(Bloomberg) -- Ballentine Partners is a wealth management firm with roots in an unusual institution: a summer camp.
Camp Kehonka, founded in 1902, brought girls to the southeast shore of Lake Winnipesaukee in New Hampshire to swim and make handicrafts. In 1910, a young man named A.C. Ballentine applied for a job there. No position was open, but the camp’s founder invited him to visit for a week. Ballentine ended up staying for the rest of his life, becoming owner and director of the camp. “He went as a guest and he never left,” his son Roy Ballentine says.
In trying to hang onto the camp, the family used capable advisers on taxes and trusts, Ballentine says. Yet the advisers tended to narrowly focus on their areas of specialty and were stumped by questions about strategy, Bloomberg Markets will report in its March issue.
Ballentine, who had been a computer salesman for International Business Machines Corp., says he was unable to find an investment advisory firm that could provide the broad, strategic counsel his family needed. So he decided to create one -- the wealth manager that became Ballentine Partners.
The main idea of the firm, says Ballentine, who is chairman and CEO, is to harness financial planning to investing. Ballentine Partners, which is based in Waltham, Mass., now oversees $5 billion for 154 families and individuals, with an average net worth of about $50 million.
Coventry Edwards-Pitt, the firm’s chief wealth advisory officer, says that Ballentine serves only families with taxable income, not foundations or other institutions. “We care very much about taxes,” she says. “It governs how we do everything.”
LIKE KIND' TRADE
As an example, Edwards-Pitt points to the market crash in 2008. Ballentine’s clients invest in the U.S. equities market via exchange-traded funds. When the market was near its bottom, Ballentine had them sell those funds and buy into “like kind” ETFs, which they then rode back up. “We were able to capture all of those taxable losses for our clients,” she says, referring to tax laws that allow investors to carry losses forward over multiple years.
Ballentine doesn’t pool client assets, Edwards-Pitt, 38, says. Each family’s investments are tailored to their needs, she says. (One consequence is that Ballentine isn’t allowed to report investment results except in one-on-one meetings, she says.)
Chief Investment Officer Will Braman says the firm’s investing approach is based on four building blocks: equities, fixed income, real assets and alternatives. The firm employs 24 financial planners that help each family set allocations to those areas based on their need for income, liquidity and willingness to take risks.
One family, for example, may allocate 50 % to equities, with a maximum of 60 % and a minimum of 40 %, Braman says. What’s in that allocation will look similar for different clients. “By and large, in public equities, we’re using ETFs, because they are the lowest cost,” he says. “And they are the most tax efficient.”
Making the case for ETFs, Braman points to data from S&P Dow Jones Indices, which showed that, as of mid-2014, 87 % of U.S. large-cap active managers trailed the Standard & Poor’s 500 Index for five years after fees. After taxes, he says, almost none of the active managers beat the U.S. benchmark.
Within the bond allocation, Braman says, the largest slice is municipal bonds, thanks to their tax advantages. For real assets, most Ballentine clients have about 6 % in master limited partnerships, 4 % in real estate investment trusts and 1 % in commodities.
Braman says that Ballentine tends to make smaller allocations to alternatives than many wealth management shops. The reason: Private pools aren’t tax efficient, he says. “Most of the gains come as short-term gains or income,” he says.
Alternatives, though, are valuable for their low volatility and low correlation to the broader markets, he says. “Traditionally, we have been a fund-of-funds shop,” Braman says. “We’ve used the Corbin Pinehurst fund for probably seven years,” he says, referring to a fund-of-funds run by New Yorkbased Corbin Capital Partners. Braman says the seven-year return on the fund was similar to that of the S&P 500, with about a third of the volatility.
Edwards-Pitt, author of “Raised Healthy, Wealthy & Wise,” a book that aims to help well-to-do parents bring up grounded children, says the value generated in careful planning can sometimes dwarf investment performance. “We found a $50 million estate-planning mistake in a client who signed up with us,” she says. “The holistic approach is necessary to get the best results.”