As the markets remain jittery, anxious individuals of wealth are turning toward family offices and integrated banking services for security.
“The history of asset purchase and sales shows clearly that there is a herd mentality,” said George Rieger, chairman and chief investment strategist at Greenwich Investment Management, a privately owned registered investment adviser in Greenwich. “The attractiveness of common stocks is wearing off after 10 years of poor and pathetic returns and it”™s indisputable that there are other asset classes, such as tax-exempt bonds, that are going to attract a lot of attention ”“ and they have in the past few weeks.”
Rieger said there has been a major misunderstanding by investors that exchange traded funds, derivatives and other “exotic” investment options are as good as money.
“That”™s a major error of analysis,” Rieger said. “Many people have thought for a long time that money in the business is money in the bank, a million dollars of Apple computers is a million in the bank; that”™s a terrible fallacy. When these asset prices decline, the decline is most often stronger than the incline.”
The market has seen a large share of that kind of decline lately. It is typical that a security that took 25 weeks to reach its highest point can go down just as far in only a few days, Rieger said, adding that with many investments there is an unfounded optimism and expectation of return.
“The hedge funds are losing money this year,” said Michael Tucker, professor of finance at Fairfield University. “Hedge funds are always looking for that little bit of advantage in the market and as more funds have entered the market they are all looking for that advantage, leaving less opportunity. Everyone is looking for the same thing, and to get it they are willing to take greater risk. From that risk you see less return and more decline.”
Tucker said unhappy clients along with more stringent reporting regulations under the Dodd-Frank Wall Street Reform and Consumer Protection Act are reasons why high-profile hedge managers such as Carl Icahn, George Soros and Stan Druckenmiller have recently parted with external investors in favor of managing private wealth. Scottwood Capital in Greenwich has also returned almost all of its outside capital, some $470 million, at the end of July, citing increased risks in the credit markets and regulatory insecurity. Soon after making the returns, Scottwood”™s founder Edward Perlman announced the firm would be turned into a family office.
The Securities and Exchange Commission in June approved a new rule that exempts family offices from Dodd-Frank regulations.
“The landslide to safety here is definitely happening,” Tucker said. “You see a lot of people saying gold is the safe deal to make; each bubble is the right way to go, but it”™s the nature of bubbles to pop. People in the midst of them don”™t understand that when it”™s happening.”
Tucker said a market has been created based on fear and speed, with great amounts of money moving and a distorted and record high volatility index.
“Right now, high net-worth individuals are not concerned with making money, but the preservation of capital,” Tucker said. “It”™s an anxious time.”
Rieger said the trend of changing managers in the financial and investment industry of late is the result of this unfounded optimism and the resulting disgruntled investors who in many cases had asked these managers to make the underperforming investment in the first place.
“A changing of managers is unfortunately not going to solve these issues,” Rieger said. Individuals are recognizing their investments have no strategy and as a result there is greater value in having a specific investment approach in a financial management service, he said.
In 2008, a large group of wealthy business owners and financial executives realized this same need for focused strategy in their own private finances and founded Fieldpoint Private Bank & Trust in Greenwich. The bank”™s then novel approach is proving to have been ahead of its time.
The 31-member founding group of Fieldpoint reads as a who”™s who of high-profile CEOs and presidents, many of whom are former Merrill Lynch executives. The list includes Clark Johnson, retired chairman and CEO of Pier 1 Imports and former CEO and co-owner of MacGregor Golf Co.; James M. Kilts, former chairman, president and CEO of The Gillette Co.; and Bernard Marcus and Kenneth Langone part of the founding team behind Home Depot.
“The best way to think about us is as a private family office with a bank attached,” said Robert Matthews, president and CEO of Fieldpoint. “We are designed around an affluent successful family with complexity, a need for guidance and a desire to have an integrated thought process. We are not trying to be all things to all people.”
Matthews said that Fieldpoint”™s approach to the financial services industry is contrary to one that requires clients to morph their strategy to a one-size-fits-all banking model.
“Above all else our clients are interested right now in asset preservation.” He said before they are concerned about return on their money, they are saying, “First, let”™s do no harm.”
Fieldpoint”™s model is booming, doing better today than it ever has.
“Our portfolio is doing fabulously well, we are growing very quickly,” Matthews said.
At the end of its last quarter, Fieldpoint reported $1.5 billion in assets under administration and bank assets of just under $500 million. The bank”™s clients are scattered throughout the country. Matthews said the bank”™s growth is directly reflective of the demand for a customized financial management product.
Though Fieldpoint”™s business has been increasingly successful, Matthews said it does not reflect a complete exodus of individuals from hedge funds. He said over the last six to nine months Fieldpoint has actually seen a trend of their clients looking back into hedge funds, this time with an emphasis on strategy.
“We”™re actually a big fan of the hedge funds as a form of investment,” said Matthews. “Those vehicles can make a lot of sense. The complete aversion to hedge funds is not healthy and is beginning to reverse itself. For us it”™s about achieving a balance, doing your research, knowing what the individual needs and being responsible for what”™s in the client”™s best interest.”
