In talking about the advisory profession, and even the more rarefied wealth management dodge, industry pundits and other gadflys often make the point that it's not rocket science. But if it were, that wouldn't be much of a challenge for Walter Gerasimowicz, chairman and CEO of New York-based Meditron Asset Management, because he actually is, or was, the proverbial rocket scientist. In addition to holding an M.B.A. from the Wharton School, Dr. Gerasimowicz holds a Ph.D. in physical chemistry from Villanova University and before becoming the number two scientist at the U.S. Department of Agriculture, worked at the Naval Research Laboratories (NRL) in Washington, D.C., where he specialized in multiple-quantum nuclear magnetic resonance and solid-state thermodynamic research.
Eternally curious, he had a successful and thriving career as a government scientist and no background whatsoever in economics when he decided to apply to Wharton. Although he probably shouldn't have been, he was surprised to be accepted and decided to enroll in the program while continuing his day job. After graduating from the Wharton program he continued with his duties at USDA until he was recruited by J.P. Morgan Securities, where according to his official biography, "he pioneered state-of-the-art portfolio and risk management techniques including downside risk measures and methodologies. He also specialized in global and international fixed-income strategies as it related to benchmark design, replication, and out performance for major institutions including central banks, state pension funds, and large endowment funds."
From there he went to Lehman Brothers where he was chief investment strategist and director of advisory services in the firm's private client services division. After eight years at Lehman he decided it was time to strike out on his own. He left Lehman Brothers on good terms and, in fact, says that he's been invited back, more than once, adding, "but I prefer to have my own independence."
At Lehman Brothers, Gerasimowicz says he had a wide array of investment options to offer his clients, but felt that if he had the entire investment universe to choose from he could do a better job. When he set up Meditron Asset Management in 2003 he took no clients with him. Today the firm boasts some 80 client relationships and is rapidly closing in on the $1 billion threshold in AUM.
"What we have attempted to develop is truly a global multi-family office," he says. "And within that framework we have individuals, families, endowments in the U.S., in Europe, the Far East, and so on."
Although many wealth management firms call themselves global because they have foreign nationals as clients, Gerasimowicz actually has offices in Zurich and Taipei so that a real person answers the phone in local time for clients in those areas.
The Primary Advisor
Preservation of the client's assets is what Gerasimowicz sees as his number one operating principle, but it's only one of the items on Meditron's wealth management menu. The firm also provides financial planning, helps set up and manage charitable foundations and trusts, gets involved in estate planning, and pays attention to potential tax burdens. For legal and tax matters beyond the knowledge base of Gerasimowicz and his associates, the firm has outside experts to whom the clients can be referred. If the client desires, Meditron can also provide a wide range of concierge services ranging from bookkeeping and bill paying, to making long-term care arrangements and setting up reverse mortgages, to booking airline tickets and hotel reservations.
Although Gerasimowicz takes great pride in the fact that his firm has managed to generate positive returns every year so far, he doesn't think that's really the most important service the firm offers current and potential clients. "They're trusting you with one of the most important things they have beyond their families and their health--their wealth and their corpus of assets," he says. "That is a leap of faith. You can be very, very competent in those technical areas, but the trust factor is every bit as important as, let's call it the knowledge, skills, and abilities--KSAs--that you bring to the table. I say to many of the folks that come in, 'It's not a matter of whether or not you need a financial expert to manage these affairs for you, it's only a question of who you choose.' Predominantly you are choosing because you have a level of comfort and trust."
As is the case for many wealth managers, the bulk of Gerasimowicz's new clients come from referrals made by existing ones, although some also find him from his many appearances on CNBC and Bloomberg Television or quotes in publications such as BusinessWeek. "But much of it, the bulk and majority of it, come from referrals. If your clients are pleased and are doing well they'll talk about it with relatives or business partners, and that becomes a source of self-sustaining referrals."
Each of Meditron's clients has assets in the seven- or eight-figure range, and dealing with clients who have that kind of money isn't the same as dealing with the merely affluent. Gerasimowicz stresses that every portfolio is customized to match each client's unique situation. "We are not taking what I call the typical institutional approach where they place a cover sheet with your name on a one-inch presentation and tell you to choose the conservative, the moderate, or the aggressive pre-canned portfolio. We do not take the Monty Hall approach of door number one, two, or three," he says with a smile. "Our clients deserve better. We are very, very cognizant of the risks our clients are both able, and willing, to take. Certain clients are able to take on certain levels of risk in our opinion, but at times they are psychologically unwilling and we try to work within that risk framework. We're also very cognizant of the fact that if you manage the risk, the returns will follow. If you chase returns, risk will bite you. It really, really will."
When it comes to investing, Gerasimowicz goes "beyond the traditional stocks, bonds, and cash," and is wide open to whatever opportunities he finds. He says that being a multi-family office allows Meditron to find alternative assets where each individual client can take a small percentage but in aggregate there is enough of an investment pool to buy in. "That also allows you to diversify their portfolios in a manner which not only diversifies, but minimizes risk relative to the everyday marketplace," he explains. Such investments include private investments in mezzanine financing or in oil and gas producing opportunities, "where it's a known production facility and where we know what the reserves are estimated to be, and they provide very good levels of stable income for our clients that also hedge the portfolios in times of market volatility, such as those that we are in today.
"This is really a marketplace where opportunities exist," he continues. "Many times we can find companies or firms or equities that our clients are investing in that are not highly covered by Wall Street and have the potential for that coverage. When Wall Street does discover [them], all of a sudden our clients benefit very, very handsomely from those investments."
In addition to constructing portfolios of stocks, bonds, and alternative investments for his clients, Gerasimowicz also offers a pair of other investment opportunities--Meditron Fundamental Value Growth Fund, a long/short equity hedge fund, and Meditron Real Estate Partners, specializing in private real estate investments. "Of our advisory clients, we only have about 12% of them in the hedge fund," he says. "It's not necessarily appropriate for all." The hedge fund currently has roughly $100 million in assets (not counted among Meditron Asset Management's $980 million in AUM), with a stated minimum investment of $1 million.
However the clients' money is invested, Gerasimowicz pays a great deal of attention to the impact of taxes on the portfolios with an emphasis on "tax minimization and tax avoidance, all within the legal boundaries, not only of the United States, but also outside the United States," he explains. One way that he keeps both the tax burden and the operating costs low is by keeping portfolio turnover to a minimum. "We are also involved with generation planning and the education of generations which will become beneficiaries of funds that their grandparents or parents may be growing and leaving for them. We're very careful in terms of not only how we structure portfolios, but how they are correlated or not correlated to traditional marketplaces themselves."
In a market environment like the current one, the big challenge for advisors with an allocation to equities is deciding which equities offer the best prospects. According to Gerasimowicz, the key is identifying certain mega-trends on a global scale. Among the areas that he sees as attractive are medical and healthcare companies, particularly with the aging of the baby boomers, and those in the defense sector. "Energy continues to be a very good area, however, the area that we're looking at and have our clients invested in happens to be deep-sea drillers," says Gerasimowicz.
"There are companies, not the largest ones, but smaller ones that are drilling in 25,000 feet. Those rigs rent for half a million dollars per day, whether they're being used or not. It's tremendous. Some of those companies are takeover targets as well.
"Global environmental infrastructure--the fact is that we talk about commodities, but the one commodity that gets very little play is what we refer to as blue gold," he continues. "Less than 2% of the world's water supply is pure water. And over 40% of the population has no access to pure water, or even sanitary water. There are companies like Veolia Environment (VE), which is a French company that's 150 years old, employs over 75,000 people, and is building the largest desalination facility in Bahrain. It has 25-year contracts in China for water treatment. Those are the types of investments that we look at."
Timber is another area where Gerasimowicz sees tremendous potential. "It's an asset class which we have many of our clients in," he notes. "If you go back 100 years, returns on timber exceed 12% a year. It outperforms the S&P and other equity areas and is especially good during recessionary periods."
Of course, for a firm that aims to preserve capital, managing risk can be as important as identifying opportunities. "We certainly remain cognizant of all of the issues that have afflicted the market since the middle of last year, but the fact is we are invested in long-term holdings for our clients, fundamentally very sound companies," he says. "Do we hedge? Yes. We use optionality in the sense of writing or selling calls on many of the positions we hold which allow us to bring in additional income and hedge the value of that position."
As for the future, Gerasimowicz is brimming with optimism. While many wealth managers eagerly anticipate breaking through the billion-dollar threshold, the former scientist is well beyond that. "My expectation is that in 10 years we will have $5 to $10 billion under management, not only within the framework of the asset management business, but inclusive of our hedge fund as well," he says. He also anticipates growing his operations in the Far East and having a much bigger presence in Latin America. Still, he says it's the personal interaction with his clients that gives him the biggest charge.
"I find that that part of helping some of my clients who are challenged in different ways, be it with long-term care, or what have you, I find that when we can do something for them at those levels as well, that's what touches me in my heart."
Managing Editor Robert F. Keane can be reached at firstname.lastname@example.org.