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As an open architecture firm, Greycourt’s only stock-in-trade is our intellectual capital. It is therefore important that Greycourt represent the cutting edge in every
area that will have an important effect on the growth of our clients’ wealth. We happily share our knowledge with investors via our series of Greycourt White Papers. Although the white papers are not written with
any specific client in mind, we believe that many of the issues addressed in these papers may be of interest to affluent families and demanding institutional investors.
White Papers By Topic
Conflicts of Interest | Risk | Estate Planning
Investment Strategies | Operations | Taxes
Conflicts of Interest
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.
White Paper No. 22 – Corporate Crooks and Investor Trust
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.
White Paper No. 12 – Conflicts of Interest: Do They Matter?
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.
White Paper No. 4 – Soft Dollars: Greycourt’s Position
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 Papers By Topic
Conflicts of Interest | Risk | Estate Planning
Investment Strategies | Operations | Taxes
Risk
White Paper No. 38: Open Architecture as a Disruptive Business Model
This paper examines the impact that open architecture has had on the financial services industry.
White Paper No. 32: The Challenge of Identifying Managers Who Will Outperform in the Future
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.
White Paper No. 29 – Numeracy, Innumeracy and Hard Slogging
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.
White Paper No. 20 – Modern Portfolio Theory and Quantum Mechanics
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.
White Paper No. 19 – Concentrated Security Positions: Four
Commonsense Principles
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.
White Paper No. 13 – Recent Events: The Long-Term Investment Implications
Although the terrible events of September 11 are still fresh in our minds, it is not too soon to consider what the implications of those events – and, indeed, the stock market meltdown that has occurred over the
past eighteen months – might be.
White Papers By Topic
Conflicts of Interest | Risk | Estate Planning
Investment Strategies | Operations | Taxes
Estate Planning
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.
White Paper No. 17 – Taming Your Trust
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.
White Paper No. 15 – Total Return 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.
White Paper No. 7 – Combining Estate Planning with Asset Allocation
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.
White Paper No. 6 – Investment
Considerations Associated with Complex Estate Planning Strategies
The paper discusses complex estate planning vehicles that are frequently encountered in the course of Greycourt’s advisory work with wealthy
families. The purpose of the paper is to highlight the investment implications associated with the use of each strategy
White Paper No. 3 – Philanthropy in Estate Planning: Balancing Charity against Personal
Spending Needs
Many wealthy clients have philanthropic goals, but few receive sufficient guidance regarding how best to balance these goals against personal spending needs. Deciding how to distribute wealth
can be a complicated and often emotional process. As a result, investment advisors need to understand their clients’ wealth-distribution preferences and must help quantify potential investment risks associated with
different levels and forms of gifting. By helping identify who bears residual investment risk under varying gifting regimes, investment advisors can ensure that their clients’ wealth is distributed in a way that
fits their client’s individual, family, and philanthropic ambitions.
White Papers By Topic
Conflicts of Interest | Risk | Estate Planning
Investment Strategies | Operations | Taxes
Investment Strategies
White Paper No. 50: No Gold Digging for Me
This paper examines gold's history, discusses the myths and facts about gold and considers the reasons (both irrational and rational) why investors buy gold in the first place.
White Paper No. 49: The Outsourced CIO Model
Over the past decade, and accelerating rapidly in the last few years, the so-called “outsourced Chief Investment Officer” model for delivering financial advice has grown very rapidly. In the experience of many advisors, client requests for discretionary advice now outnumber client requests for more traditional non-discretionary advice. The purpose of this paper is to define what an outsourced CIO model is, identify why it has become so popular, distinguish its advantages and disadvantages relative to non-discretionary advisory services, and suggest how investors might think about choosing between the two models.
White Paper No. 48: Best Practices Trusts
In White Paper No. 48, we recommend that families who use trusts (or who are considering establishing trusts) evaluate the advantages of “unbundling” the activities that have historically been bundled into one product by the trust industry. In other words, instead of settling for mediocre, bundled trust services, families should unbundle them and engage the best providers available for all their trust needs: fiduciary, asset management, custody, tax, administration.
White Paper No. 47: The Real State of Real Estate
White Paper No. 47 describes the current real estate environment and provides investors with a road map to identify and evaluate potential opportunities in the sector. As everyone knows, market gyrations over the past eighteen months have affected all asset classes, real estate included. Values of real property assets across all sectors have been affected, most notably in the residential housing sector (happening now) and core commercial real estate (just about to happen). There are clearly opportunities in the real estate market today, but those opportunities are mixed in with a far greater number of challenges, and many investors are puzzled as to how to take advantage of this environment without getting burned. In White Paper No. 47, Greycourt Director Eric Haskel attempts to cut through the noise and to suggest opportunities that seem appropriate on a risk-adjusted basis.
White Paper No. 47A: Investing in Real Property - A Primer
We recognize that many investors may not be familiar with real estate as a core part of an investment portfolio, and so we are also enclosing White Paper No. 47A - Investing in Real Property - A Primer, also written by Eric. This paper defines real estate, describes the risks and opportunities associated with investing in the asset class, and outlines various ways of gaining access to real estate, depending on the size of the investment and the experience of the investor.
White Paper No. 46: Is It Different This Time?
During extraordinary market conditions of all kinds – good and bad – it is usual to hear people say, “It’s different this time.” Of course, every market environment is different from every other market environment, but what these people are saying is that market conditions today are so exceptional, so completely unprecedented, that investors will need to reassess everything they thought they knew about the investment process – or face serious consequences.
White Paper No. 45: Secondary Investing in Private Equity
Given the high interest in private equity secondary funds today, Greycourt managing director David Lovejoy has prepared Greycourt White Paper No. 45 - Secondary Investing in Private Equity. In this paper, David examines some of the key elements of secondary investing, placing moneys with secondary fund managers and provides a framework for evaluating these managers.
White Paper No. 44: The Financial Crisis and the Collapse of Ethical Behavior
Most assessments of the financial crisis that began in August of 2007 identify as the source of the problem such issues as poor risk controls, too much leverage, and an almost willful blindness to the bubble-like conditions in the housing market. Well, maybe.
White Paper No. 43: Credit Crunch Q & A
Presented as a series of questions and answers, we explore what a credit crunch is, why it happened, how it morphed into the mess we find ourselves in today, and what investors ought to be doing about it in their portfolios.
White Paper No. 42: Global Investing: An Idea Whose Time Has Come?
In this paper we investigate the case for global investing, examine why it is that so many American investors underweight foreign stocks, and suggest a sensible middle ground between true global investing and the current home country bias that infects most portfolios.
White Paper No. 41: Our "Friend of the Investor" Brief
Departing from our usual format, we have fashioned this white paper as a faux amicus curiae brief as if it were being filed with the Supreme Court of the United States. In fact, this white paper is really an amicus opes ("Friend of the Investor") brief in which we are commenting not-too-subtly on the various court decisions regarding deductibility of investment costs. Though our remarks are presented with a humorous edge, the consequence for investors is no laughing matter!
White Paper No. 40: Private Equity Investing
Although private equity investing is not without its challenges, long-term historic returns argue strongly for exposure to this asset class for most significant investors. The purpose of this paper is to summarize the opportunities in private equity investing, identify the key risks, and outline a strategy for investing in private equity sensibly and profitably. This paper will be most useful to investors seeking to invest approximately $50 million or less in a diversified private equity portfolio.
White Paper No. 39: Auditing Alternative Investments
The purpose of this paper is to review the background behind the AICPA Practice Aid, to examine some of the mischief that implementation of the Aid has caused, and to speculate about how the auditors’ approach might be modified to improve both the quality of audits and the quality of investment portfolios.
White Paper No. 37: Investing in Oil & Gas
Energy is a topic that is
on the minds of many investors these days. The enclosed white paper, “Investing in Oil & Gas,” is a primer on the techniques, opportunities and pitfalls available to investors looking at investments in the oil
and gas industry. We hope you enjoy it and find it useful.
White Paper No. 36: Hedge Funds Get "Swensened"
Many investors
are steering clear of hedge funds because of recent, widely-reported scandals, lower-than-expected returns, and the drubbing hedge funds have taken from, among others, Yale's David Swensen.
In White Paper
No. 36 - Hedge Funds Get Swensened, Greycourt acknowledges the problems with hedge fund investing but also suggests that investors who lack a proper exposure to hedge funds or funds of funds may be shortchanging
themselves
White Paper No. 34: Portable Alpha Strategies
This paper explains what portable alpha strategies
are and why they are important, but also identifies a series of important challenges associated with employing portable alpha strategies in real-world portfolios.
White Paper No. 33: Much Ado About Bonds
Many investors have expressed alarm over the impact
that rising rates may have on their existing bond portfolios. In the enclosed white paper, Greycourt examines the impact of rate rises on bond values and evaluates several alternative strategies. We hope you find
the white paper useful.
White Paper No. 25 – Hedge Fund Investing: The End of the Beginning
This white paper provides an overview of the hedge fund industry as it exists today, and identifies the myriad risks facing hedge fund investors, including the lack of transparency and an excess of capital
chasing too few funds. The paper also illustrates how diversification techniques and careful selection can mitigate these risks.
White Paper No. 9 – Managing Investment-Related Taxes: Increasing Net Wealth
through Astute Management of the Tax Consequences of Investment Activity
An important part of Greycourt’s value proposition to its family clients is our ability to add substantially to their net after-tax
wealth through careful management of investment-related taxes throughout the portfolio management process. Because taxes represent such an important aspect of portfolio management for families, two families can
experience the same gross returns but experience profoundly different results in terms of their net wealth. For wealthy families these differences can amount to millions of dollars per year. This white paper
describes the main steps Greycourt takes to minimize taxes throughout the investment process.
White Paper No. 2 – Money Managers: Greycourt's
Criteria and Procedures for Selecting Best In Class Managers
Clients and money managers often ask us how we select the managers we recommend and how we work with money managers. This white paper describes
Greycourt, its characteristic client base, and the procedures we follow before recommending managers or investment products to our clients.
White Paper No. 1 – Exchange-Traded Funds: Are They the Right Choice?
Exchange Traded Funds (ETFs) are recent phenomena that started in 1993 when State Street sponsored the first ETF in the form of the SPDR Trust. New funds are constantly being formed and ETFs now provide investors
with viable alternatives to mutual funds. SPDRs (SPY) attempt to track the S&P 500 index much in the same way that Vanguard manages its popular S&P 500 mutual fund.
White Papers By Topic
Conflicts of Interest | Risk | Estate Planning
Investment Strategies | Operations | Taxes
Operations
White Paper No. 35: Investment Performance Reporting: Just the facts,
Ma'am
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.
White Paper No. 11 – Affinity Groups: Resources for Wealthy Families
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.
White Paper No. 10 – Establishing a Family Office: A Few Basics
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.
White Paper No. 5 – Working with Investment Consultants: Price
Versus Value
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.
White Papers By Topic
Conflicts of Interest | Risk | Estate Planning
Investment Strategies | Operations | Taxes
Taxes
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.
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