MANAGERS—Low-Profile Managers Keep Watch on Mega-Fortunes

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From Kirk Kerkorian to David Geffen to Marvin Davis, the wealthiest people in Los Angeles are a pretty well known bunch. Not so the money managers who handle all those mega-fortunes.

No matter how savvy the wealthiest Angelenos may be, they still rely on solid outside investing advice. Granted, every once in a while a high-profile scandal occurs, such as the one now swirling around EarthLink co-founder Reed E. Slatkin, who’s accused of operating an elaborate Ponzi scheme to scam several business and entertainment luminaries out of many tens of millions of dollars. But scenarios such as those alleged in the Slatkin case almost never occur in the rarified world of the super wealthy.

“The rich are a different breed of investor,” according to Todd Morgan, senior managing director of Bel Air Investment Advisors. “They are more conservative and demand that a top-notch money manager have a successful track record before they invest a dime of their fortune.”

From an office in Century City, Morgan, a onetime Goldman Sachs & Co. partner, manages the fortunes of some of L.A.’s wealthiest residents. Among his clients: talk show host Geraldo Rivera, former Chrysler chairman Lee Iacocca and singer-actress-director Barbra Streisand.

“We handle people’s ‘sleep well’ money,” he said. “The very rich are in a different category than other investors. They are a lot less likely to take serious risks with their fortunes.

The firm, which recently merged with State Street Corp. of Boston, has more than $4 billion under management from 230 families. To invest with Bel Air requires a minimum net worth of $10 million.

“We are considering raising that figure to $20 million,” he said. “We are considering the move because there are a lot of successful people who are worth $20 million. It will also keep us an exclusive firm.”

Bel Air and Goldman Sachs are probably the only two firms in Los Angeles where an individual needs at least $10 million to open an account, he said.


Constancy of wealth

Alvin Albe, executive vice president at TCW Group Inc. and another top money manager in Los Angeles, said that TCW offers several mutual funds starting at $25,000, but to open an account with the firm, an individual’s net worth must be at least $5 million.

“High-net-worth individuals are very desirable clients,” he said. “They typically tend to be more long-term oriented and less prone to leaving during the turbulent times, like we’ve had over the past six to eight months.”

Albe, citing privacy concerns, declined to disclose any names on his client list.

Besides Bel Air, Goldman Sachs and TCW Group, other highly respected institutions that cater to wealthy Angelenos include Kayne Anderson Rudnick Investment LLC (with more than $6 billion under management), U.S. Trust Corp. (where the Family Wealth Group handles only families with more than $100 million in net worth) and Northern Trust Corp.

Each firm declined to comment on their high-net-worth businesses.

Unlike some other high-profile businesses, where transactions are routinely reported, the world of high-net-worth money management is an especially private place where discretion and trust are considered imperatives.

“From a client’s standpoint, (confidentiality) is an issue in today’s environment of safety and security,” said Vern Kozlen, senior executive vice president of City National Investments, a division of City National Corp. “Most if not all of them are very protective of their wealth.”

With all the money in Los Angeles, opportunities abound for managers, though the training and preparation for such responsibilities have evolved over time.

“The business has changed since I began 33 years ago,” said Kozlen. “In the ’70s and ’80s, a number of money managers came from the brokerage and analyst side of the business. Today, they are studying economics in college and gearing themselves toward the management business.”

Whatever the background, once they enter the business, there is that constant pressure to perform in terms of return on investment.


Inherently cautious

“The pressure is immense,” said Albe. “An investor could have five investments and, if one of them is down, while the other four are making money, there is pressure to explain why that certain fund is down.”

Kozlen agreed, saying that the pressure to be a consistently successful money manager in Los Angeles is constant because of their tremendously astute and informed client base. That base is exposed to a wide range of investment opportunities because of the highly competitive nature of the business, he said.

“A successful money manager has spent a career building their business within a very small community,” according to Morgan. “We have also earned our reputations by being trustworthy, and our performance has sustained itself year after year.”

That’s not to say that wealthy individuals haven’t seen the value of their portfolios fluctuate, along with those of other investors riding through the recent stock market turmoil.

“There were a number of clients that had some of their money in tech funds, but after suffering some losses along with the decline in technology stocks, most of the money came back this year and was placed in more secure investments,” he said.

Morgan and other money managers conceded that the year-long decline in stock prices has had a detrimental impact on some of their clients, and that their younger, recently rich clientele were hit hard by the tech decline.

“Generally, the younger the investor, the more ability they have to take risks with equities because they have more time to recover any potential losses,” Albe said. “For the older investor, if you have a very volatile stock, there tends to be a smaller allocation towards risk.”

While new tech millionaires are frequently the subjects of news stories, money managers say they see relatively few of them in their offices. In fact, Morgan says most new clients are celebrities who have earned $30 million or so and are focused on maintaining their newfound wealth.

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