OUR APPROACH TO INVESTING

OUR APPROACH
TO INVESTING
Consolidated
Online
Reporting
Regular
Investment
Communications
Sophisticated
Risk
Management
Access to
Alternative
Investments
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Independent
and Objective
Perspective
Personalized
Portfolio
Construction
Deep
Investment
Expertise
Homrich Berg
Investment
Advantages
Rigorous
Due Diligence
Process
Dedicated
Investment
Team
Disciplined
Investments
Process
Independence Is Where It Starts
Homrich Berg was founded on the belief that clients deserve an
objective advisor paid only by the client. HB receives no compensation
from investment managers of any kind, and has no financial incentive
to recommend one manager or strategy over another. This is commonly
known as adhering to the fiduciary standard where the client’s interest
always comes first, which is different and more stringent than the
suitability standard that brokerage firms typically use. We believe
independence and objectivity are the foundation for successful
investment management.
Personalized Portfolio Construction
The discussion of investments starts with the client. In the simplest
view, a family can do four things with its money now and in the future:
„
Spend it on their lifestyle
„
Give it away to charities
„
Leave it to future generations
„
Let the government have a portion of it for tax revenues
Our goal is to understand the client’s goals around the first three
options and then minimize the fourth option as much as possible.
The bottom line is that success is not always defined as purely the
maximizing of investment returns – it is a balance of understanding
the risk tolerance, time horizons, liquidity needs, tax implications,
generational transfer desires, cash flow needs, and philanthropic
desires of the client.
Homrich Berg uses a wide range of proprietary asset allocation models
and techniques for clients, starting with basic models aligned with
different risk tolerances and adjusting from that point as needed
to fit the client’s unique situation. HB works with clients to develop
a portfolio strategy that aligns with the client’s perspectives on
all of these issues, and then revises the strategy over time if these
factors change.
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Deep Investment Expertise
Unlike some firms, Homrich Berg has a dedicated investments team that does not directly
serve on client service teams. This allows them to focus solely on analysis, research, and
monitoring of investments. The broader HB Investment Committee, with over 150 years
of combined wealth management experience, debates key issues and recommends changes
for investment strategies based on the analysis of the investments team. HB has multiple
CFA charterholders and HB employees have been featured on CNBC and quoted in leading
publications like The Wall Street Journal and Financial Advisor.
Disciplined Investment Process
Investment Committee
The Homrich Berg Investment Committee meets monthly (or more often as needed based
on market dynamics) to evaluate issues and recommend changes as appropriate. Committee
meetings include routine reviews of key indicators for each asset class, specific discussions
of market events, and specific discussions of alternative investment managers. The wide
variety of ages, backgrounds, and perspectives on the Committee encourages a healthy
debate of the issues and a robust review of the facts underlying each decision.
Investment Committee Process
Asset Allocation
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Active or Passive
Manager
Selection
Monitoring
Asset Allocation
Active or Passive
Manager
Selection
Monitoring
Asset Allocation
Homrich Berg believes that asset allocation drives a large part of the overall portfolio returns –
this means that often the decision on how much to allocate to stocks or bonds or other
asset classes can matter more than which manager is selected within the asset class. HB’s
Investment Committee starts with a strategic allocation model based on the firm’s outlook
for long-term returns, correlations, and volatility for each asset class. The Committee then
adjusts the allocation tactically based on current market conditions and risks. Dedicated
analysts monitor each asset class for dynamic shifts in the factors that could lead to a
recommendation to make a tactical shift. These factors include our perspective on macroeconomic trends, demographics, interest rate analysis, currency outlooks, valuations, and
other fundamental analyses. We also monitor technical indicators such as moving averages,
sentiment measures, and momentum to help provide perspective on the outlook.
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Asset Allocation
Active or Passive
Manager
Selection
Monitoring
Active or Passive?
Once the firm has decided where it sees the best opportunities for
value as part of its asset allocation process, the next question is how
best to achieve that exposure. Within each asset class Homrich Berg
continually evaluates whether it is best to use passive or active
investments. Passive investments are typically low cost mutual funds
or exchange traded funds (ETFs) that do not actively attempt to “beat”
an index but instead just provide a low cost exposure to that index.
Active investments are funds in which the manager attempts to
consistently deliver excess returns (“alpha”) beyond the performance
of a benchmark index. For example, in the U.S. stock market HB
currently leans towards the use of passive index ETFs for large portions
of our equity exposure because the U.S. equity markets are highly
efficient (particularly large cap) and after the impact of taxes and
fees most active managers have not been able to consistently beat
their index. HB can still tactically overweight a certain portion of
the stock market using low-cost ETFs to execute the strategy if
desired. Because of our independence, HB can focus solely on what
we believe is the best answer for our clients, whether that involves
using mutual funds, ETFs, separately managed accounts, alternative
investment funds, or individual securities.
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Asset Allocation
Active or Passive
Manager
Selection
Monitoring
Manager Selection
Homrich Berg searches the globe for investment managers that it
feels can best execute the identified asset allocation strategies outlined
by the Investment Committee. Due diligence regarding the manager’s
past performance, investing philosophy, expertise and consistency
of the people on the team, and processes for operational controls are
all factors in the evaluation. Alternative investments receive an even
deeper review including reference calls to other prior investors, review
of operational controls, and on-site visits with the manager. This more
intensive due diligence can include background checks, verification
of independent third party providers, and other basic compliance
audits to assess the internal operations of the manager. Once HB has
recommended a manager, a member of the firm will be assigned to
monitor the investment on an ongoing basis and communicate with
the manager.
Homrich Berg looks at net performance after all fees and expenses
for the manager as well as taking potential tax efficiency into account.
The historical volatility of the strategy, upside/downside capture,
correlation with and performance vs. benchmarks are all analyzed.
Often a low cost manager will appear best, while other times a higher
cost manager may be our recommendation. HB has no incentive to
steer clients to “in-house” managers due to its independence, and
HB’s firm size provides it access to some managers or institutional
share classes of funds that otherwise would not be available to clients
on their own.
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Asset Allocation
Active or Passive
Manager
Selection
Monitoring
Monitoring
Managers are monitored to ensure they are delivering the desired performance and not
altering their strategies or risk levels to achieve returns. Homrich Berg will increase or
reduce allocations to managers based on this monitoring, and in some situations will replace
managers as needed. Individual investors often have emotional ties to their past decisions
and may find it harder to cut ties with a specific manager, but HB focuses on a rigorous
review process to critically assess all allocation and manager decisions.
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Access To Alternative Investments
Most high net worth families and family offices utilize alternative
investments (investments that are not publicly traded securities) to
pursue superior risk-adjusted returns over time. These are funds and
strategies not available to the average investor. Alternative investments
include hedge funds, private real estate, private equity, private debt
and private natural resources investments. Managing over $2 billion
in assets gives Homrich Berg the ability to work with a wide range
of leading alternative investment firms ranging from hedge funds and
private equity funds to direct real estate investments and direct private
lending fund managers. HB has staff dedicated to sourcing, analyzing,
and performing due diligence related to alternative investments. The
firm will also from time to time create access vehicles (fund of funds)
to help clients with smaller portfolios gain access to these investments
(with no additional HB fees) when otherwise the high minimums would
not allow them to invest. These are unique opportunities that many
firms do not offer or attempt to analyze, but HB feels that they are
a critical part of our overall goal of providing diversification and
positive risk-adjusted returns.
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Sophisticated Risk Management
All investments come with risk and volatility. Higher risk strategies
can deliver great returns on the upside but also deep losses on the
downside. Homrich Berg believes in focusing on risk-adjusted returns,
recognizing that many clients may not desire (or need) to take large
risks to seek satisfactory returns. Our goal is to deliver superior
returns given the level of risk taken for the portfolio.
Return
HB Target
Risk
Diversification is a critical part of managing risk. Correlations
between asset types and individual investments are evaluated as
part of the overall portfolio strategy in order to manage volatility
risk via diversification. HB measures performance against benchmarks both on total return and volatility, with a goal of providing
higher returns and less volatility. HB is known for its history of
using a wide range of investments beyond basic stocks and bonds
in order to achieve client goals.
The investments team at HB is constantly monitoring a wide range
of potential risks for client investment portfolios. Economic, political,
and environmental risks are assessed not only for potential negative
impact but also as potential opportunities to find pockets of value
as well.
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Client Communication
Homrich Berg provides investments commentary to clients in a wide range of formats,
including monthly HB Market Monitor reports with comments on topical issues, semi-annual
Economic Update/Investment Outlook reports, and brief email updates when events warrant
a quick communication to clients. Investments commentary is not only provided in written
format, but also is sometimes provided via conference presentations, client conference calls,
or even narrated “movie” presentations that clients can review at their leisure.
Consolidated Reporting
Clients have online access to a complete view of their investment portfolio via an industry
leading reporting package used by Homrich Berg. Tablet applications (e.g. iPad) also allow
quick access to the same information virtually anywhere without turning on a computer.
Clients can view their current balances, historical performance, asset allocation, comparison
to relevant benchmarks, and sophisticated modern portfolio risk statistics all in one place.
Traditional printed quarterly reports are also available for clients who choose to receive them.
Walters Family
Date Range: 1/1/2006 - 12/31/2009
Portfolio Overview
Allocation by Asset Class
Portfolio Value Summary
Quarter
to Date
Income
Net Additions
Gain/Loss
Ending Market Value
Return
Class Blended Benchmark
S&P 500 TOTAL RETURN INDEX
M
A
X
1
E
Net Additions and Market Value Since Inception
Annualized Return
Year to
Date
Last 12
Months
E
L
P
Beginning Market Value
Last 3
Years
Since
Inception
17,016,340
15,197,916
15,197,916
27,334,379
0
106,607
202,629
202,629
1,064,288
8,999,392
-44,534
-97,303
-97,303
-7,742,556
14,980,519
522,247
2,297,416
2,297,416
-3,060,147
-9,096,841
17,600,659
17,600,659
17,600,659
17,600,659
3.4 %
15.0 %
15.0 %
-4.6 %
3.3 %
12.4 %
12.4 %
-1.2 %
0.8 %
6.0 %
26.5 %
26.5 %
-5.6 %
-1.3 %
17,600,659
1
-1.9 %
1
Portfolio Performance Since Inception
E
L
P
E
M
A
X
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Common Questions
does Homrich Berg deal with stocks or mutual funds a client
Q How
already owns?
If a client has concentrated stock positions from a current/past employer, Homrich Berg
can advise the client on various strategies to reduce that exposure over time or hedge
against the risk of that exposure. If a client simply has legacy investments from another
advisor or self-management in the past, HB can analyze the fit of these investments
with our current investment strategies and help the client understand the pros and cons
of maintaining those positions vs. moving into different investments. Issues such as
capital gains/losses and expenses for the existing investments are an important part
of the analysis.
Homrich Berg think about the tax implications of investments
Q Does
for clients?
Yes, understanding after-tax performance is an important factor both for manager
evaluation as well as the management of individual client portfolios. Less tax-efficient
investments may be allocated to tax-sheltered accounts (e.g. retirement accounts) in
order to keep more tax-efficient investments in taxable accounts. HB monitors unrealized
gains and losses inside client portfolios and may recommend strategies to clients based
on their situation to maximize the after-tax returns of their portfolios. Several HB
employees (including two principals) are CPAs.
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client accounts rebalanced over time if certain
Q Are
investments grow faster than others?
Yes, rebalancing of portfolios is managed on an ongoing
basis with the aid of our internal software that monitors
each allocation weight. Research shows that rebalancing when
allocations move outside of a +/- 20% range is most effective
for maximizing returns, and Homrich Berg uses the 20% range
as our trigger for rebalancing. This approach also provides a
good tradeoff between the costs of constant trading and the
desire to ensure the portfolio stays in balance. HB is willing to
discuss different rebalancing targets and timing with a client
if they desire a different approach.
Q Does Homrich Berg have in-house trading capability?
Yes, Homrich Berg does have an in-house trading desk and
the ability to directly purchase municipal and corporate bonds
for clients. In most cases it is more cost-effective and the best
execution to use the trading desk of the custodians that HB
works with, but for some direct bond purchases using the
in-house trading desk can be an effective strategy.
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Homrich Berg recommend individual stocks? Is Homrich Berg only
Q Does
going to use mutual funds? How will Homrich Berg implement a client’s
investment strategy?
Depending on each client’s situation, Homrich Berg may use different types of investment
approaches to implement a client’s portfolio including but not limited to ETFs, mutual
funds, separately managed stock or bond accounts, limited partnerships, and fund of funds
structures. HB typically does not recommend individual stocks based on the active vs.
passive discussion outlined in this document, although HB does help clients manage
existing legacy individual stock positions as appropriate and may occasionally build
small portfolios for clients if appropriate.
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Homrich Berg Values
We are Objective.
Our clients’ interests guide everything we do.
We are of high Integrity and are passionate about our firm and profession.
We strive for Excellence. Nothing short of this is acceptable.
Diligence is key in our complex and evolving profession.
We rely upon Teamwork. We work together to accomplish
a shared mission for our clients, our firm and one another.
We build relationships on a foundation of Trust.
Trust is built by living these values.
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One Buckhead Plaza
3060 Peachtree Road, NW
Suite 830
Atlanta, Georgia 30305
Phone: 404-264-1400
Fax: 404-237-5114
North Atlanta
5400 Laurel Springs Parkway
Suite 304
Suwanee, Georgia 30024
Phone: 404-264-1400
Fax: 404-237-5114
www.HomrichBerg.com