For many wealthy families, concentrated liquid investment positions present special types of issues. More often than not, a diversification plan for a position that has been built up over decades, is relegated to a 5 minute discussion.  And it shouldn’t.  

From low-cost basis issues, income requirements, family executive involvement and even other factors like emotional attachment, the decision to buy and sell liquid positions can be more complicated than it looks.  

To help us understand the best practices in the area and some of the tools at a family’s disposal, were going to talk to STEPHEN DAVENPORT CFA from DECATUR CAPITAL MANAGEMENT in Atlanta, Georgia.  

Based in Atlanta, Steve is the Director of Alternative Investments for Decatur and advises clients on a wide array of issues including concentrated position management.

Steve received a BS degree in Industrial Engineering at Columbia University, a BS degree in Math/Computer Science at Providence College, and a MS degree in Finance from Boston College.

STEVE'S BACKGROUND

Engineering and quantitative skills applied to finance

Lots of questions around “risk vs return†turned into “emotion vs. reasonâ€

Kahneman and Taversky – Risk avoiders instead of return enhancers

2000 a time of excitement and wealth creation in Boston/Silicon Valley

2005 Moved to ATL and worked w Wilmington Trust on DuPont heirs

2015 Moved to STI and worked on Coke heirs

2020 Moved to Decatur to help RIAs/family offices & institutions to manage risk

STEVE’S APPROACH TO INVESTING – PERFORMANCE, GOALS, EMOTIONAL COMPONENTS

Aligning clients to all goals and not just financial (work in chip space or health care so…)

Incorporating all factors including emotion in the investment process

ESG is about values and aligning your resources with things you believe in

MSCI/TruValue measure companies and companies write CSR

Like accounting standards, no global measures UNPRI for three years

Indexing – Good, bad and UGLY, so inclusive to be “completeâ€

1: People want more so they can stay invested in tough times (sell at bottom – 1.5%)

2: Lengthen horizon and

3: Lower fees are three legs to the stool of investment success

Investing in ideas/companies who you agree with, ESG may hold the key to better returns

Holding on may be more important than what you hold

CONCENTRATED POSITIONS-

(Blackrock buying Spiderworks, there is a limit to ETFs . . . )

1 – Customize more holistic solution

2 - Use tools of options market to enhance the transition

3 – Always adjust as the playing field changes

ETFs are a one solution fits all solution but client risk and return parameters are unique 

BRK- example - FINDING INCOME in the OPTIONS (W/ NO DIVIDEND STREAMS)

Recently created wealth by IPO - UBER

Familial wealth, sitting versus actively managing Coke – not selling is value added?

Complex situations require a sophisticated approach! Took a while to acquire so disposition….

INVESTING THEMES TO DEFEND AGAINST (OR TAKE ADVANTAGE OF) . . .

Inflation – Fact or Fiction?

Present across the spectrum of risk: Crypto, NFT, SPAC, Meme, IPO, Real Estate, FANG 

Fiscal and monetary coming together like never before

Is it Temporary or is a CB (central bank- not just US) Put option forever?

TAX AND POLICY CHANGES

Target the top 1% …., Cap gains from 23% to 35-40%, planning for lifetime step up, dividends at OI rates

Ambitious plans need funding, never let a good crisis go to waste, $4 trillion and counting on COVID

Stimulus to get economy through 2022 election and beyond

Market reacts environment and creates solutions

Option overlays will be the beta adjuster

"Diversification sometimes fails when you need it most . . ." Research paper

Universal for the masses, Black Swans becoming more common so should solutions for them!