Q & A With Gregory Curtis: Super Wealth Manager for High Rollers

by Dual Income No Kids on April 24, 2008 · 0 comments

For today’s posting, we are pleased to bring you an interview with Gregory D. Curtis. Called a “super wealth manager for high rollers”, Mr. Curtis is the Managing Director and Chairman of the Pittsburgh based Greycourt and Co., a private investment firm exclusively serving clients with $25 millon or more of net worth. He is the author of “Creative Capital: Managing Private Wealth in a Complex World” and serves on several boards including those of Carnegie Mellon University and the Pittsburgh Foundation.

We reached Mr. Curtis via email.

1. DINKS: Can you please tell us a little bit about yourself? About Greycourt? How long have you been in business? Who are your clients?

Greg: I started out as a lawyer (I’m recovering), then headed one of the Mellon family offices in Pittsburgh. I launched Greycourt after that.

Greycourt was the first of the true “open architecture” firms targeting very high net worth families as clients. The firm was organized in 1986, incorporated in 1988, and has been operating in its current configuration since about 1997.

Our clients range from “the deca-millionaire next door” to what we believe to be the wealthiest private family in the world. Our realistic minimum account size is roughly $25 million liquid.

2. DINKS: Most of the readers of Dual Income No Kids are mass affluent and are interested in improving their financial situation. What are the ways that you find most of your clients have been successful in building wealth?

Greg: There is an important distinction between building wealth and maintaining wealth. Building wealth requires risk-taking, and the more wealth you want to build the more risk you will have to take. You might incur this risk in the form of professional risk – entrepreneurship, for example – or in the form of owning a very concentrated equity position (Berkshire Hathaway, Microsoft, Google). Most people who take this kind of risk get wiped out, of course.

Maintaining wealth, including maintaining the wealth you have generated from working and saving, requires an investor to own a widely and sensibly diversified portfolio and to stick to it even in the face of considerable provocation – like, say, the current financial crisis.

3. DINKS: For the mass affluent, how would you recommend that people adjust their portfolios in light of the current economic turbulence? How are high net worth individuals reacting to changing circumstances?

Greg: The usual platitude – stay the course! – is defective because most investors aren’t on the course to begin with. Sticking with a portfolio that was (badly) designed to flourish during a period of massive liquidity and very low interest rates is, today, a good recipe for personal bankruptcy. Investors owning such portfolios would be well-advised to go to cash and rebuild from scratch.

Naturally, our predilection would be for them to hire a superior open architecture firm to design and implement that new portfolio! But the truth of the matter is that if those investors would simply identify eight asset classes and spread their assets evenly across them, then rebalance once a year, they would be (mainly) just fine. (The trouble is that when the next bull market rolls around these investors will be back on the bubble, albeit with many fewer assets to lose.)

The platitude – stay the course! – does apply to investors who went into the crisis with well-diversified portfolios. While these portfolios have experienced a couple of nasty quarters, those results are survivable and the portfolios are well-positioned to rebound nicely when markets return to normal conditions. (As happened with such portfolios after the bear market of 2000 – 2002, the bear market of 1987, the bear market of 1973-74, and – well, now we’re getting back before even my time!)

The main difference between what very wealthy investors are doing and what other investors are doing to respond to current market conditions is that the wealthy are taking advantage of disarray in the markets to invest in opportunistic ideas. They can do this because they can afford very expensive advisors (Greycourt’s minimum annual fee is $100,000) and because they are “qualified investors” and therefore can get access to the best managers in the world, many of whom are working out of hedge funds, private equity partnerships and similar vehicles that (thanks to paternalism on the past of the SEC) are not widely available to the mass affluent.

4. DINKS: You mentioned the flight to quality in your recent interview on CNBC and your recent strategy in shorting REITS. Can you please say more about this?

Greg: Sure. Immediately after the credit crunch struck last August, and continuing to this day, retail investors abandoned closed-end corporate bond funds in favor of US Treasuries – a fairly typical “flight to quality.” Discounts on the funds widened out to roughly 20% (discounts typically run to 2% to 3%), while yields reached 7% or so. Buying a diversified portfolio of these funds was like picking up hundred dollar bills on the sidewalk.

Regarding REITs, after seven years of extraordinary returns, and with housing prices headed south, the idea of shorting REITs seemed to have merit. In fact, the return differential between managers who shorted REITs in 2007 and the performance of REITs broadly was nearly 3,000 basis points (30%). At this point we would prefer to be with a manager who is both short and long REITs, as opportunities in the real estate sector are beginning to crop up again.

We will be bringing you the second half of our interview with Mr. Curtis in a later posting.

For more about Greg Curtis, click here.
For his book Creative Capital, click here.
You can find Greycourts series of investment papers at their website.

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