Organization WEDGE is an investment advisory firm active in the management of client portfolios since 1984. We are
independently owned by 17 general partners and are organized as a limited liability partnership under
the laws of Delaware. Our ownership distribution is broad with no general partner owning 25% or more
of the firm.
Services WEDGE offers a variety of value-oriented equity and fixed income strategies. Value investing generally
involves buying securities whose shares appear underpriced by some form(s) of fundamental analysis.
Based on this belief, we follow a value oriented, bottom-up
1 approach to the equity and fixed income
markets.
Our services include:
•
Traditional and quantitative management2 of stocks across various market capitalization3 ranges.
•
Fixed income management across various benchmarks.
•
Balanced account management. WEDGE seeks to be engaged as a portfolio manager of client accounts on a fully discretionary basis
(please see Item 16 – Investment Discretion). As a portfolio manager, WEDGE uses its best efforts to
increase the value of a client's account but will not generally consider needs of the client other than the
client's account.
We utilize proprietary model portfolios but can tailor product offerings to client-specified guidelines and
restrictions in many instances. We do this by both manual and systematic means, depending on the
restriction. Generally, excess cash due to client-specified restrictions is invested in other securities within
the appropriate model.
Accounts with client-specified restrictions can, from time to time, have transactions executed separately
and after accounts without restrictions to allow necessary time to process the restrictions and find more
suitable investments. Accommodating these types of restrictions can result in differences in account
compositions and in the timing of transactions, which can lead to disparity in performance between
accounts with restrictions and those without.
It is possible that WEDGE will be unable to provide advisory services due to certain restrictions on the
selection of securities or the selection of broker-dealers. Restrictions will be evaluated on a case by case
basis to determine whether WEDGE can effectively provide its advisory services.
1 Bottom-up security selection involves analyzing a security based on the individual attributes of the underlying entity.
2 Quantitative management uses a systematic, factor-driven, computing model to analyze a universe of stocks.
3 Market capitalization is a way of measuring the size of a company and is calculated by multiplying the current stock price by
the number of outstanding shares.
WEDGE does not intend to act as a fiduciary or make investment recommendations to prospective clients
prior to an agreement being signed. Materials presented to prospective clients are for informational or
educational purposes only and should not be interpreted as investment advice. In providing these
materials, WEDGE is not acting as a fiduciary as defined by any applicable laws or regulations.
Wrap Fee Programs WEDGE provides non-discretionary advisory services to a Unified Managed Accounts (UMA) Program
sponsored by a brokerage firm. In a UMA Program, the client executes a contract with the UMA Program
sponsor and the sponsor recommends or directs which sub-advisers will be used in the client's investment
program. WEDGE provides the sponsor with a model portfolio which has been chosen by the UMA
program sponsor. An updated model portfolio is provided to the sponsor whenever a change is made in
the model portfolio (
e.g., adding an investment position, deleting an investment position or
increasing/decreasing a position). WEDGE does not enter trades, does not receive trade reports, does
not perform or have access to recordkeeping, performance data or reporting or any client reporting.
WEDGE does not interface with the sponsors’ clients.
Assets Under Management As of December 31, 2019, WEDGE managed $11,330,000,000 of client assets on a fully discretionary basis.
WEDGE does not have any non-discretionary assets under management.
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Compensation Arrangements The specific manner in which fees are charged by WEDGE is established in a client’s written agreement.
WEDGE is compensated based on a percentage of assets under management.
The following tables list our annual fee schedules by product:
TRADITIONAL VALUE EQUITY PRODUCTS
Fee on all
assets:
Small Cap 1.00%
Fee on all
assets:
Small/Mid Cap 0.85%
Fee on first Fee on next Fee on next Fee on next Fee on next Fee on all over
$10,000,000: $15,000,000: $75,000,000: $50,000,000: $250,000,000: $400,000,000:
Mid Cap 0.75% 0.65% 0.50% 0.40% 0.30% 0.20%
Large Cap 0.75% 0.65% 0.50% 0.40% 0.30% 0.20%
Large Cap Expanded 0.75% 0.65% 0.50% 0.40% 0.30% 0.20%
Total Cap 0.75% 0.65% 0.50% 0.40% 0.30% 0.20%
Balanced 0.75% 0.65% 0.50% 0.40% 0.30% 0.20%
QUANTITATIVE VALUE EQUITY PRODUCTS Fee on first Fee on next Fee on all over
$25,000,000: $75,000,000: $100,000,000:
QVM: Large Cap 0.50% 0.40% 0.30% Fee on first Fee on next Fee on all over
$25,000,000: $75,000,000: $100,000,000:
QVM: Small/Mid Cap 0.65% 0.50% 0.40% Fee on all
assets:
Micro Cap 1.25%
Fee on all
assets:
Enhanced Core Russell 1000 0.20% FIXED INCOME Fee on first Fee on next Fee on next Fee on next Fee on all over
$10,000,000: $15,000,000: $25,000,000: $50,000,000: $100,000,000:
Core: Aggregate 0.35% 0.30% 0.25% 0.20% 0.15% Core: Government Credit 0.35% 0.30% 0.25% 0.20% 0.15% Enhanced Core 0.35% 0.30% 0.25% 0.20% 0.15% Intermediate: Aggregate 0.35% 0.30% 0.25% 0.20% 0.15% Intermediate: Govt. Credit 0.35% 0.30% 0.25% 0.20% 0.15% LDI/Long Duration 0.35% 0.30% 0.25% 0.20% 0.15%
Fee on first Fee on next Fee on next Fee on all over
$25,000,000: $25,000,000: $50,000,000: $100,000,000:
Short Aggregate 0.30% 0.25% 0.20% 0.15%
Fee on first Fee on next Fee on all over
$25,000,000: $75,000,000: $100,000,000:
Ultra-Short Aggregate 0.25% 0.15% 0.10% Negotiability We will negotiate fees if requested to do so on a case by case basis, taking into consideration factors that
include, but are not limited to, the size of the mandate, the capacity of the product, the history of the
relationship, the history of the strategy, and the existence of any most favored nation clauses that would
present a conflict.
General Billing Clients will choose to be billed directly or to bill the custodian bank directly with a copy of the invoice sent
to the client. Invoices are normally sent within 30 days of the end of each quarter. It is expected that the
fee will be paid within 30 days after receipt.
Generally, the fee is computed and paid quarterly in arrears, based upon the market value
4 of the client's
account at the end of each quarter. Deposits or withdrawals, made at any time during the quarter,
exceeding ten percent of the account's market value on the last business day of the quarter, are pro-rated
based on the number of days the funds were in the account, unless otherwise agreed to.
For the period from the day on which management of a new account commences until the end of the
next calendar quarter, the client will be charged a prorated fee based on the number of days in the period.
In the event that an account is terminated during a calendar quarter, the fee is pro-rated based on the
number of days in the quarter in which we managed the client’s assets.
Other Fees WEDGE’s fee is separate from and does not include:
•
Brokerage commissions, dealer spreads, and other transaction costs from buying and selling
securities (please see Item 12 – Brokerage Practices)
•
Custodial fees
•
Interest
•
Taxes
•
Other account expenses These expenses are the responsibility of each client. When holding cash-equivalent funds, some
custodians charge a management fee for access to money market funds. If applicable, this charge would
be in addition to WEDGE’s fee.
Prepayments Fees are permitted to be paid in advance upon client request and as previously agreed to. In these
arrangements, fees are paid on a quarterly basis with no adjustment made for contributions or
withdrawals during any quarter. Fees for partial quarters will be pro-rated as described above. A refund
for the amount of unearned pre-paid fees will be promptly provided to a client upon termination.
Other Compensation WEDGE does not receive direct compensation in connection with the purchase or sale of any securities.
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WEDGE does not charge any performance-based fees (fees based on a share of capital gains on or capital
appreciation of the assets in a client account). Additionally, WEDGE does not participate in side-by-side
management.
4 The market value of the assets under management is the aggregate of the closing values of the assets in the account at the
close of business on the last business day during the quarter on which the New York Stock Exchange is open. Pricing is
provided by an independent pricing agent, Intercontinental Exchange, Inc (ICE). These prices are compared to prices of other
independent third parties for reasonableness. Where material differences exist, WEDGE will adjust the security according to
known bid prices believed by WEDGE to represent current market value.
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Client Composition WEDGE primarily provides portfolio management services to institutional investors such as: corporate
pension and profit-sharing plans, Taft-Hartley plans, charitable institutions, foundations, endowments,
municipalities, investment companies, trust programs, and other U.S. and international institutions as
well as high net worth individuals.
Conditions for Managing Accounts Generally, WEDGE’s established account minimum is $10,000,000. The established account minimum is
$5,000,000 for certain fixed income products and $3,000,000 for Micro Cap. However, WEDGE will grant
exceptions in certain circumstances.
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Traditional Equity Strategies Our traditional equity strategies invest in U.S. Exchange-traded equity securities, including American
Depository Receipts (ADRs)
5, across various market capitalization ranges.
Initially, we employ two proprietary, fundamentally based screening models, which use publicly available
data on all eligible companies. Our Fundamental Value Model identifies those stocks with the greatest
profit potential, based on:
•
Value
•
Quality
•
Capital use
•
Momentum To preclude investing in financially unsound companies, we then employ our Financial Quality Model,
which focuses on:
•
Growth
•
Profitability
•
Leverage
•
Liquidity
Stocks are ranked by both models for relative attractiveness, with approximately 35% of the initial
universe eligible for subsequent research.
5 American Depository Receipt (ADR) is a stock that trades in the United States but represents a specified number of shares in
a foreign corporation. ADRs are bought and sold on American markets just like regular stocks and are issued/sponsored in the
U.S. by a bank or brokerage.
Focusing on companies that meet our value and financial quality parameters, research analysts employ
comprehensive, quantitative and qualitative analysis, seeking stocks with unrecognized value. Areas of
emphasis include:
•
Independent earnings forecasts and financial statement analysis.
•
An evaluation of free cash flow generation and return on invested capital.
•
Absolute and relative valuations.
•
Industry analysis and competitive positioning.
•
Management capabilities and incentives. This bottom-up analysis is then coupled with macro-economic research, focusing on the current and
future stages of the economic cycle and their impact on the profitability and performance of broad
sectors and specific industries. Prior to purchase, ideas are constructively debated among our
investment staff, culminating with a review and required approval by our Investment Policy Committee.
Subject to account guidelines, portfolios are consistently managed relative to holdings and positions
sizes, and well diversified among issues and sectors. Generally, individual position sizes are targeted to
be from 1-4% of the portfolio and will be held to a maximum of 5%. Broad economic sectors are limited
to 25% of the portfolio, or the benchmark weighting plus 5%, whichever is greater.
Quantitative Equity Strategies Our quantitative equity strategies invest in U.S. Exchange-traded equity securities, including ADRs,
across various market capitalization ranges.
We believe that momentum
6 and contrarian
7 factors can be successfully employed with value factors to
identify undervalued stocks that are beginning to show visible signs of life and optimize the timing of
purchases and sales. Furthermore, the factors that determine stock price performance vary across
economic sectors. Due to the number and combinations of factors utilized, a systematic model is needed
to analyze the universe of stocks.
Our quantitative products are designed to utilize the most productive measures of value and momentum
on a sector-by-sector basis. We also strive to improve upon the usual value manager tendency to buy
too early and sell too early, by incorporating appropriate momentum and contrarian factors.
The model derives from:
•
Our extensive experience as value managers.
•
A wide range of academic and industry findings.
•
Intensive back-testing.
6 Earnings momentum occurs when the earnings per share growth of a company is accelerating or decelerating from the prior
period. Earnings multiples (as in the Price/Earnings ratio) are the foundation for most stock prices, and if earnings are
increasing at a faster pace than expected, then current multiples can appear too low. As a result, investors will bid up the stock
price to reach a new level of equilibrium. On the other hand, if earnings momentum decelerates, the price of the underlying
stock could drop despite the fact that earnings as a whole are still increasing. The basic idea is that once a trend is established,
it is more likely to continue in that direction than to move against the trend.
7 Contrarian factors can lead to exploitable mispricings in securities markets when the consensus opinion appears to be wrong.
Companies are ranked within economic sectors using a unique combination of value, contrarian and
momentum factors for that sector. To become a candidate for purchase, a stock must satisfy certain
decile criteria for its sector. All candidates are then reviewed by our analytical staff, with a primary focus
on the accuracy of the data and any current developments that potentially alter the quantitative analysis.
In addition, our index-driven strategies focus on securities within a desired benchmark (i.e. the Russell
1000 or S&P 500). Beginning with all benchmark securities, a model-driven systematic approach is
utilized to deselect those securities we believe will underperform the corresponding benchmark. The
remaining securities are held with a sector-neutral weighting relative to the benchmark.
Fixed Income Strategies Our fixed income strategies invest in U.S. dollar-denominated, investment grade bonds including:
Government Obligations, Mortgage Backed Securities, Asset Backed Securities, Taxable Municipal
Bonds, Corporate Bonds, Collateralized Mortgage Obligations and Floating Rate Notes. Fixed income
portfolios are constructed with varying duration
8 targets based on client benchmarks.
We strive to consistently maintain an effective yield advantage versus each client's benchmark index by
continuously investing in undervalued bonds, while cautiously managing the assumption of risk, seeking
the optimum balance between risk and reward for each client. Therefore, we focus on the major
contributors to fixed income returns, concentrating assets in undervalued securities and sectors, and
taking advantage of long-term trends in interest rates, as well as the current and changing shape of the
yield curve
9.
Our bottom-up security selection process reflects three basic steps.
•
First, we review the market to identify potentially undervalued bonds that reflect a high yield
premium or spread versus benchmark U.S. Treasuries, relative to historical levels and alternate
bonds of comparable quality and risk.
•
Secondly, we employ fundamental analysis (e.g., credit, supply/demand analysis, etc.) to select
those bonds whose yield spreads should subsequently fall or compress to an average level,
generating a relative total return advantage.
•
Finally, we employ a Relative Return Model to identify those specific bonds whose return advantage
should be achieved over a broad range of potential interest rate changes – enhancing the
probabilities of adding value. At the portfolio level, we then employ two proprietary, multi-factor Bond Market Analysis Models, which
help us assess and take advantage of the future direction of short and long-term interest rates by
evaluating economic activity, monetary policy and financial market conditions. Based on the output of
these models, coupled with qualitative judgment, we then seek to add incremental value by
8 Duration is a measure of the sensitivity of the price of a fixed-income investment to a change in interest rates as expressed in
a number of years. The bigger the duration number, the greater the interest-rate risk or reward for bond prices. It is a
common misconception among non-professional investors that bonds are risk free. They are not. Investors need to be aware
of two main risks that can affect a bond's investment value: credit risk (default) and interest rate risk (rate fluctuations). The
duration indicator addresses the latter issue.
9 The yield curve is a line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing
maturity dates.
opportunistically positioning the portfolio's duration and allocating assets along the yield curve, taking
advantage of the current and anticipated changing shape of that curve.
Subject to client guidelines, restrictions, and account sizes, WEDGE strives to maintain holdings that are
consistent in their metrics and characteristics across portfolios within the same strategy. It is likely that
some CUSIPs will vary across portfolios due to the availability of certain fixed income instruments.
However, metrics and characteristics of holdings will be highly comparable, and all securities will be
allocated in a fair and equitable manner.
To appropriately control risk, WEDGE:
•
Invests solely in high quality issues.
•
Prudently diversifies security and sector positions.
•
Maintains a conservative maturity structure, as each client's duration will be maintained within 15%
of the duration of their benchmark index, except for the Fixed Income Short Duration Strategy, in
which duration is targeted to no greater than 15% above the duration of the benchmark index. Risk of Loss Investing in securities involves risk of loss that clients should be prepared to bear. Generally, the greater
the return potential of an investment, the greater the risk of loss is in that investment. All the strategies
listed above have an inherent risk of loss due to investing in marketable securities like stocks and bonds.
Specific sources of risk that can adversely affect an investment include:
•
Bankruptcy Risk: The risk that an entity will become insolvent due to an inability to service its debt
obligations.
•
Business Risk: The risk that an entity will become exposed to factors that prevent it from achieving
its financial goals.
•
Country Risk: The risk associated with investing in a specific country due to political, economic, or
technological factors.
•
Default Risk: The risk that an entity cannot make the required payments on its debt obligations.
•
Exchange Rate Risk: The risk arising from fluctuations in the relative value of a foreign currency in
which an entity has assets or obligations.
•
Financial Leverage Risk: The risk that an entity will take on an excessive amount of debt and become
unable to meet its financial obligations.
•
Interest Rate Risk: The risk that a change in interest rates will lower the value of an investment. For
instance, the value of fixed income securities will tend to decrease as interest rates increase.
•
Political Risk: The risk that political conditions will adversely affect an entity’s profitability.
•
Security Price Risk: The inherent risk associated with a decline in the market value of a security.
•
Security Liquidity Risk: The risk of being unable to buy or sell a security in a given size over a given
period without adversely affecting the security’s price.
To mitigate risk, clients should determine whether their entire investment portfolio is properly diversified
and that the overall asset allocation is appropriate. Generally, WEDGE will only consider the client’s
account(s) under management with WEDGE and how the account(s) is diversified.
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Registered investment advisers are required to disclose all material facts regarding any legal or
disciplinary events that would be material to your evaluation of WEDGE or the integrity of WEDGE’s
management. Neither WEDGE nor any of its management persons has been the subject of any legal or
disciplinary events.
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WEDGE Capital Management L.L.P is the sole member of WEDGE Capital, LLC, a Delaware limited
liability company. Neither WEDGE nor any of its management persons is engaged in other financial
industry activities or has other industry affiliations that would create a material conflict of interest.
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Components WEDGE has adopted a Code of Ethics (Code) for all supervised persons of the firm describing its high
standard of business conduct, and fiduciary duty to its clients. All associates must acknowledge and
agree to abide by the terms of the Code annually.
The Code includes the following:
•
Personal Security Trading Policy
•
Insider Trading Policy
•
Privacy Policy
•
Personnel Handbook
•
Gifts and Entertainment Policy
•
Political Contributions Policy
•
the CFA Institute Code of Ethics and Standards of Professional Conduct Personal Trading Associates of WEDGE are permitted to place orders to purchase or sell securities on behalf of the firm,
their own accounts, or other accounts. However, it is a policy of WEDGE that its associates are to avoid
such securities transactions and other activities that might conflict with or be detrimental to the interests
of clients, or which are designed to profit by the market effects of advice to clients.
Associates must first obtain approval from the compliance department (pre-clearance) when initiating
transactions in the following securities:
•
Common stocks
•
Options on common stocks
•
Taxable bonds
•
Securities convertible to common stock
•
Private placements
On an annual basis, all associates are required to submit a list of all personal, marketable, reportable
securities that they hold directly or indirectly.
Insider Trading It is a policy of WEDGE that no associate shall trade securities while in possession of material non-public
information, nor communicate any such information, in violation of the insider trading prohibitions of
applicable law.
However, from time to time, WEDGE can become a temporary insider of a company, subject to insider
trading prohibitions, by virtue of advice or other services rendered or received. The internal procedures
adopted to implement this policy include the following:
•
Ongoing efforts by associates to identify material non-public information in their possession.
•
Real-time reporting of issues arising under the policy to certain designated officers of the firm.
•
Abstention from trading in the subject security, and from communicating to others the subject
information, which typically includes adding the security in question to a Restricted Stock List,
pending resolution of the issues under review. On an annual basis, all associates are required to report any material personal relationships with any
individuals which could lead to gaining inside information.
Additionally, on a quarterly basis, all associates must:
•
State whether they have traded on material non-public information in their account(s) and/or in
WEDGE’s clients’ accounts.
•
Provide information on any board of directors positions they or their spouses hold for any public
companies.
A copy of the Code can be obtained by writing to: Compliance at the address on the cover page of this
document, or
[email protected].
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Best Execution In placing orders to purchase and sell securities, it is WEDGE's policy to seek best execution, which
includes both commissions and execution prices. In selecting broker-dealers to execute portfolio
transactions, WEDGE considers the:
•
Price of the security.
•
Rate of commission.
•
Size and difficulty of the order.
•
Reliability, integrity, financial condition and general execution and operational capabilities of
competing broker-dealers.
•
Brokerage and research services provided.
Where possible and consistent with this policy, WEDGE negotiates with broker-dealers to obtain reduced
commission charges at institutional rates.
Research When placing orders with certain broker-dealers, WEDGE will receive research and/or other products and
services with client commissions (soft dollars). Such research is considered either proprietary (research
created by a broker-dealer) or third-party (research created by another party). This research is provided
in addition to execution services. This is a valuable component of WEDGE's securities analysis because
we do not have to create the research in-house or pay for it separately (hard dollars). As a result, WEDGE
could be confronted with an incentive to select broker-dealers based on our interest in receiving research
or other products and services, rather than on our clients’ interest in receiving most favorable execution.
WEDGE only utilizes soft dollars after both the firm’s rigorous requirements and those of Section 28(e)
of the Securities Exchange Act of 1934 are satisfied. Soft dollar usage is budgeted and internally audited
on an annual basis.
A sampling of the services received consists of the following:
•
Bloomberg Professional
•
FactSet
•
Capital IQ
•
IBES
•
Haver Analytics Each of the services received are used as part of the initial screening process, fundamental analysis
stages, quantitative economic evaluation, and/or trade execution.
When placing orders to execute portfolio transactions, WEDGE will from time to time cause clients’
accounts to pay a broker-dealer an amount of commission in excess of the amount of commission
another broker-dealer would have charged. WEDGE will only do this after determining in good faith that
the amount of commission is reasonable in relation to the value of the brokerage and research services
received. Our determination will either be based on a particular transaction or our overall responsibilities
with respect to our clients’ accounts.
Research services furnished by broker-dealers can be used in servicing all of WEDGE's clients’ accounts.
Not all such services will be used in connection with the clients’ accounts which paid commissions to the
broker-dealers providing such services. Certain clients may bear more of the cost of soft dollar
arrangements than other clients.
In addition, some of the services obtained will provide a mixed-use to WEDGE, providing valuable
information utilized by both our research staff and non-research staff. While an inherent conflict of
interest exists in the assessment of an appropriate allocation between the amount to be paid with soft
dollars versus hard dollars, WEDGE strives to make an objective, conservative determination of the
portion that is soft dollar eligible and the portion that is not.
In accordance with the Asset Manager Code of Conduct, estimated commissions by strategy are shown
below:
ESTIMATED COMMISSIONS (CENTS/SHARE) Small Small Mid Large Large Total Micro Small Mid Large Cap Enhanced Core
Cap Mid Cap Cap Mid Cap Cap Cap Cap Cap QVM QVM Russell 1000 3.5 3.15 2.8 2.5 2.2 2.4 3.5 2.5 2.2 1.5
Soft dollar arrangements for client accounts comport with the CFA Institute Soft Dollar Standards.
Additional information in accordance with the CFA Institute Soft Dollar Standards concerning the
Investment Manager’s Soft Dollar Arrangements is available on request.
Directed Brokerage & Commission Recapture Clients can elect to give WEDGE unlimited discretion in the selection of a broker-dealer (non-directed).
In these cases, WEDGE will be best able to achieve best execution for the client.
In some instances, a client directs WEDGE to use a specified broker-dealer, even though such broker-
dealer could charge commission rates in excess of the institutional rates generally available to WEDGE.
In other instances, clients have directed WEDGE to place transactions with a particular broker-dealer to
defray consulting fees or to participate in a commission recapture program. In each of these instances,
WEDGE follows the client's direction with the understanding that:
•
Utilizing the services of the designated broker is in the best interests of the account.
•
The benefits provided shall be for the exclusive benefit of the participants and beneficiaries of the
plan (if applicable).
The direction shall not constitute, or cause the account to be engaged in, a prohibited transaction as
defined in the Employee Retirement Security Act of 1974 (ERISA), as amended. Under such arrangements:
•
WEDGE's ability to negotiate commissions on the client's behalf will in certain cases be limited,
which could result in higher commission rates.
•
WEDGE's ability to aggregate the client's orders with the orders of other clients will in certain cases
be limited, which could result in higher commissions and less favorable prices.
•
WEDGE will from time to time execute equity and fixed income trades for non-directed accounts first
with other accounts following in random order, thus diminishing the likelihood that a directing client
will achieve best execution.
•
WEDGE will in certain cases utilize a correspondent broker to accommodate client recapture
requests, which could result in less being recaptured since the executing broker could retain a portion
of the commission. In situations where a client has directed WEDGE to trade with a specific broker or dealer, but WEDGE
believes that trading with a different broker or dealer will achieve a better net execution, WEDGE will do
so and ask that firm to "step out" of the trade. In other instances, step out trades are used to allocate
brokerage to firms that provide statistical or other research services. In a step out trade, the broker or
dealer executing a trade gives up, to another broker or dealer, the discount or commission on, and the
settlement of, the trade. WEDGE uses step out trades only when it believes that such trading is in its
client's best interest and, in particular, only when WEDGE believes that its client's account will receive an
execution at least as good as it would otherwise receive.
Cross Trading WEDGE does not intend to cause any ERISA clients to engage in any transactions that could be deemed
impermissible cross-trades under ERISA. From time to time, WEDGE will place orders through the same
broker dealer for a purchase of a security following the prior sale of that security. However, to mitigate
any conflicts of interest, WEDGE will only place these orders when they are executed via an Electronic
Communication Network and/or when the executing broker has been provided explicit instructions not
to cross any trades, or when we believe a sufficient interval of time exists between the orders to ensure
that the intermediary is at market risk. In addition, there can be no prearrangement or discussion
between WEDGE and the intermediary about WEDGE’s willingness to buy back or sell the position after
the interval of time has expired.
Aggregation and Order Allocation
WEDGE frequently aggregates purchase or sell orders for accounts in the same strategy to increase the
likelihood of a more favorable result for its clients. WEDGE also aggregates purchase or sell orders for
accounts in differing strategies when deemed appropriate. However, in all cases WEDGE is not obligated
to aggregate orders.
Circumstances will also arise when there is a limited supply or demand for a security. Under such
circumstances, while WEDGE intends to allocate each opportunity to purchase or sell a security among
those accounts on an equitable basis, WEDGE is not required to assure equality of treatment among all
accounts in connection with every trade. Where, because of prevailing market conditions, it is not
possible to obtain the same price or time of execution for all securities purchased or sold for clients’
accounts, WEDGE will allocate the securities in a fair and equitable manner using a pro-rata, random, or
leveling approach, as applicable.
Review WEDGE’s Best Execution Committee, which is made up of WEDGE’s trading and compliance groups,
conducts both qualitative and quantitative reviews to properly evaluate the best execution of each broker
as well as the firm as a whole. The qualitative review includes reviewing the past performance of the
broker-dealers with whom we place orders for execution considering the factors discussed above.
WEDGE also uses a transaction cost analysis vendor and performs an internal analysis to quantitatively
assess the fairness and reasonableness of the execution received. WEDGE will consider ceasing to do
business with certain broker-dealers whose performance is not deemed competitive.
American Depository Receipts (ADRs) From time to time, WEDGE purchases ADRs and/or foreign stocks listed on U.S. exchanges. On occasion,
the broker will purchase shares of a foreign entity on the issuer's native exchange and convert the
securities to ADRs or vice versa. A portion of the dividend paid on these types of securities will at times
be withheld by a foreign government for tax reasons. The portion withheld will be recoverable by the
client in certain circumstances. When possible, it is the client that bears responsibility for repatriating
the portion withheld. To the extent that dividends are withheld, and not repatriated, the performance
of that client's account will be impacted negatively.
Fixed Income Settlement WEDGE will from time to time aggregate fixed income purchase and sell orders that include accounts
with certain custodians that have delayed settlement. This will result in purchases settling later than
sales in certain aggregate transactions, despite such trades being placed contemporaneously. Although
not all accounts in the aggregate order may use custodians with delayed settlements, all accounts could
be affected by participating in the order. Such issues can be mitigated by using shorter settlement
periods for all sales.
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Compliance Monitoring WEDGE performs various reviews to verify compliance with client objectives. Upon account set up, client
investment objectives and restrictions are noted by the firm’s compliance officers and client portfolio
managers. Relevant restrictions are interpreted conservatively and coded into the firm’s compliance
system, which monitors portfolios daily. These objectives and restrictions are also reviewed to varying
degrees monthly, quarterly and annual basis. Reviews generally include such areas as: overall investment
objectives, social and religious restrictions, performance, best execution, proxy voting, privacy, etc.
Individuals responsible for these types of reviews include the firm’s four compliance officers as well as
the firm’s six client portfolio managers.
Client Reporting Generally, WEDGE mails written reports to clients within 30 days after each quarter-end. At a minimum,
these quarterly reports contain information on performance and holdings. However, many of our clients
request additional or more frequent reporting, which we also provide. These additional reports will
typically include information on:
•
Gains and losses
•
Commissions
•
Transaction detail
•
Proxy voting
•
Other client data
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Authority WEDGE does not maintain or accept actual custody of client funds or securities. Separate account clients
use their discretion in choosing a custodian to take and have possession of their assets. In certain cases,
the custody agreement between the client and their custodian may grant authorizations to WEDGE for
the transfer of funds or securities contradictory to those contained in the advisory agreement between
WEDGE and its client. WEDGE’s authority to transfer funds or securities is strictly limited to the terms set
forth in the investment advisory agreement, regardless of any broader authority granted or implied in
the client’s agreement with its custodian. The custodian’s monitoring, if any, of the client’s account is
governed by the client’s relationship with its custodian.
Account Statements Clients should receive at least quarterly statements from the broker-dealer, bank or other qualified
custodian that holds and maintains clients’ investment assets. WEDGE urges our clients to carefully
review such statements and compare official custodial records to the account statements that we provide
to you.
Our statements can vary from custodial statements based on:
•
Accounting procedures
•
Reporting dates
•
Valuation methodologies of certain securities
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Discretionary Authority
WEDGE receives discretionary authority from the client at the outset of an advisory relationship to select
the identity and amount of securities to be bought or sold and transact trading in the client’s custodial
account. This discretionary authority is granted in the investment management agreement with each
client. In all cases, however, such discretion is to be exercised in a manner consistent with the stated
investment objectives, policies and/or restrictions for the client account. Clients should provide all
applicable investment objectives, policies and/or restrictions to WEDGE in writing.
Money Market Fund Selection
Unless agreed to otherwise, selection of money market funds is the responsibility of the client in conjunction
with the custodian. If WEDGE is requested to select a money market fund, the authority to do so should be
outlined in writing from the client. Once the client's written authorization is accepted by the custodian,
WEDGE will generally instruct the custodian to invest excess cash in a United States Treasury only money
market fund.
Class Actions
The responsibility and authority for handling class actions and related claims rests with each of WEDGE’s
clients. WEDGE is not responsible for advising or acting for clients on legal proceedings, including class
actions and bankruptcies, involving securities purchased or held in client accounts.
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Voting Practices WEDGE votes proxies for its clients, unless instructed otherwise. WEDGE has developed a Proxy Policy
which is designed to comply with both SEC Rule 206(4)-6 under the Investment Advisers Act of 1940, and
ERISA. WEDGE considers a myriad of information, including recommendations from Glass Lewis & Co.,
in formulating proxy votes. WEDGE votes proxies in the best economic interest of shareholders.
In certain circumstances and as previously agreed to, WEDGE will accept client direction when voting
proxies. In doing so, client votes will in some cases differ from those recommended by WEDGE’s analysts.
In all instances, WEDGE must receive proxy materials and related communications within a timely
manner in order to vote.
Conflicts of Interest All conflicts of interest are to be resolved in the best interest of our clients. To alleviate potential conflicts of
interest or the appearance of conflicts, WEDGE does not allow any associate or his or her spouse to sit on the
board of directors of any public company without Management Committee approval, and all associates must
affirm quarterly that they are in compliance with this requirement. Additionally, if an analyst voting a proxy
feels a conflict or a potential conflict of interest exists for any reason, he or she must consult with another
analyst and/or the Management Committee to review and confirm the appropriate vote.
Copies of the Proxy Policy or information on how proxies were voted can be obtained by writing to: Proxy
Administration at the address on the cover page of this document, or
[email protected].
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WEDGE has no financial commitment that impairs its ability to meet contractual and fiduciary
commitments to clients and has not been the subject of a bankruptcy proceeding.
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Open Brochure from SEC website