Parametric proposed combining the underlying positions in each active or passive fund into a single account. Any environmental or social criteria could then be applied to this portfolio. The endowment directed each active manager to deliver a model portfolio (holdings and weights) to Parametric, which then aggregated these models, along with holdings from selected indexes, into a custom benchmark based on the endowment’s target allocation.
Once the positions were combined, Parametric could use its ESG data sets in conjunction with its expertise in portfolio construction to build a portfolio that mirrored the client’s target asset allocation while remaining invested with the active managers the university had carefully chosen. To accommodate the fossil-free mandate, Parametric modified the custom benchmark to omit any owners of fossil-fuel reserves. We then invested in the underlying holdings of the now fossil-free custom benchmark.