The State of the Secondaries Market: Delegate Advisors CEO Bob Borden Comments to FundFire

The secondaries market, the market to buy and sell limited partner stakes in private equity funds, has experienced significant growth since the 2008 financial crisis, reaching the $42-billion-mark in 2011 and leveling off at $37 billion last year, according to FundFire. Delegate Advisors CEO Bob Borden recently commented to the publication on this maturing and increasingly segmented market and what the future may hold for it.

“Despite the growth, what there may not be in the long run is many new entrants to the space,” Borden tells FundFire. “Secondaries deal activity favors firms that have built longstanding relationships in the market with brokers, institutional investors, placement agents, and the general partners of funds whose stakes are being sold, which typically have to give approval for sales within their funds.”

“I don’t think you get crowded away quickly in this market,” Borden summarizes.

Subscribers to FundFire can read the full article here.

Delegate Investment Update: A Brief Review and Look Ahead

This first letter of 2017 will present an outlook for what we believe to be the most important economic and investment themes for the year ahead. Additionally, this letter will incorporate information from our annual Global Economic Outlook and Asset Class Assumptions presentation (available upon request). In the letter, we highlight certain actions that we recommend investors take to protect and grow their portfolios in 2017.

Read the full letter here.

The New Nationalism: A Disconcerting Theme

Over the past 30 years, three forces have largely been responsible for relatively high global GDP growth. First, interest rates have steadily declined since the highs of the 1980s, providing a constant and strong tailwind to the global economy and causing virtually all capital assets to rise in value. Second, the Internet and other new technologies have caused productivity and efficiency to increase substantially and for information to be shared more easily across the globe. Finally, at the center of these forces, globalization, exemplified by the creation of the Eurozone, the European Central Bank, NAFTA, and the World Trade Organization, has removed many barriers to international trade. This has allowed capital to flow more freely across borders, increasing avenues for trade and commerce and introducing sellers of goods to a new pool of buyers.

While these three forces have contributed to relatively strong investment returns over the past 30 years, each is under pressure and, as a result, investors should expect future returns to be somewhat lower than in the past.

We believe that investors are relatively familiar with the first two forces. The first force, declining interest rates, should not be expected to continue. Global rates are at or near historical lows with a move higher seemingly inevitable (although the timing of that move remains uncertain). Second, the Internet has permeated commerce to a substantial degree, potentially limiting the future growth of the technology sector, which has been a key driver of global equity returns.

Of concern, we are now starting to see the third force break down. Many developed nations responsible for the globalization trend of the last several decades are moving towards nationalistic postures that threaten to limit or reverse the easy flow of capital across borders. We believe investors need to understand this move from globalization to a “New Nationalism” and how it could affect their portfolio returns.

The New Nationalism

The emergence of nationalism is well exemplified by “Brexit” and the potential breakup of the European Union. We have long been concerned with structural challenges that the EU experiences primarily due to the disconnect between centralized monetary and decentralized fiscal policy. These growing nationalist tendencies, magnified by the recent refugee crisis, are producing an environment wherein countries begin to seriously consider leaving the union. The UK took this theoretical risk and made it a reality with the vote for “Brexit.” While the political dynamics that led to this event are fascinating and complex, we are perhaps even more interested by the fact that the markets clearly did not anticipate the UK leaving the EU. Despite the fact that the event was clearly a product of these growing tendencies, global markets are still reacting as if Brexit is a “one-and-done” event. We can’t help but wonder which country might be next? While support for leaving the EU appears relatively low in many large nations such as France and Germany, support in the UK also appeared relatively low for a long time before the vote. 

More concerning is that the nationalism trend is not just limited to the UK or even the EU. The rise of Donald Trump as a presidential candidate in the U.S. (among other populist and far-right candidates, globally), imperialistic motivations of China in the Sea of Japan, and Russia’s aggressive moves in Ukraine and Crimea all serve as further evidence of this global trend. If the trend towards globalization does indeed reverse, barriers to trade may re-emerge, and capital flows may become restricted. This would cause global GDP growth to slow, which could drag investment returns down.

This environment leaves investors with the important question of whether to prepare for a prolonged period of relatively low global growth and low returns. While this story will play out over the next decade, we believe it is wise for investors to reassess their long-term objectives, understanding that the relatively high returns experienced over the last 30 years may not continue for the next 30. We do believe, however, that this environment may present opportunities for investors to capture relatively attractive risk-adjusted returns by taking advantage of potential market volatility (i.e., buying during sell-offs) and focusing on fundamentally sound investments in private markets. 

Delegate CEO Bob Borden Named as Keynote Speaker at Texas Private Equity Conference

Delegate Advisors is proud to announce that Chief Executive Officer and Chief Investment Officer Bob Borden will deliver the keynote address at the prestigious 2017 Texas Private Equity Conference on Friday, February 3. Bob will discuss the past and future of the private equity industry while reviewing key economic drivers from the past 30 years with an eye on the next 30 years.   

“The past 30 years will not serve as precedent for the next 30,” says Borden. “And so we often hear questions from families, endowments and foundations about where to find investment returns in an unpredictable, volatile environment. For many investors, private equity can be a beneficial addition to an investment portfolio.”

In the discussion, Mr. Borden will provide a synopsis of the four primary global drivers of world economic growth over the past 30 years: interest rates, globalization, demographics and the internet. He will compare them to a vastly different environment today. Importantly, he will discuss how these conditions affect investment returns and where investors should seek long-term returns in the future.

The Texas Private Equity Conference provides an opportunity for experts in the private equity space to convene and discuss these investment strategies.

Andy Hart Comments to Campden FB on the Rise of Impact Investing

Impact investing, which seeks both financial returns and philanthropic impact, is on the rise according to a recent study by Global Family Office Report 2016. While the study found millennials are particularly focused on the social and environmental impacts of their investments, the trend is growing across the industry. More than 60% of the family offices in the report said they are already active in impact investing or have immediate plans to implement it, and 47% see it as a more efficient way of achieving impact than philanthropy.

Andy Hart, managing partner at Delegate Advisors, commented to Campden FB on this growing trend. “We know that there is a push toward measuring impact, but we believe that any measurements should really come from the family philanthropic objectives,” he explains.

In the article, Hart shared the example of a family whose mission is to support access to education. He explained that a better measurement than just looking at scholarship payments might be the number of scholarship recipients successfully graduating.

“Just because something might be hard to measure, does not mean it shouldn’t be pursued as long as it helps achieve the larger family objective,” he summarizes.

For more details on the report on impact investing, read the full Campden FB article here.

Delegate CEO Bob Borden Comments to Fund Fire on Private Equity Firms’ Potential Choice to Deregister

For years following the 2010 Dodd-Frank financial reform law that required most private equity firms to register with the Securities and Exchange Commission, private equity firms have been developing more robust compliance practices, despite the feeling among some in the industry that the legislation was designed for managers of publicly traded securities.

Now, however, there is new federal legislation in the House of Representatives that would no longer require private equity firms to register as investment advisors with SEC. Delegate CEO Robert Borden discusses the consequences of deregistering in a recent Fund Fire article.

“Some fund managers may see dropping SEC registration as a net plus if they don’t face client blowback,” he says. “If their client base has investors that don’t care about compliance and registration, they may do it.” However, that decision isn’t without consequences. “For fund managers that seek capital from large public pensions, investment consultants and big foundations, deregistering may put them at a competitive disadvantage,” Borden says.

Even if the pending legislation, called the Financial Choice Act, becomes law, many private equity firms may not be inclined to discard their ramped-up compliance practices and move away from transparency, when the industry as a whole is moving toward more transparency.

“They’ve lived through the trauma to become registered,” Borden says. “Once you’ve gotten registered and gone through an SEC exam, the hard part is done. You’ve gotten the ‘Good Housekeeping seal of approval.’ Why would you now get rid of it?”

To learn more, the full Fund Fire article is available here.

Delegate CEO Bob Borden Discusses Private Placement Variable Annuities in Financial Advisor Magazine

Traditionally, variable annuities haven’t been a product that appeals to wealthy investors. Instead they’re typically aimed at investors looking for a secure source of income in retirement. Recently, however, high and ultra-high net worth investors are looking toward private placement variable annuities (PPVAs) because of their tax advantages and their attractive and transparent fee structure. PPVAs also provide the potential for greater returns by accessing investment options that are generally not available to the public, including hedge funds and private equity investments. 

Delegate Advisors CEO Bob Borden discusses this trend in a recent Financial Advisor article, noting that these annuities can be especially beneficial for clients looking to leave money for their children or grandchildren “without the burden of investment acumen or financial discipline.” He acknowledges, however, that not all clients are comfortable with the concept, and like any investment but particularly with private placement, due diligence is required.

“It is important to shop from highly rated, well-capitalized issuers in order to have confidence in the reliability of those income streams and to have a clear understanding of all costs involved,” Bob emphasizes at the end of the article. 

The complete Financial Advisor article is available here

 

Delegate Advisors CEO Bob Borden Talks Hedge Fund Hesitations with HFM Investor Relations

Deleveraging, austerity and rising nationalism. These are the headwinds that are suppressing global growth and creating the relatively low-return global environment we are currently experiencing. As a result, Delegate Advisors has maintained a muted interest in market-neutral hedged strategies as they are likely to produce limited returns in low-return environments.

In a recent interview with HFM Investor Relations, Delegate Advisors CEO Bob Borden discusses the firm’s current hedge fund stance. With an after-tax expected return of approximately 3%-3.5% for a taxable investor, “it is hard to justify a material allocation to hedge funds for taxable investors,” says Borden. “Furthermore, we feel that the opportunities that provide investors with the most attractive risk-adjusted expected returns do not lend themselves to a hedge fund structure. We believe that the most attractive risk-adjusted expected returns are in private debt and private equity.”

While general interest in hedge funds is muted, Borden did explain the firm’s interest in gaining some fixed income arbitrage exposure. “We are searching for managers that can capture the coupon from high-yield instruments in a steady market, but that can also generate alpha or at least protect capital in the event of a market correction. We simply believe that a fixed income arbitrage manager is a better allocation than a long-only high-yield manager at this point in the cycle.”

Subscribers to HFM can read the full article here.

Andy Hart in Family Wealth Report: The US as a Safe Haven for Global Wealthy Families

Despite a chaotic election season and the potential for tax increases, global families are increasingly looking to the United States as a safe haven for their wealth. The reasons, as Delegate Advisors Managing Partner Andy Hart discusses in a recent Family Wealth Report article, are “our stable government and deep respect for the principles behind our rule of law, which include a strong foundation for protection of individual and property rights, the latter providing asset protection.” 

While our stable government provides security, Hart stresses that in order to avoid potential pitfalls, advisors working with global families must not only understand the legal and tax implications of bringing assets into the US, but also the cultural differences and attitudes toward investing. “The investment opportunities available to global families often have very different risk and return profiles,” explains Hart. “For example, many venture opportunities in China have strong political backing that from the outset mitigates downside risk and materially enhances the prospects of a company.”

Another factor that advisors must understand when working with global families is the cultural differences in the client-advisor relationship. For example, Hart shared his observation that families may “often avoid giving a direct ‘no’ to advisors, which can be confusing for advisors who are used to more direct feedback about the potential of forming new relationships.”

 At the close of the article, Hart shares what’s on the minds of many wealthy global families: the current political landscape and the potential for changes to current laws, including the lifetime gift tax exemption and the laws around valuation of family businesses for transfer purposes. For this reason, Hart says, “many of our families are trying to complete wealth transfer projects in 2016.”

The full article from Family Wealth Report is available to subscribers here.

Delegate’s Andy Hart in Campden FB: How to Avoid the Pitfalls of Philanthropy

Philanthropy is a common function of families to engage the next generation and to further the family legacy. But as Delegate Advisors Managing Partner Andy Hart points out in a recent Campden FB article, many families find themselves giving without a clear direction – which can lead to several pitfalls.

 “There are three common mistakes families make with philanthropy: sizing, structure and bargaining,” he explains. “Yet if you have a good plan that covers these areas, most future philanthropy problems resolve themselves. When they do not take the time to establish a philanthropic strategy, families often regret the early years.”

 Hart continued by explaining that determining the size of the pledge, especially if the pledge is not for a fixed amount, is the first step. Once the size is determined, the family must define the structure, including whether the donation will be made at one time, or if spreading the donation over a number of years would provide more benefit. Finally, Hart encouraged families to consider using their personal networks. For example, he says, “a family might be able to secure naming rights to a university building for a lesser amount by acting as the lead pledge and helping to secure smaller pledges.”

To learn more about avoiding the pitfalls of philanthropy, read the full article in Campden FB.

 

Delegate’s Morgan Tarr Recognized for Community Involvement

We are proud to announce that our Vice President Morgan Tarr has earned an Honorable Mention for the Community Service Award in the 2016 Invest in Others Community Leadership Awards. Morgan is an active volunteer and serves on the board of directors for bay.org, San Francisco’s largest watershed conservation group. 

The Invest in Others Charitable Foundation established the Community Leadership Awards to recognize the charitable work of financial advisors in communities across the country and around the world. Financial advisors are nominated by their peers for actively giving back to non-profits to improve their communities and make a difference in the lives of others. Those earning Honorable Mention were selected based on their leadership, dedication, contribution, inspiration and impact on a non-profit and the community it serves. We are proud to have civic-minded individuals on our team who are focused on serving their communities.

 “I love living in the San Francisco area and want to help serve the community. That means the people who live here, the ecosystem of the Bay and all the animals big and small,” says Morgan. “The Bay Area is iconic for a reason. It's our job to keep it that way.”

Delegate Advisors Recognized by Financial Advisor Magazine

Delegate Advisors has been ranked number 132 on Financial Advisor Magazine’s list of the top Registered Investment Advisors, which is based on assets under management (AUM). The list ranks more than 600 independent RIA firms across the country.

According to Financial Advisor, despite the difficult market conditions of the past two years, the average number of client relationships rose more than 16% and the average number of employees rose 12% for the firms on the list, demonstrating the increased demand among investors for independent financial advice.

“We are pleased to be named on this year’s Financial Advisor list” comments Delegate Advisors Co-Managing Partner Andy Hart. “Relationships are at the core of our business. Our growth, and the growth of the other Registered Independent Advisors on the list, shows that more and more investors are seeking a wealth management relationship that offers transparent advice.”

To view the Full RIA Ranking, click here.

Delegate Advisors Recognized by San Francisco Business Times

We are honored to announce that Delegate Advisors has been named to the San Francisco Business Times’ list of the 25 largest wealth management firms. The annual list is based on assets under management (AUM) in Bay Area offices for individual clients with separate or individually managed accounts.

“San Francisco is home to many savvy investors who know the value of independent investment advice, which is at the core of what we do,” says Delegate Advisors Co-Managing Partner Andy Hart. “It’s tremendously rewarding to see our growth and our efforts recognized by the San Francisco Business Times.”

To see the full list, click here. 

Delegate Advisors Q2 Mid-Year Review

"Brexit? What does that mean for me?"

"Will the volatility hurt my portfolio long term?"

"What will happen if ______ is elected?"

In addition to the extreme market volatility, this year has been stressful for investors with geopolitical instability along with an impending election that has seen a fair amount of polarization. This leaves most of us with questions. At this mid-point in the year, we find it an ideal time to pause and take stock of the year's performance and gauge how things look for the remainder of the year in our Q2 letter. 

To read the full report, please click here

 

Delegate Advisors’ Andy Hart Shares Insights on Wealth Planning Across Generations

Family wealth planning is a complex and nuanced process, and for the plan to be successful, members of a wealthy family must agree on the same objectives for their wealth now – and for future generations.

To add complexity to the process, the plan also must allow for a level of flexibility, accounting for factors ranging from changing family objectives to the ever-increasing lifespan of family members thanks to modern medical advances.

In a recent interview with Family Wealth Report, Delegate Advisors Co-Managing Partner Andy Hart offered guidance on navigating the challenges of creating a multi-generational wealth plan. At the top of his list was open communication among family members and with their advisors. While this can be accomplished in a number of ways, it boils down to the family leaders articulating their wishes while also providing an opportunity for each family member to ask questions and share concerns. A family’s advisor also plays an important role in these conversations. Hart stressed the importance of advisors playing a “polite devil’s advocate” who can provide a financial forecast based on a family’s objectives and help the family avoid common pitfalls such as over-consumption or high taxation.

Subscribers to Family Wealth Report can read the full article here.

 

FIVE POINT PLAN FOR A PATH TO FINANCIAL INDEPENDENCE

For many people starting on the path to building wealth, the ultimate goal is usually financial independence. As you work towards having enough investment assets to support yourself without needing to work, we recommend you follow five simple steps to protect your material net worth.

The first step is to build up a cash reserve of short-term liquid savings that you can tap into for emergencies or extenuating circumstances. Because your most valuable asset is your ability to work and earn money, long-term disability and term life insurance are essential as well. You can then start to build a diversified investment portfolio with long-term growth goals. Once you start to accumulate assets such as homes, savings, and investments, you’ll want to protect it with a general excess liability insurance policy of sufficient size to cover your net worth.

To read about each of these in more detail, please click here.

DELEGATE ADVISORS NAMED BEST MFO UNDER $2B BY PRIVATE ASSET MANAGEMENT

We are honored and proud to announce that Delegate Advisors was named Best Multi-Family Office – Client Service -- Under $2B by Private Asset Management magazine as part of the 2016 PAM Awards. This award comes as we celebrate our fourth anniversary having grown to serve 21 clients with $1.6B AUA. As always our focus is 100% on serving our clients, but we are thrilled to be recognized by the media. 

The PAM Awards are designed for investment professionals and wealth advisors, operating within the private asset management industry, which have been judged by PAM to have proved themselves over the course of 2015. To be considered for this award, candidate firms must demonstrate why they believe they are best-in-class compared to their peers. The award is granted by a panel of judges carefully selected for their wealth of experience and expertise. The judges use a mixture of qualitative and quantitative performance indicators. Successful candidates must demonstrate:

  • Financial progress;
  • Growth in client numbers, internal hires and geographic expansion;
  • Client satisfaction; and
  • Product innovation

In addition to winning the prestigious PAM award, Delegate was also nominated and included on the shortlist for two awards from Family Wealth Report:

  • Best Multi-Family Office with Assets Under Management Up To and Including $3 Billion
  • Client Initiative for a Multi-Family Office

The Family Wealth Report Awards (“FWR”) are judged based on innovation and excellence achieved in 2015 as judged by FWR.

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