Hello my favorite due diligence analysts – I hope you all had great holidays! We start this year off with a trip to the capital.
Resisting the urge to take a photo in front of the White House, I navigated my way through the notorious DC traffic to Tysons Corner for my first meeting of the day, with Nathan Sonnenberg (below).
Sonnenberg is a due diligence veteran who started out at a then-small Washington DC-based advice firm called CMS Financial Services. Through a few name changes and restructures, it went on to become the $8 billion RIA Convergent Wealth Advisors and the outsourced research shop Fortigent.
He looks back fondly on that period. ‘We were way early in providing transparency to our clients and doing innovative things, at least back then, such as investing in micro-cap stocks globally, in international small caps and using multi-strategy hedge funds, long-short equity and managed futures to diversify our client portfolios,’ he said.
Sonnenberg served as chief investment officer at Fortigent from 2009 to 2012, before moving on to Abbot Downing, the multi-family office arm of Wells Fargo (spoiler alert: my next meeting). After a brief spell at a local RIA, he started his own OCIO firm in 2016.
‘While I have worked directly with high- and ultra-high-net-worth clients, my greatest personal accomplishments happened by helping advisors solve problems related to investments for their clients,’ he said.
He now provides manager oversight and due diligence, third-party outsourcing due diligence, alternative investment implementation and selection, portfolio construction, and asset allocation advice, among other services.
For 2018, he says many clients are looking for diversified growth and protection ahead of a possible downturn. ‘With such a great run here in the markets, they want strategies that will truly be less correlated to protect on the downside,’ he said.
Next, I headed over to Abbot Downing, where I met with Dan Burke (below).
Burke leads the portfolio construction and analytics team at the $42 billion multi-family office arm of Wells Fargo, which integrates asset allocation, manager selection and investment risk management processes.
‘We're not a model shop because our client portfolios are so unique,’ he said.
Due to the sophisticated nature and wealth of these clients, it is hardly surprising that Abbot Downing is looking at areas less correlated to the mainstream market and not necessarily available to all investors.
‘As valuations in public markets continue to move higher, we're looking for value in less-traveled asset classes and private markets,’ Burke said. ‘Energy is a sector that has lagged the rest of the US market, despite firming oil prices throughout the year, and our managers are seeing value in energy infrastructure.’
After managing to grab one of DC’s finest delicacies – a Georgetown Cupcake (I’ve got to keep my energy levels up, after all) – I headed back to the Big Apple.
Here I met with Todd Petzel, chief investment officer at Offit Capital (below). Offit was founded in 2007 by Morris Offit and his two sons. Today it oversees $11 billion in assets, with 120 clients and 40 employees. Around 80% of its clients are high-net-worth families, with the remaining 20% small- to mid-sized not-for-profits.
The firm encourages its client-facing staff to understand and take part in the due diligence process in order to provide the best service for clients, Petzel said.
All of Offit’s portfolios are customized and populated from Offit’s approved list of more than 60 liquid funds and a similar number of private partnerships. Offit tends to develop long-term relationships with managers, but will remove a fund if the risk-to-reward ratio is unattractive or if there is significant style drift, Petzel explained.
He added that he tends to avoid ‘supermarket’ fund shops, as he believes many funds become too large to be innovative and have difficulty maximizing alpha as a result.
My last meeting was with Mike Freeman at OCIO Due Diligence Works (below).
Freeman, along with his partner Jack Cramer, founded the firm last year, having previously headed up investments and product selection for Citi Wealth Management. Due Diligence Works provides ongoing due diligence and product shelf optimization for banks, broker-dealers and wirehouses and is now tapping into the independent RIA market too.
It offers an OCIO function covering asset managers and insurance products, with the founders using their contacts from working in banks and broker-dealers to build the business.
It’s certainly a good time for them. ‘With the regulatory scrutiny, there is a need for a service dedicated to due diligence, as firms do not have the resources and expertise on staff,’ Freeman said.
‘While firms are shrinking their fund lists and rationalizing product platforms, there is a heightened scrutiny to demonstrate ongoing due diligence – not only for a product category but for each product in each category,’ he added.
Don’t forget to check back in for my next trip… when I get stuck in a blizzard in Milwaukee!