Preference for fund of funds
Cymric,  a multiple family office, allocates 5-10% to alternative investments

Cymric was established for the Brown family of California in 1987. The Browns owned oil properties in Kern County - the name of the family office refers to the oil and gas territory in California.

In consulting with other families on family business issues, it eventually developed into a multiple family office in 1996 when Soldano acquired the company from  the Brown Family.

Multigenerational  families

In addition to the Brown family, the client base comprises two multigenerational families,  for a total of 25 clients with total assets in excess of $150 million. The typical range of assets per family are between $25 million and $50 million. Families are located throughout the US.

No common thread runs  through the families. For example, one owned a trucking company that evolved into the acquisition of oil properties. Another family made its money  in venture capital and another in real estate development.

"One thing that makes  us different from other family offices is that we are not owned by a specific family," says Pat Soldano, who became the owner of Cymric in January 1996. "No one family is favored over another due to ownership."

At the time she took over the firm, Soldano merged it with her family office consulting business. Cymric is now located in Costa Mesa, California.

Cymric offers a full service family office including bill paying, insurance, tax planning and preparation, cash flow and financial statement preparation, asset management,  insurance analysis, corporate/legal advice, arranging family meetings, succession planning, guidance on generational issues and investment advice.

Soldano herself is also actively involved in tax lobbying, through the Policy and Taxation  Group, to repeal the gift estate and generation skipping tax (see MAR/Strategies, September 1999, page 10).

Other professionals  on Cymric's staff include two certified public accountants who are the  family office's tax director/trust administrator and its financial accounting  manager. There is also an associated outside general counsel.

Fund of funds approach

Soldano emphasizes that after-tax returns and long-term investing are two important themes.

Asset allocation is  done once a year, or more frequently if necessary. Rebalancing occurs only when necessary: a family event such as a divorce or death; a market event such as a stock market crash; or a business event such as the selling  or dividing of a business. Soldano meets with the clients three times or more a year and reviews asset allocation, estate planning, tax planning and other family issues.

In some cases, clients have a customized indexed portfolio with rebalancing done as necessary. Cymric creates a portfolio account from which the family may mirror an index such as the Wilshire 500. All the stocks required to mirror the index are purchased for a client and held in their portfolio with an average  turnover of 5% or less.

Alternative investments  are a relatively small investment category for most Cymric clients. Soldano  says most clients have somewhere between a 5% and 10% of their assets allocated to alternative investments. However, each family and each family member has its own specific asset allocation.

Cymric has retained  the services of Florida-based consultant LJH Global to provide a choice of two funds of funds. The benefits of the fund of funds approach is that the minimums are lower than going directly to a manager, less than $1 million. Moreover, LJH provides professional management and monitors the  asset allocation strategies.

The funds of funds provide diversification for clients within their comfort level and risk  level, says Soldano. "I look at the costs for the returns generated, and  it is unclear whether the fees of 1% management/20% incentive and another fee paid to the general partner are justified yet."

Soldano has been using this fund of funds approach to alternative investments for five years  and is satisfied with the managers and the strategies. "I haven't found  anything better for our purposes," she says.

Cymric families have a choice between a fund of funds that takes an aggressive approach and one that is more conservative. The aggressive fund aims to have higher return than an equity index with comparable volatility. The goal is to achieve a better risk-adjusted return.

In both funds of funds,  the bulk of assets is allocated to US and international equity based hedge  funds. Event-driven and global macro exposure exist as well.

Private equity has a very limited amount. In the past, futures trading advisors had been  included but are not currently.