1. Advisory Business
See Item 4 of this Wrap Fee Program Brochure for information about our wrap fee advisory programs. We offer individualized investment advice to clients utilizing the following services offered by our firm’s TAF® Wrap Fee Program. We usually do not allow clients to impose restrictions on investing in certain securities or types of securities due to the level of difficulty this would entail in managing their account. In the rare instance that we would allow restrictions, it would be limited to the TAF® Wrap Fee Program.
Our wrap fee and non-wrap fee accounts are managed on an individualized basis according to the client’s investment objectives, financial goals, risk tolerance, and the program’s discipline. We do not manage wrap fee accounts in a different fashion than non-wrap fee accounts.
2. Performance-based fees and side-by-side management.
Our firm may charge qualified clients1(“qualified investors”) “performance fees” – that is, either fees based on a share of capital gains or capital appreciation of the managed client’s assets. We charge performance based fees for the following program:
Alternative Investments where appropriate for qualified investors, include primarily a select few strategies: a long/short Technology hedge fund, a private equity Fund of Funds and a private equity Real Estate portfolio. Our firm endorses, for qualified investors, non-traditional investment strategies that have the potential to generate absolute returns independent of the market’s strength or weakness.
Alternative Investments have historically provided efficient portfolio diversification because they have low correlation to traditional asset classes. We seek to identify these superior strategies and managers that can increase the Alpha and reduce the Beta of our Global Asset Allocation portfolios. In other words, in most cases than not a disciplined process of evaluating, selecting and monitoring non-traditional managers can increase a portfolio’s overall returns while decreasing its overall volatility risks.
Our firm seeks to identify these superior strategies and managers that can complement our investment philosophy that relies primarily on identifying global Economic Sectors, Sub-Industries, and Specific Equities that sell at deep discounts to their respective and historical intrinsic values, and that are poised for a “Super Cycle” long-term growth.
The due diligence process of choosing a few select alternative strategies and managers out of a universe of more than 10,000 funds and over $1.4 trillion in cumulative assets under management begins with the Investment Strategy sought and the organizational structure and registrations, a select few Alternative Investment Managers have to adhere to.
The Investment Strategies include the followings: Convertible Bond Arbitrage, Distressed Securities, Emerging Markets, Event Driven, Fixed Income Arbitrage, General Hedged Equity, International Long/Short, Macro Price Movement, Merger Arbitrage, Multi Arbitrage, Opportunistic, Sector Investing, Short Selling, and Fund of Funds.
The due diligence process of the Organizational Structure and Registrations of the Alternative Investment Managers include, but is not limited to the followings: 1) Finding out the tenure and experience of the investment management team, 2) Researching organizational ownership, Board of Directors, general and limited partners, 3) Understanding the investment process and its implementation, 4) Looking for Independent, disinterested Board of Directors, 5) Seeking preferred and independent bank to custody the assets, 6) Insisting on a reputable third party accounting firms to value the funds’ assets, 7) Checking for an independent third party administrator, 8) Reviewing the capital structure, liquidity and financial strength of the preferred Prime Broker the Alternative Investment firm is associated with for executing its trades, 9) Insuring the highest level of “transparency” by reviewing and checking issuance of timely semi-annual, and annual reports to investors that fully disclose financial information and manager allocation, and 10) Requiring that prime Alternative Investment Managers are registered with the SEC under the Investment Company Act of 1940 (The “1940 Act”).
The due diligence process for identifying a few, uniquely positioned Alternative Investment Advisors also attempts to evaluate risk/reward parameters as measured by their quantitative and/or Mathematical Calculations of Risk. The followings are some of the criteria studied when quantitative risk parameters are evaluated: Beta, Alpha, Standard Deviation, Sharpe Ratio, and R-Squared. In addition, the followings are some of the risk parameters researched when qualitative data is included: long and short-term performance results, Market Risk, Economic Sector Risk, Industry Risk, Significant Sector and Position Concentration Risk, Liquidity Risk, and Management Fee Risk.
At the end of the process, periodic ongoing reviews are scheduled with all clients. This process includes the followings: 1) Review of the entire portfolio as well as its underlying Economic Sectors, Sub-Industries and their respective Individual Equities benchmarked each quarter against their respective Equity and World Indexes, 2) Recalibrate each client’s asset allocation models as his or her life circumstances change, and 3) Present consolidated reporting that incorporates the portfolios of the Alternative Investment Managers with the entire holdings of the clients’ other investments disciplines
The pricing schedule for the Alternative Investments Program will be based on our ability to negotiate a favorable institutional rate for all of the cumulative assets of the firm’s qualified clients expressing a desire to participate in the program. Our goal is to negotiate a fee structure, on minimum investments of $100,000 per client that will adhere to the following criteria: 1) annual fees not to exceed 2% of net assets, 2) incentive fees not to exceed 20% of net profit, and 3) a one-time placement fees not to exceed 3% of net assets.
When charging performance fees to some of our clients’ accounts, we face a conflict because we can potentially receive greater fees from client accounts having a performance-based compensation structure than from those accounts we only charge a fee unrelated to performance (e.g., an asset-based fee). As a result, we may have an incentive to either direct the best investment ideas to, or to either allocate or sequence trades in favor of the account that pays a performance fee.
We have taken several important steps to ensure that our performance based accounts are not favored over our client’s non-performance fee based accounts. These steps include:
3. Methods of analysis, investment strategies and risk of loss.
Methods of Analysis:
Investment Strategies we use:
Risk of Loss:
Investing in securities involves risk of loss that clients should be prepared to bear. While the stock and bond markets may increase in value and consequently your account(s) could follow suite, it is also possible that the stock and bond markets may decrease in value, and consequently your account(s) could suffer a loss. It is important that you understand the risks associated with investing in the stock and bond markets, your investment portfolios are appropriately diversified, and that you ask any questions you may deem necessary for managing your investment portfolio(s).
For clients who own alternative investments, the absence of a public market, lack of liquidity and an expected long term investment time horizon may include the following risks that you should consider:
4. Voting client securities.