CIO CORNER
James Baldwin, Chief Investment Officer
July 15, 2016
What am I trying to do?
Why am I doing it?
How am I going to do it?
Most advisors enjoy, or at least want to enjoy, the due diligence process when it comes to manager selection. Great, but that’s a problem and it’s twofold. Either they lack the necessary skills and resources, or their time would be better spent trying to bring new assets to their business. Not all advisors fall into this category, but many do. The math is fairly simple. A 10% increase in the performance of your AUM, versus a 10% increase in new assets AUM results in the same compensation to the advisor.
Questions-
Which strategy has less downside protection? Which is easier? Which makes best use of my abilities?
New DOL rules will help answer these questions. Bringing in new assets tends to be stickier. The yield curve implies lower for longer. Equity risk premiums are shrinking. A business model relying on performance to generate new revenues is subject to the randomness in the broad market. Market losses and reduced revenue should not come as a surprise. I’ve enclosed a recent article by Tom Brakke that speaks to the due diligence process and how qualitative inquiry is just as important as quantitative when researching managers. For those of you with the mindset and resources to hire and fire managers, this read will be enlightening and refreshing. For those who wish to take a different route for your clients, this should advance the idea of how difficult the due diligence process truly is.
Lastly, our first Salt Creek Investors “road trip” was a success. I was able to engage some of the, but not all, the most forward thinking advisors in our firm. Much of the feedback we received will be considered. Thank you Todd Morgan, Craig Dunn, and Matt Nall for hosting us during our visits and to all who were in attendance. We look forward to the future exchange of ideas and how we can better serve our clients.