expected returns would be in the
high single digits. Of course, there
are no guarantees.
MATHIAS: So, eight percent
or so annually over the
next three-to-five
years would be
reasonable?
VEITH: Yes.
HARRELD: I
think it’s a question
of what clients expect.
But that’s what we
would expect.
MATHIAS: Do you see
individuals taking all
assets, including their
homes, into account
when assessing their
financial position?
HARRELD: Dismissing
the ultra wealthy, if we
talk about a person with
$5 million to invest, a $3 million
home, and a couple of other assets,
so they’ve got a net worth of $10-
15 million, which is a lot more of
what we see daily, I think clients are
pretty savvy about that. But they’re
still counting on their house to
cover them on inflation. They really
believe that in this marketplace, even
if it doesn’t go up 20 percent a year,
their home will go up eight percent
a year. I’d be cautious about that – it
may not last forever even if it is built
on the government.
WINSOR: People see their second
homes as an investment. And while
they’ve paid out handsomely until
now, that is not a given going
forward. It’s really more a function of
the health of our economy.
MATHIAS: You can’t pick up any
periodical or engage in cocktail party
conversation without some mention
of hedge funds and private equity
vehicles. Any thoughts?
VEITH: With hedge funds we have
concerns.
What’s not published
is the number of hedge funds that
close each year – it’s a very significant
number. Also, hedge funds are usually
tax inefficient and have high fees. You
have to be very selective in this area.
MATHIAS: Do you expect returns
for those vehicles to be as high as has
recently been the case?
VEITH: No.
MATHIAS: Are taxes a factor as you
work with individual investors?
HARRELD: Absolutely. And clients
take it into account. We just have to
give them alternatives.
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MATHIAS: Let’s talk a little about
inflation. Curt, do you have an
opinion?
WINSOR: When you’re looking at
investment returns, you want to
look at real rate of return, less the
fee, less inflation. And then you have
your rate of return. Right
now there’s no
question that the
risk-reward ratio is relatively high
in comparison to the low rates of
return that my colleagues here have
mentioned, and I agree with them.
MATHIAS: Should investors today
lean on the side of caution versus
being aggressive?
WINSOR: It depends. But in general
you’re going to have to assume more
risk to get the higher rates of return
that have been generated in the past.
HARRELD: Investors are willing to
be aggressive in more nontraditional
ways. As opposed to putting 50
percent in the international market,
they’re going to look at private equity.
If they’re going to be aggressive, they
want to deal with specialists that
know what they’re doing.
MATHIAS:Globalization impacts
us in numerous ways. What about
international diversification?
VEITH: It’s been a long time
approach within Rockefeller to
invest globally. The bulk of our
clients’ equity portfolios,
at least for the clients
that are managed
internally, is to be
in a global equity
strategy. |
To not include
non-U.S. securities as a big
part of your portfolio really
limits your opportunities.
HARRELD: You simply
have to participate in
international and emerging
markets, but at times it’s not
an easy sell with customers
because of all the political
risks we’ve talked about.
MATHIAS:Two of the fastest
growing economies in the world are
China and India. Do you have ways
in which your clients can participate
in these dynamic markets?
HARRELD: We have asset managers
who specialize in those markets.
VEITH: Yes. We have decided against
direct China investments but through
our global equity strategy we are
investing indirectly into that market.
MATHIAS: Curt, the Chinese
government has about a trillion dollars
in foreign exchange and, to some
extent, has become our “banker”. I
assume you would like to garner some
of their assets as deposits.
WINSOR: It depends on the rate!
We talked about inflation, and now
that we’re in this global economy,
our fiscal house is going to have to
be kept in order as we’re accountable
to people like the Chinese buying
our debt.
MATHIAS: What are the biggest
mistakes you now see investors
making?
HARRELD: Investing backwards:
looking at what happened three or
four years ago and thinking that’s a |
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