EP.89 CONCENTRATED POSITIONS with STEPHEN DAVENPORT

Wealth Actually

For many wealthy families, concentrated liquid investment positions present special types of issues. More often than not, a diversification plan for a position that has been built up over decades, is relegated to a 5 minute discussion. And it shouldn’t. From low-cost basis issues, income requirements, family executive involvement and even other factors like emotional attachment, the decision to buy and sell liquid positions can be more complicated than it looks. To help us understand the best practices in the area and some of the tools at a family’s disposal, were going to talk to STEPHEN DAVENPORT CFA from DECATUR CAPITAL MANAGEMENT in Atlanta, Georgia. Based in Atlanta, Steve is the Director of Alternative Investments for Decatur and advises clients on a wide array of issues including concentrated position management. Steve received a BS degree in Industrial Engineering at Columbia University, a BS degree in Math/Computer Science at Providence College, and a MS degree in Finance from Boston College. STEVE'S BACKGROUND Engineering and quantitative skills applied to finance Lots of questions around “risk vs return� turned into “emotion vs. reason� Kahneman and Taversky – Risk avoiders instead of return enhancers 2000 a time of excitement and wealth creation in Boston/Silicon Valley 2005 Moved to ATL and worked w Wilmington Trust on DuPont heirs 2015 Moved to STI and worked on Coke heirs 2020 Moved to Decatur to help RIAs/family offices & institutions to manage risk STEVE’S APPROACH TO INVESTING – PERFORMANCE, GOALS, EMOTIONAL COMPONENTS Aligning clients to all goals and not just financial (work in chip space or health care so…) Incorporating all factors including emotion in the investment process ESG is about values and aligning your resources with things you believe in MSCI/TruValue measure companies and companies write CSR Like accounting standards, no global measures UNPRI for three years Indexing – Good, bad and UGLY, so inclusive to be “complete� 1: People want more so they can stay invested in tough times (sell at bottom – 1.5%) 2: Lengthen horizon and 3: Lower fees are three legs to the stool of investment success Investing in ideas/companies who you agree with, ESG may hold the key to better returns Holding on may be more important than what you hold CONCENTRATED POSITIONS- (Blackrock buying Spiderworks, there is a limit to ETFs . . . ) 1 – Customize more holistic solution 2 - Use tools of options market to enhance the transition 3 – Always adjust as the playing field changes ETFs are a one solution fits all solution but client risk and return parameters are unique BRK- example - FINDING INCOME in the OPTIONS (W/ NO DIVIDEND STREAMS) Recently created wealth by IPO - UBER Familial wealth, sitting versus actively managing Coke – not selling is value added? Complex situations require a sophisticated approach! Took a while to acquire so disposition…. INVESTING THEMES TO DEFEND AGAINST (OR TAKE ADVANTAGE OF) . . . Inflation – Fact or Fiction? Present across the spectrum of risk: Crypto, NFT, SPAC, Meme, IPO, Real Estate, FANG Fiscal and monetary coming together like never before Is it Temporary or is a CB (central bank- not just US) Put option forever? TAX AND POLICY CHANGES Target the top 1% …., Cap gains from 23% to 35-40%, planning for lifetime step up, dividends at OI rates Ambitious plans need funding, never let a good crisis go to waste, $4 trillion and counting on COVID Stimulus to get economy through 2022 election and beyond Market reacts environment and creates solutions Option overlays will be the beta adjuster "Diversification sometimes fails when you need it most . . ." Research paper Universal for the masses, Black Swans becoming more common so should solutions for them!