Washington Life Magazine
Washington Life Magazine

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?
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.
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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