Investing Secrets of the Ultra-Wealthy

03/23/2012 6:30 am EST


Russell & Company uses alternatives that have minimal correlation to the equity markets as the linchpin of its strategy. Today, vice president Curvin Miller discusses this strategy, and also explains why he also likes emerging markets outside of China.

Kate Stalter: Today’s guest is Curvin Miller, vice president of advisory firm Russell & Company. Curv, you have a very intriguing strategy, aimed at replicating the endowment model at the Ivy League universities. Tell us a little more about that.

Curvin Miller: Well, actually we do. One of the things that we like about the Ivy League strategy, or what we call “investment secrets of the ultra-wealthy,” is that they’re strategies that the big endowments are using, that we typically don’t see made available to retail investors.

One thing the retail investors see a lot of times, are just a lot of correlation between stocks and bonds. And over the last ten years, that strategy has proved to be quite difficult over that period of time, due to a lot of the volatility we’ve seen over the last ten years—the turn of the century, then even in 2008.

So we look to find alternatives that provide, first of all, the ability to have some level of principal protection, as well as alternative assets that provide a lower correlation to the daily movements of the market, in general, that also provide good income. But we also believe in the growth side, too, and so we really try to make sure that were able to provide a diverse offering to the clients we work with.

Kate Stalter: Say a little bit more about that, then: What balance between equities, for example, and other asset classes are you looking at?

Curvin Miller: Sure. At Russell & Company, we predominantly work with people who are nearing or in retirement, so risk tolerance changes quite a bit.

So we rely on what is called the prudent investor rule, which is simply by taking your age and subtracting it from 100. So for instance if we had somebody who is 65 years old, we would take 100 minus 65, and we’d be left with 35%, and that represents the most or the max that a person should have in what we call risk assets.

And those are things that really can go up or down, and are outside of our control—things like the stock market, things that have high correlation to the market.

Other than that, what we look at is making sure that we provide a certain exposure to alternative asset classes. Those could be things that, again, are non-correlated in general, but also help the client produce dividends. Things like that could be something as simple as non-traded real estate investment trusts, or secured floating-rate income, as opposed to fixed income or bonds. So those are some of the different alternatives.

Finally, typically, you’re going to find between 20% and 30% there, and I think the remainder, depending on risk tolerance, of course, which is always the most important, is really looking for things that are going to be principal-protected, or give the client the ability to have something in writing that they’ll get their money back.

Kate Stalter: You did mention a few minutes ago that you do like to include some growth in a portfolio. And I understand that emerging markets is one of the areas that you like. Say something about that, too.

Curvin Miller: Yeah, we do like emerging markets, or we would even go as far as to say the “emerging” emerging markets. And one of the things we like about that is there’s a lot of talk about China, and how much they had to go.

But believe it or not, they’re the growth story of our generation. On average, they’re younger than us—and when I say “us,” I mean the United States. They have an exploding population, an exploding middle class.

And so a lot of the support nations to China—countries like Indonesia, Thailand, who are experiencing high growth, and actually they have GDPs to back it up—we like areas like that, to get around necessarily what we’d call having feet on the ground over there.

There’s a lot of risk of picking the right companies, so we’d really focus on an index, for instance, that may have exposure to those emerging markets: Indonesia, Thailand, Chile. Brazil, some places in South America that we like too.

Kate Stalter: And you’re focusing on equities rather than debt securities in these emerging markets?

Curvin Miller: Well, interestingly enough, I think both. And there’s growth opportunities on the equity side.

But also, by having the right debt instruments with the interest rates being higher over there, sometimes it can make sense, as opposed to here in the US, where we’re getting very low interest rates, which subject any fixed income holding to interest-rate sensitivity or interest-rate risk.

Some countries that have higher interest rates, it might actually be an excellent time to look at some of their debt holdings, too. And primarily, if we’re going to look at debt offerings in emerging markets, we do like sovereign, so more of the government stuff.

Kate Stalter: And once again you’d be looking to get exposure through some kind of fund in these cases?

Curvin Miller: Yeah, some kind of an index to make sure you have a diversified holding that has exposure in those areas, yes.

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