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Portfolio > Alternative Investments > Hedge Funds

'Chief Investment Officer' to the Elite

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p>Moss adams, the well-known financial consult-ing firm, defines the median elite advisory firm as one with $127.5 million in assets under management. Offit Hall Capital Management, with some $9.5 billion in assets and an average client account size of more than $150 million, is already far above elite status. And it is barely a month old.

Based in San Francisco and New York, Offit Hall is the result of a union between two of the nation’s most prominent names in high-net-worth money management: Morris W. Offit, 65, the founder and former chairman of Offitbank, and Kathryn A. Hall, 44, a former hedge fund executive whose RIA firm, Laurel Management Company, has catered to wealthy individuals since 1994.

I spoke with the two partners the other day in their first extensive interview since launching their new firm. They told me that like many advisory firms, Offit Hall, which starts life with Laurel’s 60 existing clients, won’t manage money itself. Instead, says Offit, it will function as an independent “chief investment officer” for clients, setting long-term asset allocation strategies and selecting and monitoring managers who carry them out. “We have an integrated perspective,” adds Hall, whom everyone around her San Francisco office calls Katie. “That means tax and estate planning, philanthropic goals, cash flow management, and steering family decision-making.”

How Offit and Hall came together is one of those quirks of fate. Around two years ago, Offit sold his $11 billion trust bank to Wachovia Corp. for $200 million in stock. He became a Wachovia director and stayed on as CEO of New York-based Offitbank. But he was forced out of both posts last year after he opposed a merger offer for Wachovia from SunTrust Banks Inc. over an existing plan to merge with First Union Corp.

As he evaluated his next possible move, Offit was drawn to Hall, with whom he already shared several clients (some Offit Hall clients continue to use Offitbank to manage assets). “When we were sitting around the table, a collective light went off,” Hall recalls. “We had so much in common. And we both believe there is a need for independent, objective advice.”

At their new firm, the two partners will continue Hall’s efforts to select top managers. “We track hundreds of managers, and buy every institutional database available for every asset class, from equity and fixed income to hedge funds and real estate,” says Hall. “Then our research group takes it to the next level of due diligence.”

Perhaps 10 to 15 equity managers get through this screen in a given year, along with similar numbers in private equity and hedge funds. The object, says Hall, is to construct “long-term, stable portfolios that, because of their structure and design, you are comfortable holding through the inevitable blips. We go back to the principles of investment to help clients stay the course.”

Offit Hall’s clients have some $1.2 billion in hedge funds, about two-thirds of that in funds pursuing absolute return strategies. But Hall, who describes herself as “extraordinarily old-fashioned and conservative,” is growing concerned at the “amazing” amount of cash that has flooded into hedge funds recently. As a result, she is currently cautioning clients “not to get caught up in the myth of 15% returns. There is clearly going to be a period of return compression over the next couple of years. You have to be prepared for that.”

The partners aren’t talking much about fees. But Offit notes that in their sector of the market, a client with $50 million in assets should bring in about $100,000 in annual fees. Both also note that clients of this size tend to produce add-on business, such as providing advice to the clients’ pet philanthropic institutions. “We’re the dynamic duo,” jokes Offit. As well as a bicoastal pair worth watching.


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