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 Achievement.

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 $2 million. 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.

International Investments

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 out there.
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 homes?
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 country.
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 S&P 500.

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 John McCain.