*How The Other Half Invests*
"My role here isn't to make people wealthy, it's to keep people
wealthy," says Todd Morgan, co-founder and senior managing director
of Bel Air Investment Advisors. His L.A.-based company manages high
net worth individuals, from business owners to movie stars.
"I don't get people with $5 million that say, 'I need to retire,
so make it $10 million,' " said Morgan, whose minimum account is
$20 million. "I get people that are worth hundreds of millions of
dollars that say, 'Just keep me rich and get me a good return.'
" His 13-year-old company currently manages around $5 billion.
Next week, Morgan sits down with Steve Forbes as part of the
Intelligent Investing With Steve Forbes interview series. I had the
chance to talk with him earlier this month about his company; brief
yourself on his background and insights below, and be sure to check
back next week for his interview with Steve Forbes.
*Morgan's Background*
A former Goldman Sachs partner, Morgan was responsible for
fundamentally changing the business model for high net worth
individual investing. After starting with the firm in 1977, he had
assembled the largest team dealing with private high net worth
individuals in the world by 1984. He moved to New York in '84 to run
the wealth management group, and changed the way wealthy families
invested.
"In my view, I saw the world changing; wealthy families wanted their
money managed on a discretionary basis. There were no discretionary
investment tools at Goldman at the time – it was all
non-discretionary. I came up with the idea that we needed to convert
our advisors from stock brokers to professional investment advisors,
and that changed the way business was done at Goldman."
*Founding Bel Air*
Morgan founded Bel Air Investment Advisors in 1997. "I wanted to
build a firm that had no conflicts of interest," he told me.
"Being inside Goldman — inherently inside any investment bank —
there are conflicts of interest with research, with investment
banking, with traders. We don't have any of that."
"I thought that it would be a pure, true, fundamental wealth
management firm. And it really worked. We grew like wildfire. We had
$3 billion in three years."
*Bel Air Investment Advisor's Clients*
"We're a go-to firm when people sell their business, or do
something like that," says Morgan. "The majority of our clients
— over 65% — have had a change of circumstance where they've
sold their business or inherited money or that kind of thing." Bel
Air also manages the wealth of a number of L.A.-based celebrities,
mostly movie stars who have made big bucks from the big screen.
| "The majority of our clients come in here and want to put at
| least 50% in bonds. And they want bullet proof bonds; they don't
| say, 'Buy me a bunch of junk bonds and get me an extra 150 basis
| points.' It's just, 'Make sure that if hell freezes over, I
| am not in trouble.'
"They come to me and say, 'I've sold my business, I'm 60 or 70
or 80 years old, and I can't re-make this money. And I love my
lifestyle and I don't want it to be taken away from me, so protect
me.'
"So we buy more conservative investments. We're not looking to
buy highly leveraged, mortgage-backed hedge fund money. That isn't
for us. We're more traditional, dynamic asset allocation. So they
get good returns – we've been giving our clients terrific,
double-digit returns on their investments over the past few years,
and they're pleased. That's what I like about the business."
Morgan has plenty of passion, and thrives off of the connection he
makes with both the business and his clientele. *"*For me, this
business is my golf, this is my tennis, this is my chess. I love the
business. I work on it 24/7. It's exciting, it's fun, and a lot of
my clients become my friends."
*On Weathering The Financial Crisis*
When I asked him about easing back into equities, Morgan talked about
how he and his clients survived the financial crisis.
"We went heavily into fixed income; people wanted to do that because
they became extremely fearful — you know the old story about fear
and greed as motivators. And people got so entrenched with bonds and
so frightened of what was happening that the last six months we've
using a small crowbar to get them out from under it all. They
haven't gotten out completely, but they've got their nose up;
we're moving 10-20% of the bonds to equities or special situations,
because investors still feel the pain of what happened in 2008 and
early in 2009."
Now, Bel Air is on the uptick:
| "We're seeing our business really starting to grow again, for
| the first time in four or five years. It's the industry, it
| isn't just me. And what's happening is people are literally
| coming out of the bunker where they've been having their money
| in cash or cash equivalents, treasuries, and they're starting to
| be open to looking to invest money in some growth, and moving out
| their maturities on the yield curve. And there's $5 or $10
| trillion in cash/cash equivalents that's making no money! These
| people need to get this money to get to work, because they're
| starting to feel more comfortable that the world is changing and
| getting better. And that's what we're getting a lot of calls
| about. We're tremendously busy, meeting new people and visiting
| old clients – everybody is beginning to feel more
| comfortable."
"My instincts are that they're going to come back with both feet
when the market goes to a new high," Morgan says.
*Emerging Markets, Blue Chips and Long Term Investing*
I asked Morgan for his thoughts on emerging markets, and whether Bel
Air was investing internationally. He sees a huge opportunity in
developing economies.
| "My whole thesis now is that the globe is opening up," he told
| me. "Emerging markets have a lot of money to spend, and
| there's a major movement from rural to urban areas, and they
| want to buy our shoes and buy jewelry. They want to buy world
| class brands that these large cap, multi-national,
| dividend-paying, blue chip stocks have to offer. "At least 25%
| of our equity money is international. At least. We're overweight
| in emerging and we've been there for a while. I think it's a
| very exciting time for wealthy investors."
Investing to maintain wealth is a different ballgame from typical
growth-seeking investment. "If I told my clients I had some emerging
companies in America, some small companies, they would say, 'OK, put
2% in there,' he said. "If I tell them I have blue chips,
companies that haven't moved – Johnson & Johnson and Microsoft
haven't moved in 10 years – they're interested."
"I'm not looking to be right for the next three months. I'm
looking to be right for the next three years. So I'm buying stuff
based on where I think the market is going to be in two or three
years, and I think I'm going to give people much higher returns than
we're going to get in fixed income, even though I've still got a
lot in fixed income."
*The Future*
Morgan is bullish on the future of the market, although he's careful
to note that there is always the potential for a pullback.
Be sure to visit Intelligent Investing next week, to hear Todd
Morgan's discussion with Steve Forbes. It's a lively one – the
two talk about what it's like to manage a movie star's money and
the problem with celebrity investments; Morgan even turns the tables
on Forbes and asks him a question. Be sure to tune in.
Source: Forbes.com
