented this report in compliance with the Global Investment Performance Standards (GIPS®). The CFA Institute has not been involved with the preparation or review of this report. These results have been prepared and presented in compliance with GIPS® beginning 1/1/93. The composite was originally created in 1985. From 1/1/92 forward, composite performance is asset-weighted; prior to 1/1/92, the firm’s equity composite was equal-weighted. Composite performance is presented both gross and net of investment management fees. Since 1/1/93, composites have been valued monthly and portfolio returns have been weighted by using beginning-of-month market values. The dispersion of annual returns is measured by the range between the highest and lowest performing portfolios in the composite. As of 9/30/08, the composite included 2 accounts and totaled $54 million of equities which represented 38% of the firm’s total assets, 72% of the firm’s growth equity assets, and 99% of the firm’s discretionary tax-exempt assets managed in this product. There is no minimum asset size below which portfolios are excluded from a composite. A complete list and description of the firm’s composites is also available. Balanced portfolio equity segments were included from 10/1/85 to 12/31/91. The cash has been allocated based upon the client’s actual asset allocation. Performance is expressed in US dollars. This composite does not contain any non-fee paying portfolios. For the trailing five years, the lowest performing component returned 5.47% annualized; the highest returned 5.49% annualized. Past performance should not be used as an indication of future results. Trade date accounting is used. Performance results reflect total fund returns which include the reinvestment of dividends and interest. Dividend income is accounted for on an accrual basis beginning 1/1/05. Colony Capital Management is an independent investment adviser established in 1971 and is registered with the SEC. Firm assets represent the total assets under management of all fee-paying, discretionary portfolios. The composite includes all discretionary, nontaxable, non-individual equity portfolios. Our Growth Equity process is driven by the realization that earnings growth is the primary determinant of stock prices.
Gross-of-fees performance returns are presented before management fees, custodial fees, and withholding taxes but net of all trading expenses. The annual fee for Growth Equity investment advisory services is based on the market value of the assets under supervision. The fee formula is: 1.00% on the first $10,000,000; 0.75% on the next $20,000,000; 0.50% on the next $20,000,000. Management fees will vary with both the product being considered and the account size. This published fee schedule is also disclosed in Part II of Form ADV, as filed by the firm with the Securities & Exchange Commission. For example, a $10 million portfolio with a 10% return each year would appreciate to $25.93 million at the end of 10 years when compounded annually. If the same account were subjected to an annual management fee of 1.00%, the portfolio would be worth $23.67 million at the end of 10 years. Annual returns are time-weighted rates of return calculated by linking monthly returns. Additional information regarding the firm’s policies and procedures for calculating and reporting performance results is available upon request. The S&P 500 is the most appropriate benchmark. As of 9/30/08, the composite and S&P 500 have the following characteristics respectively: Trailing 12 month PE 15.3/22.5; Next 5-yrs Earnings Growth 13%/12%; Return on Equity 22.9%/10.1%; Dividend Yield 1.5%/2.5%; Beta 1.0/1.0.
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