Invest your $30 million!
TOP Private investment experts tell you HOW
1. Edward J. Mathias
Managing director of The Carlyle Group. He
is based in Washington, D.C. Prior to joining
Carlyle in January 1994, Mr. Mathias was a
member of the management committee
and board of directors of T. Rowe Price
Associates, Inc. He was instrumental in the
founding of The Carlyle Group and assisted
in raising the firm's initial capital. Mr. Mathias
holds an M.B.A. from the Harvard Business
School and an undergraduate degree from
the University of Pennsylvania, where he
presently serves as a trustee.
2. Steve Thormahlen
Director, president, and chief executive
officer of Fiduciary Investment Management
International, Inc., a portfolio manager and a
member of the investment policy committee
of Fiduciary Trust International, Inc. Prior
to joining Fiduciary, Mr. Thormahlen was
president of Thormahlen Investment
Management, Inc., a private investment
counseling firm he founded in 1989. Mr.
Thormahlen began his investment career in
1977 with Riggs Bank Trust Department.
3. Lawrence P. Fisher II
Managing director and senior resident
officer of Bessemer Trust, Washington,
D.C. Prior to joining Bessemer Trust, Mr.
Fisher was a senior vice president with
U.S. Trust Company, which he joined in
1998. He serves of the boards of GMAC,
Wolf Trap, Georgetown's McDonough
School of Business, and Junior
4. Neil Folger
Senior vice president at Folger Nolan
Fleming Douglas Capital Management,
Inc. He formerly held the position of vice
president in the Individual Investment
Management Department of Fiduciary
Trust Company International, associate
in the investment banking department of
Wertheim Schroder & Co., and associate
in the corporate finance department
of Bankers Trust Company. Mr Folger
earned his Bachelor of Arts degree from
Harvard College in 1984 and his Master
in Business Administration degree from
Harvard Business School in 1989.
What if you always had paris?
Ed Mathias: Let's say you are Paris Hilton or
a lottery winner and came into $25 or $30 million.
What would you do?
Steve Thormahlen: The first thing you have
to do is determine your objectives for that
sudden increase in wealth.
Lawrence Fisher: Establishing clear goals
is essential. We start by planning for each
client's needs. Often that means securing
multigenerational wealth, while using some
of their funds for the good of society.
Neil Folger: Individuals have a wide range of
differing objectives and risk tolerances. They could
be very conservative or very aggressive. Either way,
they must first figure out their objectives, with the
investment plan flowing from there.
Mathias: What if you're not in the Paris Hilton
$30 million range? What are your minimums?
Thormahlen: We have minimums approaching
Fisher Our minimum is $10 million, but our
sweet spot is between $10 and $150 million. Our
clients usually prefer not to maintain a family
office but have sophisticated needs requiring onsite
legacy planners and trust and estate attorneys.
In addition to investment management.
Mathias: How much do each of you charge in
asset management fees?
Thormahlen: Our fee schedule is based on the
assets under management. We charge one percent
on the first $5 million, .75 percent on the next $5
million and .50 percent on the balance. We never
charge on a percentage of sales.
Fisher: We charge one percent or
approximately a hundred basis points annually.
It can be a little bit higher or a little bit lower
from there depending on the client.
Folger: Our fee schedule is one percent on the
first $2 million of assets under management,
three quarters of a percent on the next three
million, and half a percent on the balance.
Investing for long term
Mathias: What are the main financial concerns
your clients have in today?
Thormahlen: I see more people on the
investment side concerned about events that
are totally out of their control.
Fisher: We often deal with the nuts and bolts
of money and investing. Clients are looking
for solutions to their particular situations.
How can I increase my income? How much
should I have in stock? How much should I
have in bonds? Am I going to have enough
money to retire? Am I going to have enough
money to send my children to college? These
are the sorts of practical questions we work
through with our clients.
Mathias: If a middle-aged professional came to
you, what would you advise?
Thormahlen: You're dealing with someone
who probably has a long life expectancy,
continuing to grow there assets is going to be
important. In addition, they would probably
like to pass along some of their assets to future
generations. From our vantage point, all things
being equal, we would suggest this individual
be invested in a growth-oriented portfolio,
with an equity mix anywhere from 75 to 85
percent. The balance could be allocated in
fixed-income instruments, probably municipal
funds. The real test will be how those equity
assets are diversified and managed.
Folger: We'd want to have some balance
in the portfolio between stocks and bonds
with an equity position ranging from 50 to
80 percent, depending on the risk/return
parameters. I think the more interesting
element is how you would divide up the
equity section. Typically, our firm has been a
U.S. large cap investor. We are now looking
at expanding into some of the other asset
categories such as small-cap, mid-cap and
developed international and emerging
markets. Coming to grips with exactly the
right mix of all those asset categories is a
challenge that requires considerable input
from the client.
Mathias: You can't talk to investors without
hearing about how China and India are the two
dominant economies. How can the average person/
small investor participate there?
Thormahlen: Twenty years ago the U.S.
dominated the world markets. Now the U.S. is
at 45 percent and going down because of the
growth in China and India and other countries.
If you ignore global investing you are ignoring
about 60 percent of the available opportunities
Fisher: You can use a manager who is either
hedging that position or is taking care of
that currency risk within the portfolio and
returning U.S. dollars to you.
Thormahlen: There has been an explosive
growth in funds that are predominantly
allocated to the four growing B.R.I.C
economies: Brazil, Russia, India and China.
It's really phenomenal. Investing in regions of
the world, whether it's Eastern Europe, Asia,
or the Latin American and South American
markets is a real possibility. It's amazing to see
the explosion of growth out there.
Real Estate Bubble?
Mathias: There's a lot of talk about a real estate
bubble. Do you have thoughts on the real estate
market and what people should do with their
Thormahlen: I have trouble when I see the
reports in the national publications about
the real estate bubble. There is no denying
the real estate market in this area is going
through some tough times, but I am one who
is convinced that real estate is, more than
anything else, a localized market. I would bet
the Washington region is about as healthy as
a market for real estate is going to get in this
Folger: On a practical basis, our clients live
here locally and have experienced in their
own homes and other real estate. So while
we do offer real estate investment vehicles, we
have not been focused on adding significan
real estate to their investment portfolios
because our clients often have substantial
holdings in this area.
Opportunity and risk
Mathias: If you look at the market today, where
do you see opportunities? And where do you see
areas that you'd want to avoid?
Thormahlen: People are living longer,
healthier, more vibrant and active lives.
There are companies and industries that
are making their products and services to
cater to those types of individuals.Look at
companies that produce hip joints and knee
replacements. Companies in the medical
technology fields or in the leisure fields are
tremendously successful. Another theme we
talked about earlier was global growth. The
world is getting smaller, and there are now
international companies that are servicing the
world demand for cellular communications,
food, shipping, etc.
Fisher: If you look at [different] sectors
within the equity market over the past five
years, small cap value has had an incredible
run. If you look at the evaluation relative to
where there is opportunitynow, large cap
growth appears to be it.
Folger: We search for companies with a
consistent growth rate in their earnings
overtime. These companies typically have a
certain competitive advantage and can be
found in any industry. We try to stay away
from companies that have lost their edge, even
though their stock prices may have dropped.
For example, the U.S. auto sector is going
through real difficulties right now. The airline
sector is another area that is probably not
appropriate for our clients.
Mathias: If each of you could select one industry
as having favorable prospects for the next three to
five years, what would it be?
Thormahlen: I would probably put a portion
of my investments into the information/
technology field. Qualcomm is a growth play
on China and Asia. They will introduce a new
screen for cell phones that does not fade in
direct sunlight and their CDMA technology is
considered state of the art. Bio-tech companies
like Amgen and Genentech are making huge
strides bringing new therapies to market.
Fisher: There are also some great investments
to be made in the healthcare, finance, and
technology markets, but allocation is the key
to meeting expectations.
Folger: Financial services is another attractive
area. The U.S. is becoming more and more
of a service economy, and financial services
are playing a large and innovative role. It's
interesting to note the market capitalization
of the financial services sector is now the
largest of all the major industry sectors in the
Mathias: What type of return do you think the
broad based market will provide on an annual basis
as we look forward to 2011? And then let me
throw in a kicker, who do you think will be elected
president in 2008?
Thormahlen: Looking towards 2011, I think
that we all would anticipate this market will
trade at the mean. Typically we see equity
investments that are going to return eight
to ten percent, and hopefully you're in the
right categories for growth and value that
will garner this kind of return. On your
other question, I believe four of the last five
presidents had been governors previously. If
that's the case and the trend holds true, I think
that a local individual, Mark Warner, would
look interesting in the White House.
Folger: It's very hard to provide any kind of
credible five year forecast. I will say, however,
that this year looks pretty good. We had fairly
poor growth in the fourth quarter, but it looks
like we're going to have a much strong first
quarter. Economists are looking at overall
growth this year in the 3 to 4 percent range.
Another positive is that we're looking at an
end to the increase in interest rates by the
Federal Reserve and, as interests rates start to
level out or perhaps even start to go down,
rates will provide less competition for stocks.
Over the next five years, given we don't
know what's going to happen, I think the
prudent thing to do for investors is to assume
a relatively conservative equity return in the
high single digits. On the presidential election,
I'll go with Mark Warner too.
Fisher: Mark Warner and Geroge Allen
look strong for local reasons, but I like