In this section, we will post some of the questions our clients have recently been asking us. Please check back often as we update this information frequently.

Canterbury does not recommend having hard and fast rules about manager termination. Manager changes can be expensive to a fund and we want to make certain that we are not terminating a manager at precisely the wrong time. We use the following criteria, however, for identifying decision points about manager termination:

• Manager's ownership changes may or may not be reason for change. Frequently, these types of shifts do not necessarily mean a deterioration or significant change in investment process, but it nearly always means the "founder's" interest is liquefied and changes, however subtle, will occur in the organization. At minimum, we would place this firm on our "watch" list.
• Loss a of key investment professional or personnel is the most important signal of potential problems and will often result in a recommendation for termination.
• Organization has accumulated too many accounts/assets too fast. Tremendous growth can indicate several problems from an operational standpoint, as well as a potential decrease in time spent on investment decision making due to the effects of significant new wealth acquired by principals. Our immediate action is to watch the firm very carefully.
• Style drift is a complex matter requiring an understanding of the underlying issues driving the change. Style drift may be cause for a recommended decrease in allocation.
• Performance falling below median of peers on rolling three and five year periods signals a "red flag". Poor relative performance alone is not typically cause for termination. However, it does warrant further research to determine whether this performance is due to one or two quarters' performance or if it has been consistently poor. If it is from a particular quarter, and the manager has a history of volatility, then a single rolling period of underperformance may not be enough to terminate. Termination would come with both poor performance and loss of confidence in those implementing the investment process.

Canterbury has proactively dedicated resources to investigate, understand and recommend alternative investment strategies. We have experience in recommending venture capital, private equity, mezzanine funds, distressed securities funds, hedge funds, fund of funds, and real estate investments. Our alternative investment research is headed by one of our senior consultants, Leonard A. Yerkes. We do not use sub-advisors. Canterbury uses alternative strategies as an additional diversification tool and generally recommends committing between 5-20% of the total fund assets to this class. Within the allocation, we recommend a diversified strategy between various hedge fund strategies and other opportunistic strategies. Of the clients we currently have invested in alternative strategies, the vast majority have less than 10% of their total funds allocated to this class; although nearly all are discussing the possibility of increasing that commitment up to 15% in multi-strategies.

Generally speaking, Canterbury believes active managers in a fund that is well diversified by style and market capitalization can provide a fund with superior risk-adjusted returns over the long-term. While our belief tends toward active management, Canterbury is not opposed to indexing, particularly in the large cap or core area. Our experience has shown that in flat to negative markets managers can and do add value. However, we also recognize that in a market that is driven by a few very narrowly defined companies, and with those companies being market capitalization weighted in the indices, being 100% invested at all times may have some advantages.

We tend to recommend diversification across asset classes (equity / fixed income), market capitalizations (small cap / mid cap / large cap) and styles (value / growth). Where possible, we endorse investing in non-traditional asset strategies such as venture capital, private equity, mezzanine funds, distressed securities, hedge funds or REITs. The amount of diversification however, is often a function of the size of the fund. The benefits of broad diversification can be "watered-down" if a portfolio size is too small.

Canterbury does not have any hard and fast rules about numbers of managers that are appropriate for accounts. We take into consideration, however, the following:

• With the exception of Fixed Income or an index fund, we generally do not recommend that a client invest more than 20% or $30 million, whichever is less, with any one manager's strategy;
• Allocations to managers of less than 5.0% do not make enough difference to a portfolio to warrant the time of staff and committee. The exception to this is in the area of alternative investments where it is frequently necessary to make smaller allocations in order to reach the appropriate level of diversification.

While Canterbury has many clients invested in fund of funds, they have generally done so because the fund assets are too small to make specific allocations and still reach an appropriate level of diversification. With few exceptions, for those clients whose size allows, we would recommend direct investment in limited partnerships of the specific strategies and managers desired.