benchmark for the future; and the
difficulty in articulating a risk strategy
and a financial plan.
VEITH: The mistake I’ve seen most
frequently is investors trying to “time
the market.” Even if you are right
in selling, it’s even harder knowing
when to reinvest.
MATHIAS: With wealth creation
and the trend in demographics,
philanthropy has become an
increasingly important issue. How
are your clients responding in this
regard?
HARRELD: In the estate planning
world, which is a primary focus
of ours, we see a lot of conversation
about philanthropy. In a recent
wealth and values survey
commissioned by PNC Wealth
Management, we found that
29 percent of high net worth
individuals in the Washington area
have identified funds in their trusts
or wills to go to specific charitable
purposes – that’s well above the
national average.
A lot of clients are very sensitive
about what’s appropriate to leave
to their children. There’s a lot more
intelligent conversation going on
between the generations than there
was a few years ago surrounding
the right balance between financial
security and the stewardship of the
inheritance. Respondents to the
survey indicated they are concerned
their children not be spoiled with
sudden wealth in their inheritance.
The fact that Washingtonians are
willing to give a significant portion
of their estate to charity as well as
their children speaks to this.
VEITH: That’s a big issue for our
clients. Besides giving back, the other
theme we see tied to philanthropy
is family continuity. The fortune
was created by granddad or
grandma, but what keeps the
family together? Philanthropic
foundations or similar charitable
vehicles can be the hub that the
family continues to gather around
and share a common interest in.
MATHIAS: Do alternative energy and
the “green” movement present areas
of investment opportunity?
VEITH: Yes, we provide qualified
clients with an opportunity to
invest in venture capital and
private equity funds that focus on
renewable energy, energy efficiency,
conservation and related |
clean
technologies.MATHIAS: Do you see any areas
of investment that seem particularly
attractive over the next few years?
VEITH: It’s a difficult time to find real
attractive opportunities. We don’t see
one opportunity jumping at us that
is really undervalued with a huge
upside. One area that’s kind of boring
that we think is most attractive is big
multinational companies that are
going to benefit from the continued
globalization and whose valuations
are still reasonable.
HARRELD: Everyone wants to
participate in the global markets, but
they’re anxious about the risk. And
the risk is not about how someone
is succeeding in one country. The
risk is political, religious, multivariable.
Investors know they need
to be there, but they’re much more
anxious about that than they are
about the domestic economy.
MATHIAS: To individuals, today’s low
tax rate on capital gains and dividends
is attractive. Do you foresee changes
in the offing?
WINSOR: Yes.
VEITH: Yes. I think on both counts:
dividend first, capital gains second.
MATHIAS: How is Washington
evolving as a financial center?
WINSOR: Washington is becoming
a mini-hub for the nontraditional
lending community. There is a
number of significant, publicly
traded companies here, such as
Allied Capital, Gladstone and MCG.
It’s no coincidence that a number
of super regionals have planted
their stake here in a significant way
because it’s a very lucrative banking
market as well.
On the real estate finance
side, we’re also seeing tremendous
growth in the city. You’ve got
JBG, Perseus and the Joe Robert
Companies. Let’s also mention the
financial conglomerates like the
Carlyle Group, which has been
tremendously successful; Columbia
Partners Investment Management;
and Friedman, Billings, and Ramsey,
who have created an important local
focus and brought a lot of liquidity
and attention to the region.
HARRELD: This community has
attracted a lot more outside gray
matter |
in the investment business in
the last few years. There are a lot of
people who have come here from
New York and San Francisco who
are doing boutiques – and they’re
growing rapidly. They’re very smart,
they’re very good, and they have
their niche.
MATHIAS: Lastly, what advice
would you provide to the client
who suddenly finds themselves with
a $20 million portfolio to invest?
VEITH: Each client is going to be
different. And what’s right for one is
not right for another. If this money
is set aside for maximum long term
results and they don’t need income,
we’d say, “Go 100 percent in equities.”
And a big part of that would be
global, with some put selectively into
private equity and possibly some with
good hedge fund managers. But in
that situation, where the sole objective
is maximizing return, we would steer
more towards pure equities, whether
they be publicly traded or private.
MATHIAS: What type of return
might they expect?
VEITH: That depends on how much
they had in private equity, and then,
a lot of that is dependent on what’s
out there and available. This is an asset
class that you have to be invested with
the top players.
HARRELD: Paul is exactly right, but
if that person lived here, I’d find a way
for them to participate in Washington
real estate. That is going to do well
over the next few years.
WINSOR: If one wants to maximize
return, it’s necessary to concentrate a
bit more money, say two-thirds, with
good managers, and the other 30
percent focused in something more
conservative like a low risk alternative
investment type of vehicle.
MATHIAS: I want to thank each of
you for participating in what has
been a lively and highly informative
discussion. Not to end on a negative
note, but a point to re-emphasize,
drawn from your comments, is that
investment returns over the next
few years will likely be somewhat
lower than those to which investors
have become accustomed. Just
something to keep in mind as we
look ahead. |
