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Written by Kelly S. Olson Pedersen, CFP®, CDFA

 

 

 

 

 

 

 

 

 

 

Investment Due Diligence – New York City

Greg Pierce and I traveled to NYC for our in person due diligence meetings. It is part of our investment committee policy that we meet with our investment managers IN PERSON for periodic analysis of the management. It is in these meetings we are able to ask tough questions and get information that may not be readily available to investors through publications or fact sheets. We get up to the minute decisions and directions the portfolios are going and we are able to asses if they are doing a great job, or just getting lucky.

Additionally, we are able to talk with some of the elite professionals in our business and get their inside take on what the economy is doing, where do they see it going and what is the one thing that could happen that would make them dead wrong (or perfectly right). It’s incredibly helpful to have those discussions as these are the very people sitting blocks from Wall Street and the New York Stock Exchange. Some are even insiders to Washington as bills are discussed/passed.

Current Market Strategy

We walked away from New York having our viewpoint solidified: The market still has a runway (albeit a bit shorter) and has all the opportunity to run. However, there should be at least one pullback in the near future that will create a great buying opportunity for that run up. Internationally, we have been increasing our positions about 3-4% this year which has proven a good lean. As I have been taking profits from domestic equities (mostly small and mids) I have been reinvesting them in our hedges to help dampen the downturn. One strategy we are likely to add is international fixed income – stay tuned there!

Summary from NYC Trip

Below is a brief summary of the strategies we discussed and a little snippet of each.

Oppenheimer:

Developed Emerging Markets strategy. They are up almost 25% YTD and represents almost 100% of our emerging markets investments in client portfolios. Most of our discussion was how they are managing a portfolio as huge as theirs and how they can keep making the right calls of which they were able to diligently lay out their strategy for us. They have exceptionally low turnover and high conviction purchases.

JP Morgan:

Hedged equity options strategy and large cap growth. We also interviewed them for their European equity strategy. Caissa clients will be most familiar with the hedged equity as we have been building positions here rapidly. They are up 7.6% YTD providing exactly the upside we are asking for, while hedging our downside to about 5% in case of a market fall out one quarter. We mostly spent time detailing out how exactly they implement the hedge and how they deal with inflow/outflow of cash during the quarter. We also discussed downturns and what we should expect in the event.

TCW:

International Debt strategy. We are very likely to start adding this position to our portfolios. TCW is an exceptional manager in this area and are extremely adept to currency interactions and foreign debt analysis. There is high quality debt around the globe paying much more than local debt with similar risk spectrums, we just have to lose the domestic home bias.

Goldman Sachs:

The middle market lending partnership update, the smid international portfolio as well as learning about their “Big Data” portfolio that uses moneyball-like tactics to get ahead of behavioral biases investors have and invest in stocks that would benefit. Caissa clients will likely be most familiar with the Middle Market Lending Portfolio. So far there have been three capital calls for about 60% of the capital called in. For just that capital, clients will be receiving a 9% distribution in August for the first few months of investment! We reviewed several of the loans being made and most of them are yielding about 8-10% interest. The goals is to be fulling invested in about 12 more months. We have submitted most of our investments through an IRA for this high yield which would otherwise be taxable. So far we are very impressed with GS ability to underwrite pristine loans. Currently, the US total GDP runs at about 2% on a good day. The growth rate of the middle market company on average is about 6% right now. It is a great time to participate in leveraging that growth.

Pantheon:

Update on our private equity LP with them. We just got the May valuations and the portfolio was marked up 9% which is a great mark up for our clients. We are currently moving out of Hatteras for many of our clients and starting to build up Pantheon positions. Pantheon has literally passed the J-curve with ease and many of the co-investment strategies are paying off in spades. We are continually impressed with the strategy and especially the management team. We are fully behind this investment.

Barron, Guggenheim and Clearbridge are in NYC as well but we did not have availability in our schedule to meet with them this trip.