NONPROFIT NEWS Article Published August 6, 2009
Profile: George Vitta, Asset Strategies Portfolio Services
As some institutional investment consultants are scrambling to develop discretionary services models to adjust to an ever-changing consulting model, George Vitta, president and managing director of Asset Strategies Portfolio Services, stands by the traditional consulting role, which he believes offers truly independent advice.
“Our company has never taken a discretionary role with clients in our 18 years,” said Vitta of the firm, which oversees client portfolios that total approximately $2.1 billion at the Auburn Hills, Mich.-based firm. “We’re aware of consulting firms that have come up with that fiduciary service and take discretion on various matters for an extraordinary fee…I liken that to a lot of different ills in society.”
Vitta argues that the discretionary model being offered by advisory firms has made them appear more like asset managers when comparing fees and service. In addition, he said that the risks associated with discretionary models are in need of further inspection as to the liability and insurance implications it will have on the consultant before the model can be deemed viable for institutions such as foundations and endowments.
“There is a tremendous financial liability,” he said. “You have to ask yourself about a conflict of interest, at what point do they lose sight of the client’s interest and focus on their own, if they’re thinking, “how can we grow our bottom line?’…that’s the question plans need to start asking.”
Vitta said that in a changing world of consulting models, advisors should only be incentivized by keeping clients 100% satisfied and putting their interests ahead of their own. In working with the foundation and endowment space, which makes up 15% of the advisor’s client base, Vitta said those truly long-term investors should not be burdened by the stress associated with timing markets and looking at the performance of peers when making changes to portfolios.
“Some boards are intensively focused on the norm as defined by their peer group, while others properly focus on the entities’ unique needs,” he said. “those with less concern for what the fund next door is doing, they are the ones that have been more successful with investment programs in my experience…the phrase “misery loves company’ certainly applies.”
Assessing Managers
Vitta said that manager research has become infinitely easier today than years ago due to the number of databases that are provided by independent firms and available online. Of those datatbases, Asset Strategies uses PSN Enterprise Investment manager search database through Informa Investment Solutions.
“Because things change month to month and quarter to quarter, I’m not sure what big research departments are doing that are value-added,” he said. “The best thing is a well-thought out RFP-a good RFP will ask questions not asked in a database.”
Without revealing any proprietary information, he said that one area of importance the advisor addresses is a firm’s outliers, specifically why they underperformed and outperformed during certain periods.
“Listen to what they tell you. Some are very thoughtful and others give a canned response that leaves you with no confidence,” he said. “Similarly when they go to the moon, did they know why and understand why and did they expect it? You have to listen to the explanation and understand if it’s credible or like a press relaese.”
In additon, Vitta said his firm pays close attention to manager attribution when asking about a firm’s philosophy, portfolio construction and risk management process. He said that there should be common links in those factors, which is something that cannot be ascertained from a database and are unique to different asset classes.
Also, the firm pays close attention to managers it has included in searches over prior years and looks at their success record.
“While the majority of our managers are successful and still working with clients, there were some that didn’t work out,” he said. “We seek to understand why. Did we do something wrong? Did they? What are causes of failure and can we learn from the past and look for those factors and incorporate them into future searches?”
Educating Clients On All Types of Risk
With changes in liquidity profiles and spending policies affecting nonporfits across the nation, the ideals behind the prudent investing such as linking investment processes to the risks that are associated with them, takes precendence over the search and hire aspects, Vitta said. Missing an asset growth projection or losing sight of the fiduciary’s risk profile have greater implications when working with clients and can ultimately lead to losing future benefactors, which is the lifeblood for keeping nonprofits afloat in perpetuity.
“It’s not all about returns and the hot new investment, it’s as much about risk management and we would suggest that is more important,” he said.
In additon to risk education, the firm publishes and distributes research to clients and prospects as well as hosting workshops to address the new investment topics along with the individual work that is performed during meetings. He said that overall, the firm’s goal is to not to be over-burdensome, part of which is putting investment opportunities into perspective.
“When we see an emerging trend or topic that is getting a lot of play, for example 130/30 was supposed to be new mantra, we gave clients pros and cons,” he said. “Where we might be different is in the approach when you take on a new client, finding a common denominator on their knowledge level and fiduciary skill.”
