The Investment Process

Developing asset allocation plans and investment strategies

The definitive strength and ultimate value offered by Cymric's professional staff is its skillful  creation and judicious implementation of investment, business, and asset transfer strategies for client families. Patricia Soldano, Cymric’s CEO, a registered investment advisor and recognized industry expert, brings her depth of knowledge and many years of family office experience to the critical development of both short-term and long-term investment strategies and business plans.  Wise investment planning relies on the use of sophisticated asset allocation models and analysis to meet each family's overall investment objectives with accuracy and responsibility. By prudently coordinating each family's financial plan with its tax plan, projected cash flows, and estate plan, Cymric is able to assist its client families in meeting their personal financial objectives and in maximizing the return on their assets.

Click here to view an example of asset allocation analysis and reporting that is done for the families at Cymric Family Office Services. This particular asset allocation is not recommended, it is only meant to demonstrate some of the variables that are considered in determining a proper asset allocation and the reporting that can be generated to communicate the strategy.

Managing cash flows, budgets and taxes

Cymric professionals consult with families on how to best meet their financial objectives. For client families, Cymric maintains general ledgers, processes checks, and distributes check registers monthly to family members. Cymric professionals prepare budgets, pro formas, budget-to-actual comparisons, and tax returns. Status reports and regular financial statements, including consolidated investment performance and asset allocation reports, keep family members  well informed.

Before You Hire an Investment Advisor Read This

Some Questions To Ask When Considering “Hedge – Funds of Funds”

1. What investment strategies do you employ?  How many managers are there per strategy?  What percentage of the whole funds of funds does each strategy represent?  How do you determine the asset allocation of the fund?  How do you select the manager for each strategy?
2. Who are the individual managers in your fund?  Which ones have been recently hired? Are there any on the list who are no longer in the fund? To which managers have you recently given new money? How many of the managers are closed to new money? How do you find new managers?  Do you have a farm team?
3. What has been your past performance? What factors have contributed or subtracted from that performance? What index do you measure yourself against, and why?  What is the outlook for your current strategies in the current economic environment?
4. What is your risk profile? How do you measure risk? On a going forward basis, how do you monitor risk? What is your correlation to the S&P?
5. Do you consider taxes in manager and/or strategy selection, if so, what has been your turnover history and how much of the money that you manage is for taxpayers?
6. Describe the capital structure of your organization, the total dollars in the fund, and the background of key individuals in your firm.  Who decides which mangers are selected, and what is the selection criteria?  How much do the principals of the firm have invested in the fund and are there any soft dollar arrangements?
7. What kind of communication can we expect from your firm, in the way of reports, personal visits, phone calls and frequency? 
8. What is your standard fee structure and minimums?
    

MANAGING THE MANAGER THROUGH THE FAMILY OFFICE

One  of the key issues with the explosive growth of family offices is the role of the manager - both selecting the correct asset manager and, just as importantly, monitoring them afterwards.

Patricia Soldano,  MD of the US-based Cymric Family Office Services, has looked at these issues in detail and assembled a list of questions and check points that can be used by family offices when assessing the performance of an asset  manager

When looking at monitoring a manager's performance, the first area that should be examined is the field of operations - how does the manager actually operate? The prospective  family advisors should take into account a number of issues. One of the initial considerations is the status of the office. The family office  (F0) should take note of any significant changes, such as whether there  has been any radical change in the office personnel.
· Has there been a high turnover,  with staff coming and going?
· Has there been a serious change  in structure?

Most importantly, ask questions about new key personnel so as to assess  whether they have the appropriate amount of experience required to manage  wealth properly.

When it comes to the company's internal structure and how it relates to  its business processes, who it is that actually writes the business plan and sets the company policy needs to be identified. In other words, who  is really the decision-maker as opposed to who is said to be the decision-maker? As stability is important in managing family office funds, a FO should  find out if this company has significantly altered any fundamental policy over time. Together with this, the FO also needs to know whether the investing  strategy, as well as the trading, tracking and accounting systems, has  ever been altered.

Moving from the internal mechanisms, the FO needs to take appropriate  account of external factors.
· Do taxable clients make up a large enough percentage of the total managed by the office?
· Has that number increased or decreased?
Precisely how many assets are actually under management?
· Has this amount changed? If they have changed, why?
These are some of the questions a family office should ask when seeking  to accurately profile any asset manager.

INVESTMENT STRATEGY
However, it is obviously not the end of the process. The family office needs to take the time to examine the strategies of the asset manager  in considerable detail to discover, once again, the number of alterations  and changes that have happened recently. This can be a laborious process, but it is a necessary one - and vital if the family office intends to  get the most from any manager. The asset managing company should be forthcoming with this information. And if there is any difficulty, then why are these  companies not inclined to be forthcoming? Is something being hidden?

Obviously the F0 will want to learn about any successful investments,  and the asset management company can be depended upon to highlight these  triumphs in considerable detail. On the other hand, the F0 should also want to know about any unsuccessful investments - the failures as well as the successes. Unsurprisingly, this information can be somewhat harder  to obtain - no one likes talking about failures. But provided the F0 insists, and shows a reasonable degree of skepticism on any presentation of 'successes only', this should be forthcoming.

The question of investments raises the vexed and controversial concept of risk. Having gained a full understanding of the management company's  strategy, its ups and occasional downs, the FO needs to gauge whether  the degree of risk inherent in the manager's strategy is suitable for today's investment environment. What may have seemed low risk investments last month may have significantly changed this month.
· Are the necessary risk controls  still in place?
· Have these controls been changed in any way?
· And if they have, how have they  been changed?

This emphasis on risk is especially important when considering the volatility  of today's investment markets. Markets in practically every significant arena have shown - and are continuing to show - enormous swings, even  over 24 hours. Therefore an ability to react quickly and effectively to changing events is pivotal for any successful investment strategy.

Having got a handle on the management agency's risk profile and finding  it acceptable, it is time to ask whether the amount the manager can invest  in any particular strategy is still acceptable, given the circumstances.  The recent turbulent market conditions have also dramatically raised the  issue as to whether the same investment processes are appropriate in the current circumstances, and whether the asset management company is still making use of the same outside sources when making investment decisions.  These are the inquiries that need to be made before looking at the central  aspect of money management - the key issue of performance.

PERFORMANCE
Questions about performance are usually about the measurement of performance.  The issues surrounding these questions encompass the history of the  company's investment performance and how the manager has performed over time. The information gained should always be regarded with the clear corollary given in any investment profile this past history is no mark of future performance.

"Who it is that actually writes the business plan and sets the company policy needs to be identified. In other words, who is really the decision - maker as opposed to who is said to be the decision-maker?"

Of course, even with the most considered strategies, good results can he as much the result of good luck as good management. Once again the FO will have to consider  the information carefully in order to make the distinction. To fudge accurately,  the FO will need to look at precisely what standards the manager is using  to measure his performance. Just as importantly, the FO will need to know whether these measurements are comparable with the measures of others  in the business, in other words, look for some independent form of management.  As with government statistics, it is also vital to check the history of measurement in the wealth management company.
· Has it changed its type of measurement over time?
· If so, why?
The FO should seek information about the turnover.
· What has been the turnover of the  taxable account?
· What is the after-tax return of  these accounts?
In order to consider the question of revenue in its true perspective the FO will need to accurately gauge the volatility of the market.
· What has been the monthly and
annual volatility of the accounts? Has this volatility been planned and  expected?

FROM PERFORMANCE TO ADMINISTRATION
In choosing a financial manager, all the obvious instincts are to look at the performance figures, the investment strategy that seemed to secure  those figures and to forget the more mundane, but nonetheless vital, area  of administration. The first thing to consider is external threats. The FO should try to discover if there are there any lawsuits or employee  disputes pending against the firm. If there are, these are not sufficient reason for making any conclusive decisions. Lawsuits are one thing - whether they are of any significance to the quality of the management of the prospective F0's assets is quite another. In any particular suit it may very well he it is the management firm - not the plaintiff - that has a good case. But, whatever the circum stances, the FO must make sure that it is aware  of such complaints.

Going beyond the courts, it is necessary to find out whether there are any conflicts of interest.
· Does the owner or principals of  the management company own parts of any other company contracted to the management company?
· Has the management entered into  any soft dollar arrangements?
· And if they have, when did they  start?
· What is particularly relevant to the FO's interests is the question of how the fees are structured.
· How are they being applied? Are  there extra redemption or transaction fees being charged?
· Is there a lock up of the funds?
· Have those who service the firm  - the accountants, the lawyers and the custodians - changed?
· If they have changed, why?

Once again there are questions concerning the issue of propriety - not so much implying there is a conflict of interest, but rather ensuring  that there is not. And following on these questions, there are a host of others.
· Has the process of reconciling the assets with the custodian changed at all?
· And if they have, why have they  changed?
· Will the reporting system and timing remain the same?
· Will the narrative and performance reporting still be distributed, monthly, quarterly and on-line?
· Are the precautions against extraordinary  events such as flood, fire catastrophic system failure and employee theft still in place and adequate?

"There are questions concerning the issue of propriety - not so much implying there is a conflict of interest, but rather ensuring that there is not"

Seeking this type  of information is not likely to he easy in terms of time and effort. It is therefore recommend that these questions are posed during meetings at the manager's office after due notice is given. Remember the information  does exist, it is simply up to you to obtain it.

Patricia M Soldano has spent over 20 years managing family assets. She developed Cymric Family Office Services into a multi family office and, since January 1996, has been Cymric Family Office Services’ sole owner.

Patricia Soldano
Cymric Family Office Services
3090 Bristol Street, Suite 350
Costa Mesa, California 92626
USA
Tel: 1 714 641 1402
Fax: 1 714 641 3128