“The Future of Institutional Consulting II” is the industry’s first survey of managers and plan sponsors about consultants. It covers the strengths and opportunities from each perspective and suggests ways organizations can benefit from working with consultants in the future.

Price: $1,250 USD

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Also, our next white paper, the third in a series on building a premier marketing and sales organization, will be released later this Fall.

In the meantime, thank you for your interest and support. We look forward to continuing to advise the investment management community.

Best regards, Jeff

 Jeffrey Margolis

President

Margolis Advisory Group, Inc.

85 Barberry Lane

Roslyn Heights, NY 11577

(T) 516-277-1050

(F) 516-277-1052

(M)516-318-3955

jeff@margolisadvisory.com

www.margolisadvisory.com

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Click for Conference Whitepaper & Background (June 22-23, 2009)

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Each week you can receive on your desk by E-mail the latest in significant happenings affecting investors.  This newsletter service goes far behind people which are still the backbone and foundation of successful investing.

We’ll bring to your attention information that will help you shape your portfolio directions while learning about some wonderful investment products, and most of all be a responsible investor.  We’ll not pull any punches either but will let you have the information unfiltered along the way.

Lastly this Investment Weekly Newsletter Service will deliver information which enables you to cross the bridge to investment strategies and products.  It is meant to keep you on top of investment developments.  To receive copies of this weekly service, contact rmccoy@imi-ct.com to get on our e-mail list.

(Sample of previous newsletters)

Week of June 19, 2011

Private equity deals must be thoroughly vested

In the rush to get into private investment opportunities, private equity firms should not avoid thought due diligence on behalf of their investors.  Sometimes private equity managers need to be reminded they have these investment funds in trust not as an outright gift.  One such prominent private equity firm coming under review recently is Carlyle.  This prestigious and most successful firm is now caught up answering critics for two minor investments in China companies out of a total of 50 China investments, as reported in the Financial Times.  Why all the fuss? These two companies have been accused of fraud and suspended from trading in both Hong Kong and New York.  Will it affect Carlyle’s planned IPO, probably not, but it could be embarrassing. The $80 million invested in these two companies is small, compared to the $106 billion it oversees. Perhaps what concerns critics is the explanation provided by Carlyle management where they suggest risk taking was an inherent element of investing in emerging markets. Carlyle management needs to get “off the couch” and explain how their due diligence process allowed two companies to slip through.  Private equity managers can sometimes display an arrogance and disconnect with handling inquires.  They need to show more sensitivity to investors and appreciation for the trust they have placed with them.

Where is gold heading?

For the past ten years gold’s path has almost been straight up. In fact, since 2000 when gold was under $300 investors have been pushing its value at close to meteoric annual rate rise. Why? Some would argue that when inflation adjusted interest rates fall gold prices rise.  Others would argue its rise had created an unsustainable bubble. George Soros, a large investor in gold has publically let it be known that he’s cut his exposure early this year. But according to the Financial Times, macro hedge fund managers are sticking with their positions. This includes John Paulson who made billions in betting against the subprime housing market. According to Gayle Schumacher, Global Co-Chief Investment Officer of Coutts & Co., wealthy clients are very interested in gold, a group which now represents 8% of their gold Portfolio. This significant investment interest from wealthy families is also borne out from IMI’s Ultra Wealthy Family Forums. These families are not traders but rather long term investors in wanting to insure generational wealth for their children.  Many investors in gold believe there are yet to come another round of crisis which will stimulate more gold buying.

Corporate culture with some hedge funds could undercut investor confidence

Congress is not about to ignore the potential ethical fallout exhibited by some hedge fund managers. This was made clear by Senator Charles Grassley of Iowa when he requested information from the financial industry regulatory authority (FIRA) on 20 stock trades by a leading and large hedge fund.  This is brought about by suspicious trading activity.  This investigation has come about as the result earlier this month in the conviction of the head of the Galleon Group, another hedge fund.  This investigation stems from two portfolio managers pleading guilty on making illegal trades based on secret corporate information.  While the hedge fund where these trades took place has not been charged and they are outraged by the portfolio managers conduct, investors (including Congress) believe aggressive vigilance warranted in order to insure hedge fund illegal activities are uncovered.  The use of non-public information for insider trading purposes will not be tolerated. Risk management officers in firms need to be more tenacious in discouraging such behavior for building personal wealthy at the expense of innocent investors.

Repatriating overseas profits

Congress is currently discussing incentives to bring back some $1 trillion in foreign earnings which are presently taxed as much as 35%. Certainly Congress should be applauded for recommending such action where companies would be exposed to just a 5.25% profit tax. Unions seem to be supporting such action too.  Perhaps Congress might also wish to tie to companies an employment incentive which would see jobs in the U.S. jump quickly. While revenues to the federal government would increase perhaps they ought to be earmarked for reducing the deficit or infrastructure projects, like new bridges, long avoided.  Whatever the final outcome, at all costs, Congress should be wary of companies who used these funds for dividends or other ways to reward their shareholders.  Let’s hope Congress can come together soon to avoid the risk of the economy hemorrhaging.

Russell Mason, Editor

Week of July 10, 2011

Cyber Security is climbing fast on Wall Street’s agenda.

No longer can companies ignore the threats hackers pose to our privacy and security.  We’ve witnessed government intrusions, we’ve seen credit card exposure at banks and now with the invasion of mobile devices through social networking, no one is safe.  On a typical morning by 10AM, over 1 Billion messages are sent or received. Almost 250,000 viruses are recorded with only a few corrected by security software. The internet and its use is growing so fast from the development of powerful software, criminal groups and individuals are able to hack into companies making large sums of money.  They are also reinvesting these funds in new research and developments, keeping them ahead of cyber security. Firewalls or the tracking of new hacking, so far has not resulted in solutions or prevention.  New regulations could help if the government focused on the next wave of cyber crimes. The private sector cannot seem to prevent the growth in the intrusions even with criminal penalties awaiting hackers. Washington needs to put forth laws soon with “real teeth” to protect our infrastructure including business and the government.  A cyber security policy is long overdue.

The recent consultant merger between Mercer and Evaluation might not spark another wave of consolidation.

IMI has been hosting Consultant’s Retreats for 25 years.  We discuss mergers research, clients, technology, and domestic and global business opportunities. They are important to the institutional clients they serve, more than 15,000.  Consultants firms have been growing dramatically in clients and revenues. In fact, over the past 10 years revenues have surpassed expectations. It’s only natural that some mergers would occur in this environment.  To suggest a wave of mergers is about to happen is a stretch from the pundits. Already, recent mergers have resulted in streamlining of services and consultant terminations. Consultants cannot afford anymore expansion of the client/consultant ratio, which is now at 25, a 40% increase from 2005. This is one of the reasons clients change consultants.  Have they forgotten that their principle contribution is intellectual capital? To dilute this by adding more clients per consultant, weakens their effectiveness.

Wall Street can’t seem to prevent executives from using non-public information illegally.

The SEC has brought 53 insider trading cases against 138 individuals and entities, 43% more than the previous year according to financial times report.   Now we see that congress wants to see the SEC’s enforcement program and if they are protecting the public by acting on information from informers.  The SEC’s enforcement chief refuses to give up this information to protect their investigations and this confidential information.  We happen to agree. For we believe it could possibly reach the public from leaks.  Perhaps there is some other workable solution.  In the meantime, the SEC and the U.S. attorney’s office of New York are investigating hedge funds, company officials, and consultants for expert network firms, which match industry specialist with money managers.  While the SEC might go at lightning speed, Congress might prefer-they have our trust for their leadership in investigating insider trading and determining which cases to go forward with. Clearly the record shows they are aggressive in pursuing those who have brought shame to themselves by abusing public trust as greed overtook their professionalism.

Department of Labor wants all 401k costs to be revealed.

If you listen to the mutual fund industry they would have you believe whatever the expenses to pass onto employers and employees are fair and equitable.  If one accepts that explanation they accept transparency is not needed either. Fortunately, the plan sponsors are becoming increasingly sensitive to criticism.  They see the winds changing to where it’s time to release these costs.  Companies don’t have a clue as to what their 401k services are and what they are paying for.  It’s so cloudy, much like the service and costs for running a plan where lawsuits are surfacing.  In the 401k industry it’s suggested that employees’ expenses could be discriminating where the large investors are subsidizing the expenses of smaller investors. It’s a practice known as revenues sharing.  This is all about to change. Starting in 2012 all mutual fund companies will have to release all the hard numbers associated with their funds.  This is coming from dept. of labor, which oversees 401k plans. Expenses will need to be clearly itemized which are sent to employers.  This includes separating mutual fund costs from their administrative costs which they are allowed to include in the expenses of running a mutual fund.  Going forward employers will be breaking out these costs for employees. Something they have been reluctant to do. It looks like an opaque industry will finally become transparent. Hurrah for the department of labor.

Russell Mason, Editor

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Asset management firms either grow or decline

With all the investment in software and technology, the critical ingredient of a world-class asset management firm is its sales professionals, senior management must recruit the very, very best people. Today they won’t come unless they can see strong support from management for their skills and a path for their own professional development. With the overcrowded managers all trying to grow assets most clients want personal interface with their managers. Availability of key people clearly is critical along with chemistry. Not spending enough time with the client often suggests you’ve grown too much to service the client or they are not the people you want to work with. Clients expect loyalty to guiding them with your firm’s management style, especially in this global environment of vitality and uncharted waters. Your firm’s relationship with the clients and consultants is a key factor in manager retention and the ability to cross market new product offerings.

Due diligence: ignorance is no excuse

Officials of pension funds, endowments and foundations are responsible for not just selecting managers, but monitoring their on-going performance. So too are consultants. Ignoring warnings where the investor’s funds are at risk or pleading to events which could impact allocations is seen as negligence and will be severely dealt with by the government or beneficiaries. Turing a blind eye or neither rejecting complaints nor supported by the facts is also an abuse of trust and fiduciary responsibility. Those who profit in order to protect their own interest can expect harsh treatment from the courts. It’s just not the Madoff fallout, its abuses in securities lending programs, excessive cost relating to foreign securities trading pocketing of floats in retirement payouts. These management discretions can only bring into question why institutional investors should blindly trust those firms who seem to rise to a greater power-greed. However, it is more than greed when there is denial of risky and or actions which seem to ignore who’s funds are being treated in a cavalier fashion. In the months ahead Wall Street will feel the institutional spotlight get hotter. Lets hope they can defend themselves.

Hedge funds will soon to be registered with SEC

 It won’t be long before investors will be able to have more trust in hedge fund managers. The Dodd-Frank regulations which require hedge funds by July to register with the SEC should put more pressure on these managers to be transparent. And what’s wrong with that? Nothing. Nor are the requirements as registered investment advisers? Hedge funds will need to appoint a chief compliance officer as well as adopt a code of ethics. Perhaps though, the most significant requirements are the record-keeping rules. They appear to go far beyond many investment advisers are accustomed to. They will need to keep records of any relevant document. While not all hedge funds will be required to register the go bell has been rung. The SEC wants more information on hedge fund operations as for exempt funds, these new rules apply to those with over $100 million. As for foreign hedge funds the rules require registration for those who have 1.5 or more U.S. clients with a total of $25 million under management. Lobbying efforts are under way however to persuade the SEC to reconsider the rules for foreign hedge funds. Their success might be difficult as the SEC wants information to investors.

Adapting to the changing investor landscape

Are managers nimble enough to compete in this changing environment? Certainly mangers are skillful in risk management but are their products ideally suited for investors who wish to preserve and even grow their assets? These are some of the challenges which managers are being asked to overcome. Even in the wealthy family arena which managers are increasing focusing their attention? The challenges are daunting. Children tend to not remain with their parents advisors while widows tend to dump their spouses managers. Why the lack of trust? While the name over the managers’ doors are the same, the turnover of management is significant leaving little personnel continuity. This hasn’t been lost on investors (families and institutions) who often want personalized asset allocation and client servicing for those managers who offer these skills it should ensure a long-term commitment from clients.

Upcoming IMI Events:

Endowments & Foundations Summer Forum, July 24-27, Equinox Hotel, Manchester VT

Fall Consultants Retreat, Sept 26-28, OceanCliff Hotel, Newport RI

Questions, comments, sponsorship opportunities:

Please contact Linda Gunneson, Senior Managing Director, IMI

LGunneson@imi-ct.com  203 622 5851 x19

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Sheraton Fisherman’s Wharf Hotel, San Francisco, CA

Featuring “One-On-One” Meeting with the Consultant of your choice an important first step in building consultant relationships. Use this time to introduce your firm and learn about the consultants priorities in the selection of managers.

 For more information please click here:29THCONSULTANTSPG

Sponsorship opportunities is available at this event, please contact Laura Smith at 203-622-5851 Ext. 24 or by email lsmith@iminy.com

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Year in year out we attract many of the largest endowments and foundations with assets over $500 million. Educational in focus these events also provide an excellent and intimate networking opportunity. 

The topics this year include domestic, international equity and fixed income in a low inflationary environment. We will also be devoting attention to developments in emerging markets, alternatives including hedge fund strategies and the role of private equity. One of the highlights of these gatherings are the breakfast and luncheon roundtables which drill—down in areas critical to universities and foundations. These programs are cutting edge, allowing you to receive an educational experience with your peers, second to none.

For more information click here: 2012 E&F Flyer Publication1

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