Private Asset Management

Transcription

1 TIAA-CREF Trust Company, FSB Private Asset Management Customized investment solutions to meet your unique needs over time

2 About TIAA-CREF Trust Company s Private Asset Management TIAA-CREF Trust Company provides Private Asset Management, estate planning and fiduciary services for individuals, families, foundations and other institutions, managing a total of more than $6 billion* in assets. We have a clear and longheld commitment to serving the financial best interests of those in the academic, governmental, medical, cultural and research fields. As part of the wealth management arm of TIAA-CREF, Private Asset Management is our premier investment management service for individuals who need a trusted professional advisor to create a customized investment portfolio that addresses multiple financial goals and complex financial needs. For over a decade, we have been helping our clients throughout the United States achieve their financial goals, including: Managing your portfolio to address the complexity of multiple financial goals short- and long-term Designing a portfolio that seeks to provide more consistent returns and preserve capital by managing downside risk in volatile markets Aiming to minimize the impact of taxes and investment fees Our asset management approach is driven by a disciplined, time-tested research process, personalized through a one-on-one relationship to meet your distinct needs. Table of contents Minimizing the impact of market volatility Stocks: buying financially sound companies Fixed income: actively managing portfolios and risk Stringent due diligence in selecting mutual funds Overview of how we build your customized portfolio * As of December 30, 2011.

3 A personal level of service for your unique financial situation No two people are alike. Your dreams are your own. But one common concern you share with others is the risk of losing the financial ability to achieve those dreams. Whether you re focused on the needs of your family, a business or foundation, we understand that as wealth increases, so does the complexity of wealth management. You need to organize your investments to address differing priorities and multiple financial goals. You want to design your portfolio to respond to current retirement and income planning needs, including preserving your investments in down markets. At the same time, it s important to address other important goals, such as estate planning and charitable giving. You ll want to take into account all of your assets, which may require consolidation to plan effectively and minimize taxes and investment fees. Inevitably, complex needs require a personalized approach, a thorough understanding of your goals and aspirations, and expertise and services to support them all at a reasonable cost. With TIAA-CREF Private Asset Management, a dedicated Portfolio Manager coordinates all of the Trust Company s specialized resources and develops a customized solution that s right for you. 1

4 Our distinctive value combines the high-touch personalization of a small investment boutique and the research capabilities of a large trust company. 2

5 When you meet with your Portfolio Manager, your one-on-one relationship will be very personal, supporting the depth of trust and understanding you might have with a local financial advisor. Your Portfolio Manager is highly skilled in designing custom portfolios, but also collaborates closely with a specialized group of more than a dozen investment analysts. This team approach focuses on identifying better investment opportunities and sophisticated risk management strategies to support our clients long-term goals through changing market and economic conditions. Addressing your unique needs Your Portfolio Manager will dig deep to uncover the range of goals you envision over different time spans for you, your family, and future generations. You ll discuss your long-term objectives for priority goals, whether retirement income, college funding, charitable giving or estate planning. Your time horizon for each of these goals and your need for asset preservation will guide your Portfolio Manager in constructing a portfolio tailored for you. Each investment we select for your portfolio is designed to support one of your needs. You ll receive a customized portfolio not just for the future you envision for yourself, but also for loved ones for generations to come. With a detailed understanding of your goals, we ll assemble a team of professionals whose expertise is dedicated to portfolio management and your best interests. You will never be a number to us. Your complex needs require highly specialized knowledge in a number of areas, including trusts and estate planning, tax-efficient investing, or everyday account management. To ensure a completely integrated approach, your Portfolio Manager will coordinate your financial information with any external managers, accountants and attorneys who may serve you. On an ongoing basis, you ll have a personalized portfolio that truly reflects your unique goals and situation. 3

6 Minimizing the impact of market volatility At Private Asset Management, our investment philosophy stresses the importance of risk management, particularly keeping a long-term perspective. But given increasing market volatility, you need an effective strategy that over time will enable you to reach your goals. That s why, in managing risk, we emphasize a more advanced approach to asset allocation. Our research group has developed innovative allocation models exclusively for our clients, based on expected portfolio performance under thousands of different economic and market scenarios. These research-driven allocations provide more ways to diversify than do traditional approaches, to help reduce reliance on stocks and seek improved consistency of returns over time. For instance, we can consider diversifying your portfolio with fixedincome investments that have the potential to perform like stocks, but fluctuate less in price, such as emerging market debt, inflation-linked bonds, and high-yield bonds. Our advanced approaches to asset allocation and portfolio construction are designed to help: The upside of the downside Not all financial services providers share our risk management philosophy. Some Portfolio Managers believe the only way to generate excess returns is to take on additional risk, assuming that outperforming in up markets is the best way to grow your portfolio. As continuing market volatility has shown, however, outperforming when markets are down is actually more important to the health of your portfolio, especially if you re making regular withdrawals over time. The goal of our Portfolio Managers is to construct a portfolio that manages downside risk and volatility, while striving to achieve strong investment returns. The graph (right) illustrates the difference this can make. Improve overall risk-adjusted returns and manage downside risk Enhance overall portfolio diversification Improve downside risk posture in extreme market environments, especially for clients relying on regular income distributions We believe that over the long term our asset allocation approach to managing downside risk will be essential for reaching your goals. 4

7 Portfolio B $100,000 $110,000 $93,500 ( 15%) (+10%) Initial Investment A tale of two portfolios Year 1 Ending Value Year 2 Ending Value Same Average Annualized Return, But Different Ending Values Year 1 Year 2 +10% $100,000 10% Year 1 Year 2 Avg Annual Return Total Portfolio A 15% -20% -2.5% $92,000 Portfolio B 10% -15% -2.5% $93,500 In this example, both portfolios begin with an initial investment of $100,000 and had an average annualized return of -2.5% over two years. Portfolio A outperforms in year 1 of an up market and Portfolio B outperforms in year 2 of a down market. Looking at average returns, you might conclude that these portfolios performed the same. But did they? Portfolio B is worth $1,500 more than Portfolio A. Why? Because Portfolio B outperformed during the down market, rather than the up one, it lost significantly less of its first-year gains than did Portfolio A. This is why we believe that managing downside risk is so critical to your portfolio over the long term. This illustration is not intended to depict the performance of any specific investment or account. Past performance is not indicative of future returns. 5

8 Disciplined research can identify better investment opportunities After working with your Portfolio Manager to create an appropriate asset allocation, our research teams apply disciplined evaluation and screening processes to identify better investment opportunities. Stocks: buying financially sound companies When investing in individual stocks is suitable for a portfolio, we research each stock as if we were buying the whole company. We conduct exhaustive fundamental research into how the company is financed and managed. We want to know if the company has a scalable business model, strong managers and a distinct competitive advantage. As we seek to generate better-than-average market returns while minimizing fluctuations in portfolio value, our selection process focuses on the following: Long-Term Value and Yield Companies selling for less than their actual long-term value and offering high free cash flow yields and consistently growing dividends Durability and Financial Strength Companies generally possessing strong brands, low capital intensity, consistently high profit margins, sustainable competitive advantages, and strong balance sheets Creating a Broadly Diversified Portfolio of Stocks Narrowing down the selection. Our investable universe consists of the top 1,000 stocks by market cap (number of shares times the share price). Screening and research narrow the universe to a buy list of 80 to 100 stocks. Final portfolios are made up of 40 to 60 holdings (large-cap and mid-cap stocks benchmarked to the Standard & Poor s 500 Index). Effectively allocating among sectors. Portfolio Managers may overweight and underweight specific sectors (within tightly controlled risk parameters) to capture more attractive riskreward opportunities. Developing a sound sell strategy. Our Portfolio Managers typically sell companies when price objectives have been met, competitive advantages have weakened, or more attractive investments are available. 6

9 Fixed income: actively managing portfolios and risk Our disciplined investment process focuses on delivering consistent long-term performance while preserving capital through stringent risk management. Economic analysis and interest rate trends contribute to a dynamic economic outlook that guides strategic portfolio composition. To help provide the most value possible, we apply distinct approaches to taxable and taxexempt bonds, offering separate strategies to address your investment needs. Taxable Fixed-Income Investments Our fixed-income team works with your Portfolio Manager to: Preserve capital through credit due diligence and active oversight of securities Use investment-grade securities to create high-quality portfolios with an average rating of AA Minimize portfolio fluctuations by selecting maturities of less than 10 years, and keeping the average maturity of a portfolio within three to five years Strategically adjust the portfolio to take advantage of yield curve trends and sector opportunities Tax-Exempt Fixed-Income Investments Our fixed-income team works with your Portfolio Manager to: Take advantage of inefficiencies and anomalies within municipal bond markets Preserve capital through active, ongoing management of credit exposures Select high-quality bonds in less volatile sectors to help buffer the portfolio from difficult conditions in municipal markets or the overall economy Appropriately manage interest rate risk exposure with thorough analysis of yield curve trends 7

10 Stringent due diligence in selecting mutual funds Pairing Managers for Up and Down Markets The goal is to help reduce your downside portfolio risk with our Manager Pairing Strategy when appropriate for your investment objectives. Our research area for mutual fund screening, the Investment Strategy Group, continuously monitors an approved list of mutual funds and Exchange-Traded Funds (ETFs). They use firsthand research of investment managers accumulated during the past 25 years to screen nearly 5,000 mutual funds and create a recommended list of 100 or fewer funds. Your Portfolio Manager uses the list to select funds considered best suited to your objectives. Mutual Fund and ETF Universe (4,700 funds) We focus on the share class with the longest history Overview We identify investment managers with a demon strated record of consistently outperforming their peers in falling markets and those who outperform their peers in rising markets. We believe the pairing of managers outperforming in different market cycles helps reduce volatility and increases the likelihood of outperforming a benchmark index over a full market cycle. Client risk thresholds determine the percentage exposure to the two types of managers in each asset class and investment style. Quantitative Evaluation We screen by asset class, subclass, style and operational criteria, including eliminating funds whose managers have less than three years of tenure. We sort funds into passive, active and alternative strategies, ranking them by performance in rising and falling markets. Core List Consists of the top 25 percent of funds in quantitative evaluation Qualitative Review We conduct a rigorous analysis of fund complexes and investment strategies. We interview each manager regarding research process, risk management process and asset valuation methodology. Finally, we select the funds and ETFs we believe to be the best in each asset class by performance in rising and falling markets. Reference List of Approved Investments Ongoing Due Diligence We continuously monitor approved funds to ensure they continue to meet our standards and yours. This recommended list typically consists of no more than 100 funds. We also identify funds on the list better suited for tax management, socially responsible investing, and other preferences. 8

11 Overview of how we build your customized portfolio Step 1 Establishing your goals and account type Once we understand your unique needs and review your current portfolio, risk profile and other information, we will: Develop your investment objectives Write your Investment Policy Statement Set up the appropriate account type: Trust, IRA, agency, or other Establish accounting procedures and sub-accounts, if required Step 2 Creating your asset allocation Based on your investment objectives, risk profile and tax considerations, our research area will: Align your needs with one of our many asset allocation strategies Provide detailed recommendations on allocating your portfolio among equities, fixed income, cash, and alternatives within those asset classes Customized Portfolio Step 3 Constructing your portfolio Your dedicated Portfolio Manager builds your custom portfolio by personally selecting investments within each asset class, taking into account your preferences for socially responsible investments, active vs. passive management, and tax efficiency. Investments can include: Mutual funds and ETFs from those on the approved list that best meet your unique needs, objectives and preferences If appropriate, individual stocks or bonds selected by our equity and fixedincome teams Step 4 Ongoing risk management, review and more We continuously monitor your portfolio on an individual investment and overall basis to ensure it remains in line with both your risk and performance expectations. To keep you on track, your Portfolio Manager will regularly: Rebalance your portfolio Communicate results Discuss changing needs or objectives Coordinate your financial information with external managers, accountants, or attorneys to ensure a completely integrated approach to meeting your needs 9

12 Designing the right solution together To give you a better picture of how your Portfolio Manager addresses your unique financial needs, take a look at the following hypothetical scenarios. Type of Client and Need Entrepreneur Long-term financial planning with self-employed income Shifting to Retirement Income Shifting from accumulation to building a distribution plan Example Martin Albertson Age: 46 Occupation: Entrepreneur and Business Owner Family: Married with three children (ages 3, 10 and 16) Prior TIAA-CREF relationship: none Lydia Haden Age: 55 Occupation: Professor Family: Married with two grown children Prior TIAA-CREF relationship: retirement plan participant Financial Details Current income: $300,000 Portfolio size: $3.5 million (not including business interests) Current income: $150,000 Portfolio size: $1.2 million Financial Needs Martin and his wife: Invest self-employed income for retirement Save enough for college tuition for three children Consider taking more risk in exchange for long-term growth Lydia and her husband: Manage accounts with several different investment firms Provide income to maintain two homes in retirement Gain comprehensive perspective on all their assets Portfolio Manager Solution Martin and his wife have more than enough current income to assume additional risk using this approach: Aggressive allocation to equities. Individual stocks selected for large- and mid-cap allocations, supplemented by mutual funds, ETFs, and long/short funds Portfolio of individual bonds provides limited fixed-income exposure to diversify risk Lydia consolidated 100% of family assets in a customized portfolio using this approach: Long-term conservative allocation using mutual funds and ETFs to provide substantial fixed-income exposure across corporate and government bonds in the United States and abroad Exposure to growth-oriented equity mutual funds to pursue principal growth and inflation protection The profiles above were created to show how TIAA-CREF Trust Company works with each client to create a portfolio tailored to his or her financial situation. These examples are fictional and for illustrative purposes only. Your Private Asset Management team will work with you to develop your personalized portfolio. 10

13 Established Managing financial needs in retirement Philanthropic Board member managing a foundation or endowment David Hershey Age: 70 Occupation: Retired Physician Family: Married with grown children and grandchildren Prior TIAA-CREF relationship: retirement plan participant Margaret Brown Age: 68 Occupation: Retired Hospital Administrator; Currently serves as board member for hospital s endowment Prior TIAA-CREF relationship: retirement plan participant and HR benefits supervisor for hospital retirement plan Current income: $200,000 Portfolio size: $10.2 million Endowment managed by hospital board: $20 million David and his wife: Coordinate investments with estate and legacy planning Establish trustee relationship to manage portfolio if incapacitated Establish trust accounts to pay for grandchildren s education Foundation: Better risk management following losses in bear market Revise investment policy and improve returns to support 4% annual spending commitments The Portfolio Manager for David and his wife works with Trust Company specialists to establish: Investment Advisory Account enabling David and his wife to stay involved in investment decisions for as long as they re able Long-term, moderately aggressive allocation to pursue asset growth for the benefit of children and grandchildren Trusts for grandchildren s education managed as a single portfolio using same strategy Based on income and spending concerns, board should set up long-term, moderate allocation as follows: Taxable portfolio of individual bonds, supplemented with high-yield and emerging market debt, to meet spending requirements Create an equity portion made up of individual stocks, with long/short mutual funds and real estate investment trusts (REITs) for diversification 11

14 Benefits of TIAA-CREF Private Asset Management Whether your desire is to leave a legacy for your children, grow your foundation s endowment, or meet your income needs in retirement, Private Asset Management can offer the solutions you need and the service you deserve. You can only reach your unique goals when you have a plan that s tailored for you and designed for the long term by helping to manage downside risk. Our level of ongoing personalized attention assures that: Your dedicated Portfolio Manager addresses your multiple goals by keeping the portfolio aligned with your long-term objectives, risk tolerance, the time you ve set to reach each goal, and tax sensitivity. Our seasoned research teams identify an effective asset allocation strategy and selection of investments, based on collaboration with your Portfolio Manager. Our risk management approach incorporates advanced asset allocation to help reduce losses during periods of economic uncertainty and market volatility. Investment fees are exceptionally competitive with industry standards, particularly when you take into account our personalized level of attention and in-depth expertise. 12

15 To start designing your individual plan, please contact your TIAA-CREF Advisor, Consultant or Trust Company representative. Or, call Business card slot 13

16 Investment, insurance and annuity products are not FDIC insured, are not bank guaranteed, are not deposits, are not insured by any federal government agency, are not a condition to any banking service or activity, and may lose value. The tax information contained in this booklet is not intended to be used and cannot be used by any taxpayer for the purpose of avoiding tax penalties. It was written to support the promotion of TIAA-CREF Trust Company, FSB. Taxpayers should seek advice based on their own particular circumstances from an independent tax advisor TIAA-CREF Trust Company, FSB, One Metropolitan Square, 211 North Broadway, St. Louis, MO C1973 A12412 (01/12)