White Papers by Topic
Please select from the following topics to access relevant white papers:
White Paper No. 24: A Modest Proposal: Let’s End Conflicts of Interest in the Wealth Advisory Business
The problem of financial conflicts of interest is a perfect example of our ability to understand a concept intellectually but fail to grasp its full significance. This white paper explores examples of conflicts we knew existed, but the consequences of which were monstrously underestimated.
It’s gotten to the point where we’re afraid to turn on the news or pick up a newspaper. Like most investors, Greycourt has been deeply disturbed by the chicanery and outright fraud that have come to characterize too much of corporate America. But before we give in to despair and take investment action that could be damaging to our wealth, let’s step back and try to put the current, appalling situation in perspective. While it is too early for any of us to understand all the implications of the Bubble Markets of the late 1990s and the resulting corporate scandals, some of those implications are already apparent. Not all of them will be palatable to investors, but the willingness to stare unpalatable truths in the eye is one of the hallmarks of successful investing. Here is a summary of those implications.
Private investors today have more choices than ever before. The explosive growth in private wealth in the last decade has caught the attention of every major bank, brokerage firm and money management firm in the industry, and the result has been an equally explosive growth in investment products and investment advisors. Although the broad menu of choices is ultimately a desirable outcome, the challenge facing investors is how to distill the available information and create a logical, thoughtful investment program that is ideally suited to their needs.
Clients, money managers, investment bankers and brokers often ask why Greycourt adamantly refuses to accept soft dollar payments for its consulting services. This white paper explores the issue of soft dollar commissions and explains why we are opposed both to the practice and to accepting soft dollars as part of our fee.
White Paper No. 28: Good News for Pennsylvania Trust Beneficiaries: The Principal and Income Act of 2002
The Uniform Principal and Income Act was first promulgated back in 1997, but it wasn’t until July 15, 2002 that the Pennsylvania legislature got around to enacting it. The purpose of this white paper is to outline the key provisions of the Act and to explain why it is so significant for trusts, trustees and, most important, trust beneficiaries.
When families consider the prospect of having to establish appropriate provisions in trust instruments for spouses, children or future generations, they naturally approach the matter with trepidation. There is, first of all, the problem of attempting today to design provisions that must work well many years, perhaps many decades, into the future. There is the further problem of dealing with intra-family emotions and stresses that tend to interfere with otherwise good judgment. Finally, there is a natural tendency to be intimidated by the legal and tax complexity that appears to surround the arcane world of trusts.
From the time the concept of the trust was first developed in the late Middle Ages until about the 1950s, trust assets tended to produce far more income than capital appreciation. The long-term result was typically that early income beneficiaries fared well, while later income beneficiaries and principal beneficiaries fared poorly. (The decline of the English aristocracy was prominently fueled by this quiet phenomenon.) All that began to change half a century ago, and by the end of the 20th century many sensibly invested trusts were yielding well under 2%. Today, therefore, the problem has reversed itself. Sensibly invested trusts – that is, those with predominantly equity-oriented portfolios – tend to appreciate handsomely over time, but they produce little in the way of current yield in our low-dividend, low-interest-rate environment.
Clients often ask us if we can recommend resources for wealthy families concerned about establishing family offices, investment strategies, philanthropy and similar issues. While there are innumerable organizations offering assistance in very specific areas – intergenerational issues or family communications, for example – the purpose of this white paper is to identify several of the affinity groups that serve as broad resources for wealthy families.
Although estate planning has long played a critical role in preserving wealth for future generations, this area has been dominated by attorneys and trust administrators. Investment professionals, however, can benefit their clients by developing an understanding of how the mechanics of wealth-transfer techniques work. The integration of asset allocation techniques with estate-planning structures allows investment advisors to enhance the after-tax, multigenerational value of clients’ overall portfolios.
Once an investor decides to allocate capital to private equity, the first question is: “How should I go about it?” Properly structured, private equity can be the most rewarding sector of an investment portfolio. Unfortunately, most investors in private equity don’t earn returns anywhere near what they need to compensate for the risks they have taken. The purpose of this paper is to summarize the private equity opportunity, identify the key risks, and outline a strategy for investing in private equity sensibly and profitably. This paper is designed to be useful to investors who are looking to put less than $50 million into a diversified private equity portfolio.
Currently a $36 billion industry and growing, impact investing is increasingly significant in the investment marketplace. However, confusion still exists in our industry about what impact investing really is and how it has evolved. Our latest white paper defines impact investing, discusses its importance in today’s world, discusses the investment considerations for interested investors and the critical first steps that each investor should take when pursuing impact investments.
Despite the fact that over the past decade most long-only active equity managers have failed to produce attractive returns (after taxes, fees and inflation), investors continue to hire and hold these kinds of investments. Our latest white paper examines the decades of underperformance of active managers and possible explanations for the underperformance, as well as important considerations for investors that are pursuing passive and active equity investing in their portfolios.
Secondary investments in private equity can be an attractive addition to primary private equity investments. They offer broad diversification across vintage years, industries, geographies, managers and investment strategies. Generally, capital is deployed faster than with primary commitments, reducing the time that commitments are held in reserve, and they have shorter life cycles than primary funds. Realizations usually occur more quickly, driven by the maturity of the interests acquired. This has the benefit of minimizing the impact of the J-curve. This paper will examine some of the key elements of secondary investing and of investing with secondary fund managers, and will provide a framework for evaluating secondary managers.
Many members of wealthy families have a complicated relationship with their wealth, and this is often especially the case with young adults. This paper examines the issues faced by wealthy families in the context of the historically important role that society’s wealthiest members have played and continue to play in America’s competitive success and in making the world a better place.
Investors strive to act prudently and to generate good risk-adjusted returns. But what happens when these two objectives are in conflict? In this white paper Greycourt discusses the conditions under which these goals may be incompatible and offers suggestions for minimizing the opportunity costs that arise when prudence gets in the way of returns.
Because a portfolio’s performance is often imperfectly understood, the challenge of proper monitoring can be difficult. In this white paper, we set forth the key facts about the process of performance reporting and describe its major challenges and possible solutions.
White Paper No. 31: Reinvigorating the Investment Committee: Introducing the Investment Committee Operating Manual
As a tool for the successful management of capital, the investment committee has been a serious disappointment. This paper discusses the reasons why investment committees tend to subtract, rather than add, value and proposes a new approach to the use of the investment committee.
Many families who have experienced a significant liquidity event will consider setting up a family office. The purpose of this white paper is to discuss the reasons families consider establishing an office, to describe the typical duties of such offices and to suggest a basic framework for designing and setting up a successful family office.
Certain cost-conscious investors – especially smaller investors and charitable endowment funds – sometimes express concern about the level of fees charged by Greycourt and a few other premier firms. The purpose of this white paper is to explain why some firms charge more than others. We will describe the two kinds of investment consulting firms available to investors and suggest how investors might thoughtfully decide which type of firm is likely to best meet their investment needs.
This paper examines the impact that open architecture has had on the financial services industry.
The paper examines a couple of the principal issues associated with money managers. Specifically:
- We analyze why it is so difficult to identify best-in-class managers in time to profit by investing with them.
- We look at why it is that good past performance can be completely meaningless.
- We identify the (mainly qualitative) characteristics of best-in-class managers.
Working from a recent speech by John C. Bogle, founder and past CEO of The Vanguard Group, this paper demonstrates just how difficult it is for wealthy, taxable investors to grow their wealth at anything like the rates usually discussed by financial advisors.
The year 2002 marks the 50th anniversary of the publication of Harry Markowitz’ seminal paper on mean variance optimization, a then-obscure event which nonetheless inaugurated what we now know as modern portfolio theory (MPT). Over the following five decades, Markowitz and his followers have contributed enormously to our understanding of the behavior of capital markets and of the nature of risk and its relationship to investment returns. MPT has, in a broad way, allowed us to model how markets are likely to behave over very long periods of time, and has therefore allowed us to base the design of investment portfolios on principles that are at least in some fundamental way related to likely market behavior. For investors born after MPT concepts were incorporated into real-world investment portfolios, it’s hard to believe what a revolutionary change MPT has occasioned.
Many wealthy families hold all or most of their wealth in one highly appreciated security. Sometimes that stock represents a control position in a family company, but more often the holding has resulted from a sale of the family company for stock in a public company. If the sale occurred just prior to a bull market, the family may believe that owning one concentrated security is an excellent way to create significant wealth. This was certainly the case with many families who sold their companies in stock deals during the 1980s and 1990s. Unfortunately, periods like those two decades come along far less than once in a lifetime. The purpose of this white paper is to suggest a commonsense approach to dealing with large, concentrated stock positions, having in mind that there is a difference between a bull market and a sound investment strategy.
As tax rates on high income taxpayers have risen – and are expected to continue to rise – families have begun to dust off a long-neglected tax shelter: investing via insurance dedicated funds, or IDFs. The use of private placement variable annuities and private placement life insurance, in both onshore and offshore varieties, has risen significantly in recent years, but those vehicles allow assets to be invested only in IDFs. In this white paper, Greycourt takes a look at the world of PPLI and PPVA policies and concludes that, given the paucity of tax shelters available today, many families may want to take a look.
There is some uncertainty surrounding the future of long-term and short-term capital gains tax rates, especially given the fact that the Presidential election is fast approaching and the expiration of the Bush era tax rates is on the horizon. However, even in the current environment it is possible for investors to take action.
White Paper No. 30: The Tax on Dividends: Speculations On How Taxation Changes Might Affect Investor Strategies
Speculation has heightened that the Bush administration will seek to reduce or eliminate the double taxation of dividends paid on corporate stocks. While the form and substance of such a policy are yet unclear it would, if enacted, impact private client portfolios in several significant ways. Most obviously, reducing or eliminating the taxes levied on dividends would improve equities’ after-tax total returns relative to other non-affected asset classes such as bonds or alternative assets. In this paper we will initially seek to illustrate how a typical investor’s recommended asset allocation might change if the elimination of taxes on dividends were to become a reality. Second, it is likely that such a tax law change would indirectly impact other asset classes and alter the behavior of corporate management.