Advisors like to know that the money managers with whom they entrust their clients’ assets have some significant part of their own money in the funds they manage. Having some skin in the game may be good, but no rational investor would put all their assets into a single strategy. So who looks after the money manager’s money while the money manager is looking after someone else’s money?

Among those taking on that task are Paul Tramontano and Sam Katzman, the chief executive officer and chief investment officer, respectively, of Constellation Wealth Advisors, a wealth management firm with offices in New York and Menlo Park, California.

“We have a lot of professional investors as clients,” says Tramontano. “Out in our Menlo Park office, some of the most famous venture and private equity people are clients of our firm. One woman said to me, ‘You guys are like the doctors’ doctor,’ but in essence that’s what we’ve become.

“What I would tell you about professional investors,” he continues, “whether they’re hedge funds or venture, or private equity–they know what they know. And they don’t know all the other things that are important to an overall financial plan. They tend not to do a lot of estate planning and generational planning for their families. Some get very wealthy and they don’t even have wills. These are all the things that we do well. We’re flattered that sophisticated people have chosen us, but the more important thing is that it’s a great help to our business as well.”

Although the makeup of their clients is not something the firm advertises, Tramontano says that having professional investors as clients gives them access to a tremendous amount of intellectual capital. If the principals at Constellation are considering an investment idea, they have reliable sources they can access to help them vet it. The same is true if they’re looking for references on a new money manager that’s under consideration.

The Firm’s Genesis

Although they founded Constellation in April 2007, Tramontano and Katzman have been working as a team for more than 10 years. Prior to making the move to independence they were senior advisors with Smith Barney and then Citigroup’s Citi Family Office.

Like many others who have left the wirehouse environment to go into business for themselves, the driver for Tramontano and Katzman was that they thought corporate decisions were being made that weren’t necessarily in the best interests of their clients. “We were, and still are, advocates of an open, completely transparent investment firm and that’s why Constellation was created,” explains Tramontano. “The way I’ve explained it to clients is, ‘There are manufacturers of financial products and there are people that consume financial products.’ All the large firms have over the past 15 years turned essentially into manufacturers of financial products.”

The partners say they weren’t against the basic premise of manufacturing financial products, but that if they were going to serve the high end of the investment market, they wanted to have access to every possible idea and manager, not just those available on their employer’s platform.

“Our whole goal when working with wealthy families is to make their lives easier and to take control of the financial side of their lives,” adds Katzman. Working in a wirehouse environment, he says, was difficult to do because the advisor only reports on the assets held by the wirehouse and few very wealthy clients have all their money in one place. That makes it very difficult, Katzman says, for the advisor to come up with a truly comprehensive financial plan.

Asking the Right Questions

Like any advisor operating in the rarefied air of the family office segment, those at Constellation say they are ready to supply whatever the client needs to make their financial lives easier, including helping to negotiate the purchase of a new home or even an employment contract. “We tell people that we’re all things to some people,” quips Tramontano.

“We’ll do almost anything,” adds Katzman. “At the core of what we do is investing and helping people think about their finances and everything else in life. If we don’t have the expertise, we’ll find it, we’ll get it, we’ll vet it, and we’ll get it done, but the core of the firm is as an investment/financial advisor.”

Constellation focuses on clients with $10 million or more to invest, and while most clients at that asset level have worked with other advisors previously, that’s not always the case.

“We wouldn’t generally lead with the investments,” explains Tramontano about how he would handle such a scenario. Instead he would spend time looking at the clients’ current financial situation–their wills and estate documents, home ownership, insurance coverage, and the like–and developing an understanding of their risk tolerance.

“I’ve said for many years that clients know exactly what they want to invest in; they just don’t know how to do that,” he continues. “Our role is to make sure we ask the right questions to get to that; that’s how we can add value.”

“We’re dealing with people who are already rich, so first and foremost we preserve and grow,” adds Katzman. “We spend a lot of time with people on the front end and there’s an art and science portion to asset allocation. The science part is pretty straightforward, it’s the art part that is hard and is what I think differentiates us from some other people. But by spending all that time on the front end and getting that feel for the client we’re able to, we think, get the most efficient portfolio to match what we’ve learned on the front end, with the right risk and everything else in the portfolio.”

Building the Portfolio

As chief investment officer, Katzman heads up Constellation’s 12-member investment committee. Since one of the ideas behind the birth of the firm was to offer clients every reasonable investment available, it’s more appropriate to ask what he won’t put into a portfolio rather than the other way around.

“We don’t use anything that involves a tremendous amount of leverage,” he notes. “If something needs leverage to make sense, then it’s probably not something we’re interested in. We generally anchor a portfolio with a fixed income allocation and then we have an alternative allocation as well; most of our clients will have, if it’s appropriate, up to 15% or 20% in alternatives. We use equities through separately managed accounts or mutual funds if there are smaller accounts that have come with the household. Sometimes there are ETFs in those mutual fund accounts. We’re just trying to find ways to make money.”

“There are very few things that we wouldn’t look at on behalf of a family if it was appropriate,” agrees Tramontano.

Both Katzman and Tramontano use the word “appropriate” frequently when discussing their clients and the services they provide to them. They’re also meticulous in their attention to what the managers they use are doing. “We look at every single trade they do on a weekly basis,” reveals Katzman. “One of the ways you can hurt yourself is if you get managers beginning to drift from what they’re supposed to be doing. You can get people moving toward the hot item of the day and you end up with your portfolio being out of balance. We’re very diligent about what our managers are doing and if there’s anything we see as a deviation from what their goal is, we’re on it.”

Constellation’s advisors also pay strict attention to their clients’ stated goals to keep them from deviating as well, partly through the use of investment policy statements (IPS).

“It’s helpful when inevitably someone sees something that sounds attractive to them and they’ll bring it to the table, but it doesn’t really fit in with what their goals are that were stated in the IPS,” says Katzman. “It helps keep people on track to accomplish their goals, not chase something that might seem like the right thing at the time.”

Surviving the Crisis

The last couple of years have been tough for most independent advisory firms, and more important, on the their clients’ asset levels, which in turn may have caused clients to look for something that could make them whole again in a hurry.

“I would say our careers have been spent talking people out of doing things against their own best interests,” jokes Tramontano, but adds that really wasn’t the case during the depths of the market turmoil. “We were positioned well going into the crisis. Our managers and some of our investments were down just like everybody else but overall as a firm we fared extraordinarily well in 2008 and 2009.Therefore we haven’t had a lot of panicked people and we haven’t had a lot of people making bad decisions or even thinking about making bad decisions.”

According to the pair, the core of the firm’s current business comes from long-time clients who followed their advisors when the new firm was launched. The same is true for the Menlo Park office. That part of the business is headed by a third partner, Jon Goldstein, who had also been a managing director and senior advisor with Citi Family Office in California.

“We were fortunate in that when we left our other firm we invited a select group of people to come with us and we feel very good that most everybody joined us,” says Tramontano, of the firm’s clients.

According to Tramontano, Constellation currently serves about 100 households in the New York office and another 80 in California, with the firm’s approximately $4 billion in AUM pretty evenly split between the two coasts.

Going forward, Tramontano says that the firm could clearly handle up to $10 billion in client assets before it would be necessary to reassess the business model, and he’s pretty confident that figure is attainable.

“I’ve been doing this for 26 years and I have never seen an environment that is so fertile with people who are interested in advice,” he says. “I think that it’s partly because of the market and partly because we had a lot of firms on the precipice of the end of the world just 18 months ago and that caused some people to think. There are a lot of people that are looking for new advisors and, frankly, I think they’re looking for independence in the investment process. That’s where we are positioned well.”


E-mail Managing Editor Robert F. Keane at bkeane@investmentadvisor.com.