BPCM's approach to managing assets is based in common sense, but uses the tools and techniques that large institutions employ. We build portfolios of investments by “budgeting” risk – and then finding the best approach for managing each kind of risk. The aim of this approach is to be able to clearly answer the simple questions: what kind of return can I expect and how much risk am I taking?
We believe that wealth is preserved by diversifying risk, and created by concentrating it. With a risk budget, you know how much of your net worth is targeting diversification (“preserving wealth”) and how much is targeting concentrated risk (“creating wealth”). Each of our clients has different targets, but they all share the same approach.
One of the largest risks most investors take for granted is their “benchmark” risk – what markets are they comparing their returns to? For most people, their benchmark is some combination of the US stock market and the US bond market. We find both of these benchmarks to contain more risk than necessary, and instead recommend diversifying across global markets. This creates a more stable benchmark, generating similar returns to the US stock market, but with significantly less risk.
BPCM does not pick stocks or make calls on the US economy to try to “beat” the benchmark. Rather, we see such activities as both concentrating your risk (giving authority to one investment manager to – hopefully – get the market right), and requiring that manager to have remarkable investment talent. At BPCM, we delegate this kind of risk-taking to outside specialists, mostly hedge funds. We believe that talent and specialization are correlated, thus the most talent is usually found in highly specialized managers.
Finally, many of our clients come to us with “direct investments,” such as shares of a family company or stakes in commercial or residential real estate. Such investments are an important part of a client’s risk budget, as they are highly concentrated, and thus provide significant opportunities to create (or lose) wealth.
Most of our clients choose to balance their diversified benchmark, their hedge fund allocations, and their direct investments to generate an average annual return in the high single digits, with commensurate risk. But our risk budgeting framework allows us to accommodate nearly any return or risk target. Some clients may only need our diversified benchmark, other's just our hedge fund allocations.
The goal of our investment philosophy is provide your family the opportunity to preserve and/or create wealth with confidence that you can meet your goals with no more risk than you need. Because we value transparency, independence, and education, you can be confident that we will help you the way we would want our family helped.