Tag: investments

Jan 14th

Who Should Be the Trustee of My Real Estate Portfolio?

Make sure your family’s property assets are stewarded from one generation to the next.

The story of family wealth-creation in the West is not complete without a discussion of the role real estate has played in building multi-generational legacies. This is true throughout the region but specifically so in California. Almost every entrepreneur has a balance sheet that includes significant real estate assets in addition to whatever operating business may be the primary driver of the family’s fortune. In our experience at Whittier Trust, many of these entrepreneurs think of real estate as the “simple” part of the balance sheet. Buy the property, maintain the property and collect the rent—easy, right?

Those of us who work with families holding large real estate portfolios know all too well that, while it may seem simple on the outside, the day-to-day of owning real estate is far from easy. The glamor in real estate comes from the acquisition and the disposition and rarely from the details of operating the property. As it is often said, the devil is in those details!

Multi-family housing is a good place to start our discussion since it may be the asset class that requires the most hands-on attention by owners. Units must be rented and common areas maintained, but there are a whole host of other considerations. What tools are employed to monitor market rental rates to ensure rents are sufficient? Is there someone in the family who will perform the day-to-day supervision of property management, or will they oversee an outside management company? Who is vigilantly reviewing insurance markets and the myriad of local governmental regulations concerning housing? Property management of multi-family buildings is fairly labor intensive and while the wealth-creating generation may do this work themselves, it is important to consider whether there is someone with the interest and aptitude in the next generation. If not, seeking a professional fiduciary may be a good option.

Commercial and industrial buildings may be less hands-on, particularly if there are triple net leases in place. However, when vacancies arise, the buildings must be properly marketed to maximize the family’s return on the asset. What if there is damage to a building caused by a fire or a natural disaster? Who will vet potential new tenants for creditworthiness and overall desirability?

When talking with families about succession planning concerning their real estate assets, our team at Whittier Trust often finds that the older generation who has been performing these oversight and management activities will downplay the difficulty involved and the skills required to successfully operate the real estate portfolio. We will hear things like “All they have to do is deposit the rent checks and pay the insurance and property taxes.” In our experience of serving as a successor trustee in innumerable trusts with real estate, there is always more to the story than depositing checks and paying a few bills. 

In the worst-case scenarios, we see surviving spouses who have never been involved in operating the real estate being named as the successor trustee. This is usually done to provide the spouse with control, but there are better ways to accomplish this objective. An unprepared or unskilled spouse can easily make costly mistakes. Frequently, the surviving spouse is an older person who may not be fully able to appreciate and understand the responsibilities they’ve been given. They may experience confusion or even be susceptible to undue influence. This is a particularly difficult situation if the surviving spouse is the stepparent of the ultimate remainder beneficiaries. We often see litigation result in these cases. 

A best practice is to be as thorough and thoughtful about the succession plan for the management of the real estate as one would be in the planning for an operating business. Corporate trustees who have a history of direct real estate investment and management of a variety of assets, make good succession partners. The family can always be given control by holding the power to remove and replace the corporate trustee—a far better solution than having an ill-equipped family member serve in a fiduciary capacity. 

Selecting an experienced and trusted partner who can enter the situation when needed helps preserve and enhance the value of the real estate assets for generations to come.

Written by Thomas J. Frank, Jr., Executive Vice President, Northern California Regional Manager, Whittier Trust.

Featured in Mountain Home Magazine. For more information about trustee services or transitioning a real estate portfolio to the next generation, start a conversation with a Whittier Trust advisor today by visiting our contact page.

 

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Jan 6th

Getting Started in Private Market Investment

Investor interest in private markets has surged over the past decade. To understand why, it's essential to grasp what these investments entail and the factors driving their growth. Here, we offer insights into the complexities and benefits of private market investments and outline Whittier Trust's distinctive approach.

Demystifying Private Market Alternatives

Private market alternatives might sound exotic, but they're essentially the private counterpart to public markets. Publicly traded stocks represent ownership in public companies. Private equity is simply ownership of a private company. The key distinction between public and private markets is liquidity. Public shares can be easily bought and sold on exchanges, whereas private equity investments may be subject to transfer restrictions and may require specialized brokers to facilitate transactions.

The Appeal of Performance

So why is investor interest in private markets growing so rapidly? The answer lies in performance. A report by Hamilton Lane found that over the past 20 years, returns from private equity buyouts outperformed global equities on a public market equivalent basis. This trend extends to private credit, which has also delivered more income compared to the public leveraged loan market, particularly appealing during low-interest environments.

Expanded Opportunities and Diversification

Beyond performance, the expansion of investment opportunities is a significant driver of interest in private markets. The number of public companies in the U.S. has declined by 50% since 1996, while private equity firms now own more companies than those listed publicly. Globally, the number of private companies with revenues over $100 million is over eight times that of public companies. This shift provides a broader array of investment options and helps mitigate concentration risk in public markets, where the top 10 firms currently account for over 35% of the S&P 500’s value.

The Whittier Trust Approach

It’s important to note that private markets come with additional risks, costs, and complexities, notably illiquidity. At Whittier, we use private markets to complement our core internal strategies, enhancing returns, diversification, and cash yield. This hybrid approach combines top-tier internal investment management with best-in-class private market managers.

Quality and Alignment of Interests

Quality is a cornerstone of Whittier’s investment philosophy. We believe that quality in public markets, and private markets, and the managers we partner with, are key to compounding wealth. This focus on quality extends to the selection of private market opportunities and partners.

Crucially, Whittier's incentives are aligned with client interests. We are not compensated by private equity managers to raise capital, nor do we incentivize employees to direct client assets to private markets. This conflict-free approach ensures that decisions are made solely in the best interests of clients, avoiding the pitfalls of added fees, commissions, and feeder expenses that can erode returns and turn good investments into poor results.

Strategic Integration and Expertise

Whittier Trust integrates private market investments as part of a holistic, diversified portfolio strategy. We view private investments as an extension of public market opportunities. With companies staying private longer, substantial value creation occurs before potential public offerings. Investing in private entities like SpaceX, which remains private and valued at over $200 billion after 20 years, exemplifies the potential for significant returns.

Final Thoughts

Private market investments offer expanded opportunities and the potential for superior returns, but they come with added risks and complexities. Private investment should be considered when after-tax returns, risks, and correlation characteristics more than compensate for higher costs and lower liquidity.

With a focus on quality, a conflict-free approach, and a strategy that integrates private and public market opportunities, Whittier Trust positions itself as a trusted partner for ultra-high-net-worth investors navigating the private market landscape. Whether you are new to private markets or seeking to deepen investments, Whittier’s expertise and alignment with client interests ensure a thoughtful and strategic approach to wealth compounding.

Written by Eric Derrington, Senior Vice President and Senior Portfolio Manager at Whittier Trust. Eric is based out of the Pasadena Office.

Featured in Kiplinger. For more information about private market investments, start a conversation with a Whittier Trust advisor today by visiting our contact page.

 

From Investments to Family Office to Trustee Services and more, we are your single-source solution.

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Dec 19th

Navigating a Challenging Landscape: Key Considerations for UHNWIs Amid Interest Rate Cuts

In September 2024 we saw a Fed interest rate cut of 0.5 percentage points and another rate cut of 0.25 in November. Now, as we start 2025, The Fed is considering additional rate cuts. For ultra-high-net-worth individuals (UHNWIs), shifts in interest rates carry significant implications for wealth management strategies. Lower interest rates—though more elevated than in prior cycles—can influence everything from investment decisions to long-term planning. To navigate this landscape effectively, Whittier Trust advises affluent families to check in with their advisors to assess risks, seize opportunities, and safeguard their legacies.

Here are five essential questions to guide those conversations:

1. How Should My Investment Strategy Adjust to Reflect Market Conditions?

Interest rate cuts tend to buoy stock valuations, often making equities a more attractive option than bonds in certain scenarios. However, the dynamics of today's market—where interest rates remain higher than historical lows—warrant a nuanced approach. UHNWIs should ask their advisors about the wisdom of rebalancing their portfolios to capitalize on sectors poised to benefit from economic growth spurred by rate cuts.

For example, technology and consumer discretionary sectors often thrive when borrowing becomes more affordable, stimulating corporate growth. Conversely, some traditionally defensive sectors may underperform. The goal is to ensure your portfolio is positioned to benefit from rate-driven shifts while maintaining the long-term diversification necessary to weather economic uncertainty.

2. What Role Should Bonds Play in My Portfolio Now?

While bond yields have been suppressed in recent years, even modest increases in yields can make fixed-income assets more attractive as part of a diversified portfolio. Families relying on predictable income streams should consider whether their bond allocations need adjustments to optimize for yield and risk.

Ask your advisor if now is the right time to reintroduce or increase exposure to investment-grade bonds, municipal bonds, or alternative fixed-income vehicles. The relationship between rising bond yields and overall portfolio performance should be carefully analyzed to avoid unintended risk.

3. Is My Portfolio Adequately Hedged Against Inflation?

Lower interest rates stemming from Fed rate cuts often coincide with muted inflation, which can diminish the urgency of inflation-hedging strategies. However, inflation trends are dynamic and UHNWIs must remain vigilant. Ask your advisor to review whether your current portfolio includes sufficient protection against potential inflationary pressures in the future.

Real assets, such as real estate and commodities, can serve as hedges while offering diversification benefits. Meanwhile, Treasury Inflation-Protected Securities (TIPS) may be less necessary in a low-inflation environment. An advisor's expertise can help you fine-tune the balance between inflation protection and growth-oriented investments.

4. Are There Opportunities for Alternative Investments in This Environment?

Lower interest rates often drive interest in alternative investments, which can offer uncorrelated returns and enhanced growth potential. Private equity, venture capital and real estate are often key areas of focus for UHNWIs seeking to diversify and capitalize on rate-driven opportunities.

A crucial question to ask your advisor is whether the timing aligns with your financial goals and risk tolerance. In a shifting rate environment, access to exclusive investment opportunities through private markets can complement traditional portfolios, particularly for families with multigenerational wealth aspirations, but it’s important to ensure this decision is right for you.

5. How Can We Leverage Lower Interest Rates for Long-Term Wealth Transfer?

An interest rate cut creates potential opportunities for intergenerational wealth planning. Lower rates can reduce the cost of intra-family loans, making it more affordable to transfer wealth in ways that minimize estate and gift tax exposure. Additionally, strategies like grantor-retained annuity trusts (GRATs) become particularly attractive in a lower-rate environment. 

Meet with your wealth management advisor to evaluate how the current rates align with your estate planning objectives. By employing rate-sensitive strategies effectively, families can amplify the impact of their wealth transfers while preserving their legacy.

Partnering for Strategic Decisions

Navigating this period of post-pandemic inflation, one currently defined by periodic Fed interest rate cuts requires strategic decision-making and close collaboration with your advisor. Every family’s financial situation is unique, and a tailored approach is essential.

The interplay between interest rate cuts, market trends, and long-term goals underscores the importance of regularly revisiting your financial and estate plans. These five questions provide a strong starting point for meaningful discussions with your advisor, helping you adapt to evolving market conditions while safeguarding your family’s future.

An experienced advisor not only understands the technical aspects of wealth management but also acknowledges the emotional considerations that come with stewarding significant assets. By focusing on both, UHNWIs can position themselves for success across generations, regardless of economic shifts. At Whittier Trust, we’re committed to helping you navigate these complexities with a customized, thoughtful approach that evolves alongside your goals.

For answers to these questions and more, start a conversation with a Whittier Trust advisor today by visiting our contact page. 

From Investments to Family Office to Trustee Services and more, we are your single-source solution.

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Sep 4th

Nasdaq Weekly Guest Spotlight: Sandip Bhagat

Whittier Trust Chief Investment Officer, Sandip Bhagat, was recently featured in the Nasdaq Trade Talks Weekly Guest Spotlight. His professional insights and analysis of the current state of the U.S. Market were provided in an Interview format: 

Coming into this year, there was speculation of a potential recession. Why do you think the economy has been so resilient this year?

Fears of an imminent U.S. recession have lingered for several months now; at times, the recession was all but a foregone conclusion for many investors. These worries have valid historical precedent. In the past, a Fed funds rate of 5.4% after 11 rapid rate hikes would have been significantly restrictive in slowing the economy down.

And yet, the U.S. economy has proven to be surprisingly resilient so far. We believe several unusual factors are at play in this post-pandemic recovery. We have long held the view that the U.S. economy is now less rate-sensitive than ever before. After a long period of ultra-easy monetary policy, consumers and corporations alike have locked in low fixed rates well into the future. They are, therefore, more immune to rising rates than they were in the past.

The U.S. consumer has also been supported by a fairly solid jobs market. Despite the recent significant downward revisions in jobs data, monthly jobs growth has still averaged more than 220,000 in the last one year. The rise in the unemployment rate is still below the dreaded 1% threshold and the absolute level of unemployment is still low by historical standards. We note that employers have hoarded labor in the post-pandemic economy to prevent disruptions; we expect this trend to continue.

And finally, we trace the resilience of the U.S. consumer to two unexpected sources of support. Even though incomes and spending have started to deteriorate, the high-end consumer has been buoyed by a significant wealth effect and low debt burdens. The strength in the housing and stock markets has catapulted consumer wealth into its highest historical decile. The prolonged deleveraging that took place after the Global Financial Crisis has also left U.S. households with relatively low debt.

We may yet avoid a recession in the coming months from the following shifts in trends. The pandemic brought about a significant loss of income, which was effectively countered by fiscal policy support. The resulting tailwind of excess savings helped fight off the headwinds of high inflation and interest rates in the last two years. And now, as we deplete those excess savings, low inflation and interest rates are poised to inflect and become tailwinds on the path to a soft landing.

 

Over the course of this year, the markets have been trying to price in rate cuts — oscillating between a single cut and multiple cuts this year. As the Federal Reserve continues to assess economic data, can you speak to the importance of correctly timing the first rate cut? Has the Fed already missed its moment?

The Fed has often committed to a higher-for-longer stance in the last several months. As long as growth was resilient, the Fed had the option to remain patient and keep rates high. Indeed, their policy was largely focused on avoiding the mistakes of the late 1970s. If they were to ease too soon, a potential surge in economic activity might rekindle inflation and send it higher.

Recent economic data, however, is now beginning to reverse. The last couple of months have seen renewed evidence of cooling inflation, a weaker job market and a softer economy. As growth deteriorates and inflation heads lower, the risks of waiting too long now clearly outweigh the benefits of being patient. Several sectors of the economy remain vulnerable to the prolonged impact of higher interest rates. These include the highly leveraged private equity and commercial real estate businesses and the less regulated private credit markets. The balance of risks has now tilted towards growth and away from inflation; the time has come for the start of a new easing cycle.

Our view on future monetary policy has remained largely unchanged through the year even as the market expectations for rate cuts gyrated all over the place. We have felt all along that falling inflation and a slowing economy would allow the Fed to cut rates sooner and more frequently than it believed or the market expected. Along the way, we also formed a view that the new neutral rate for the new post-pandemic economy was 3.1%, which would allow the Fed to make eight to nine rate cuts.

As we did before, we expect three to four rate cuts in 2024, five to six in aggregate by March-April 2025 and all eight to nine by the beginning of 2026. We have believed that the Fed could have started in July; however, a September start doesn’t leave the Fed hopelessly behind with no chance to correct course. It is inconceivable to us that the Fed would hold off any longer. If they do so for any reason, it would be a major policy misstep.

 

What are the market trends you are watching?

Growth is clearly slowing and has yet to bottom out. We expect that it will subside to below-trend levels, but still remain positive. We recognize that it is always hard to achieve a soft landing in the economy. We are intensely focused on any sign of unusual weakness in the jobs market, for instance, unexpected layoffs, early increases in weekly unemployment claims or a sharp drop-off in monthly jobs growth.

Given fairly high valuations, we also recognize that the stock market has a low margin for error. We are confident that high earnings growth expectations will be achieved; however, we are vigilant for any canaries in the coal mine that spell trouble for corporate profits.

Geopolitics and the U.S. elections carry their own set of risks. We are on the lookout for any escalation of geopolitical tensions that threaten global growth or any signs of an election outcome that results in fiscal profligacy without a corresponding growth impetus.

 

Featured in the Nasdaq Trade Talks Weekly Newsletter. Insights and analysis provided by Sandip Bhagat, Chief Investment Officer of Whittier Trust.

The information contained within this feature reflects the data and trends at the time they were written and is not intended to be used as investment advice. For more information, start a conversation with a Whittier Trust advisor today by visiting our contact page.

 

From Investments to Family Office to Trustee Services and more, we are your single-source solution.

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