News Column

Money Managers Urge Prudence

March Issue

Joshua Molina--Deputy Managing Editor, HispanicBusiness

money managers, financial adviors, stock markets

When financial institutions, the stock market and the overall economy began to crumble as early as 2007, wealthy individuals and high-end companies looked to protect their assets.

They turned to America's money managers and financial advisers to steer their portfolios back on track or, in some more dire circumstances, stop the financial bleeding.

Hispanic Business magazine's Top 10 list of financial advisers shines a spotlight on Hispanic-owned wealth management companies that control between $2 million and $13 billion in assets.

"We, independent money managers, have been the beneficiaries of the fall of the Merrill Lynches and the Smith Barney firms," said Juan A. Landa, founder and principal of Matterhorn Capital Management, a portfolio management firm in San Antonio.

"There are a lot of opportunities out there for firms like ours who can survive this environment, who are going to position themselves very well once the dust settles."

Amid the dreariest economic landscape since the Great Depression, money managers have become the calm amid the storm of financial upheaval. Investors and large companies are looking for guidance as they navigate the tumult.

They manage the money of some of the country's wealthiest and most well known companies and are charged with maintaining robust portfolios as everyone scrambles to survive the recession.

Despite an $825 billion economic stimulus plan in the works, predicting how the next year will play is a difficult task. What these money managers agree on, however, is that the economy will not see any major turnaround until access to credit is freed and consumer confidence is restored.

"The original problem has not been addressed," Mr. Landa said. "Housing has to stabilize before we get any semblance of economic recovery. Banks have to be willing to make mortgages and buyers have to qualify and be willing to buy homes."

Until that time, money managers are urging conservative investments and back-to-basics strategies. In many cases, financial advisers are selling off risky stocks and keeping the money safe for now.

"Cash is king," Mr. Landa said. "We have been sitting on elevated levels of cash across our portfolios. We have minimized our exposure."

Stressing the Safer Routes
Money managers began to see the slump in credit markets as early as 2007 and many of them met with clients to talk about the pending financial turmoil. With so many unanswered questions lingering over the status of the economy, money managers have become even more important and instrumental to economic survival.
They stress the safer routes.

Money managers are steering clients toward fixed-income bonds or industries that are somewhat shielded from the ups-and-downs of Wall Street.

They are turning toward investments in the medical information technology, food, and education fields.
"It is such a slow-growth environment," said Margarita Perez, president of Fortaleza Asset Management in Chicago. "Most investors will gravitate toward health care. There are certain things that can't be postponed. People still need to buy their medicine and have surgeries."

Returning To The Classroom

Among the key sectors that see a boost during down economic times is education, managers say. "During a downturn people return to school," Ms. Perez said. As employment levels fizzle, private and public universities tend to see an influx of people looking to retrain themselves.

Much of the strategy for managing money also depends on the age of the company or individual. There are different concerns and risks relative to the amount of time one intends to remain in the market.

"If you are 25 years old, you shouldn't be picking up the Wall Street Journal every day worrying about investments. You have a lot of opportunities," Ms. Perez said. If you are in retirement, you need to be less aggressive and look at dividends. If you do your homework, you are going to look very good."

Risks And Rewards For All Ages
Hilda Ochoa-Brillembourg, president and CEO of Strategic Investment Group in Virginia, said there are risks and rewards in all age groups. Standard protocol, she said, is to become more conservative as you age. Investors getting closer to retirement have fewer years in which to make up for any shortfalls.
And a younger person, even in this economic climate, can afford to take more risks.
"Assuming a 25-year-old is employed and has little chance of losing the job, (he or she) can invest in riskier instruments with higher expected rates of returns," Ms. Ochoa-Brillembourg said.

Two Sides To That Coin
"A young person could end up more readily laid off than a more mature, more experienced worker, and may have to liquidate their portfolios at the wrong time," said Ms. Ochoa-Brillembourg. "Also, the more experienced worker, even if laid off, may have accumulated more savings to soften the loss of revenue."

Looking out at 2009, many eyes are on the government's stimulus package and how fast it might spark a turnaround.

"The first signs of a recovery will be seen in rising full-time employment levels, capital spending, and a contraction in high-grade credit spreads," Ms. Ochoa-Brillembourg said. "Given the amount of liquidity the Fed has made available and the planned fiscal policy stimulus, once you see the first signs of an economic pickup, the markets are likely to rally quite quickly. If you are not invested ahead of these events, you are likely to miss the chance to invest at attractive valuations."

For more stories on investments and markets, please see HispanicBusiness' Finance Channel

Source: (c) 2009. All rights reserved.