Christopher P. Casey
Question: Although WindRock Wealth Management is a U.S.-based Registered Investment Advisor which manages money for wealthy individuals, you certainly seem different from other firms out there. One of those differences is your macroeconomic viewpoints. Why is that important to WindRock?
WindRock: It is amazing but true, many wealth advisory firms have no view on the economy! I cannot tell you how many times I have asked Chief Investment Officers of major wealth advisory firms what causes recessions, and their response is either “we don’t know” or “we’re agnostic as to the economy” – whatever that means. If any firms hold any views on the economy, they typically adhere to Keynesian economics – they basically just parrot what the Federal Reserve and other mainstream organizations predict. And the Federal Reserve in particular has a horrific track record in this regard – having not only completely missed the 2008 recession and the 2007 housing crisis, but also by initially dismissing the impact of Covid on the economy.
So, we think having a well-thought-out view on the economy is a tremendous advantage. We think it’s important in designing portfolios. In particular, we favor the Austrian school of economics which is an alternative to Keynesian philosophy. Austrian economists, unlike the mainstream Keynesian economists, understand what truly causes inflation and recessions – the artificial expansion of the money supply by central banks. Since these are the two greatest threats to anyone’s investment portfolio, this understanding is critical. This is why many wealth advisory firms herded their clients right over the cliff with the crash in technology stocks and later with all equities in 2008 – which we can see repeating in the future. They could not foresee these events because those events don’t comport to their flawed models and theories. For the same reason, they do not foresee any danger with today’s overvalued U.S. stock and bond markets. By using Austrian economics, we have a time-tested tool to guide our decisions.
Question: Recessions pop asset valuations, and are thus a threat to anyone’s portfolio, but what about inflation? What do you see going forward and how do you position clients accordingly?
WindRock: The actions of the Federal Reserve since August 2008 – and especially since March 2020 – are truly unprecedented. Depending on how you measure it, the U.S. money supply has increased over 75% since the lockdowns were initiated. We’re at historically high year-over-year growth rates – and we have been since March 2020. Increasing the money supply to this degree will inevitably cause significant inflation. It may not show up soon, it may even be preceded by some brief deflation – although I doubt that, but it will develop. When this happens, stocks will, at best, be flat in real terms. And bonds will be decimated. The only way to protect one’s wealth is to invest in such thing as precious metals, cryptocurrencies like bitcoin, and certain types of real estate – mainly farmland and rental residential real estate in the Sun Belt states. Positioning one’s portfolio as such will not only offer protection, but great profit. And this isn’t just based in theory, but in experience. The historical performance of these investments in the 1970’s in America offers great guidance – while the price index more than doubled in 10 years, farmland and gold provided tremendous appreciation.
Question: How do you design portfolios?
WindRock: Our clients’ risk profiles and liquidity needs are integrated with our projections of real economic growth and price levels over the next twelve months. We then combine this with our judgment as to overall asset valuations in the equity and debt markets to determine the allocation between stocks, bonds, and hard assets such as real estate and precious metals. After determining these broad allocations, those same assessments dictate the constituent parts of each allocation. For example, if we are in equities, how much is in emerging markets versus the developed world? How much is defensive versus aggressive, etc.?
One additional item I should note about portfolio construction, we do not believe in “putting all of your chips on red” and waiting for the big payoff. By that I mean we select investments we expect to do very well when the economy plays out the way we expect, but they will also do well in the interim due to the compelling risk and return profile the investment itself offers. As an example, we believe multi-family rental real estate will do quite well in the U.S. when a housing decline unfolds due to rising interest rates and/or inflation hits. Our play has been to focus on new construction neighborhoods that rent like apartments but look and feel like single family homes. We did not go out and buy a publicly traded rental real estate vehicle – they are currently overvalued – which may do well in a housing decline and/or with inflation – we found an investment which believe will do well regardless since it is building a new type of multi-family housing community.
Question: What else differentiates WindRock from other wealth advisory firms?
WindRock: It’s not just about having a different view on how economies work. It’s about what you do with that knowledge. It’s about having an entrepreneurial mindset to act on these opportunities – to seek out and vet investment vehicles which the mainstream wealth advisory industry won’t touch. I think we describe this well on our website where we wrote:
Conventional wisdom associates the word “entrepreneur” with the assumption of risk. While risk can never be fully avoided, what actually makes entrepreneurs unique is their understanding of risk. Our unique insight of the risks posed by governmental interference in the economy serves to protect our clients’ wealth. As entrepreneurial-minded advisors, we emphasize independent and creative thought to boldly seize opportunities while minimizing key risks.
Farmland is a great example. There are very few public farmland vehicles – Real Estate Investment Trusts – or REITs, in the U.S. Accordingly, there are no investment benchmarks for farmland to be considered by mainstream wealth advisors (because the sample size is too small). Therefore, mainstream wealth advisory firms will not consider an investment in farmland. Mind you, it’s not because the investment opportunity isn’t there, but because they cannot be viewed as performing out of sync with the commonly used real estate investment benchmarks. To do otherwise will entail risking their careers. This is a real problem in the wealth advisory industry – advisors are worried about losing clients, not with losing clients’ money. The mainstream wealth advisors are happy tracking what everyone else is doing – because in so doing, they believe they are preventing their clients from switching to another firm. This “career risk” syndrome forces wealth advisors into short-term outlooks with a herd-like mentality.
This is a real problem in the wealth advisory industry – advisors are worried about losing clients, not with losing clients’ money.
Question: Besides the lack of an economic viewpoint (or an incorrect one), besides the “career risk” mentality, what other problems exist within the wealth advisory industry?
WindRock: Misaligned incentives. Many firms lack independence, meaning they create and market their own investment vehicles. So oftentimes they’re not just advising clients to own a particular type of investment – they’re advising clients to own their investment. Which certainly means additional fees and probably a sub- performing investment vehicle. I cannot tell you how many times I have reviewed a prospective client’s investments only to find they are heavily invested in their advisor’s funds. Is it really that likely that the best emerging market equity fund just happens to be owned and run by the advisor’s firm? That the very same advisory firm has the top currency fund? What are the odds?
Question: So, the XYZ Wealth Management firm owns the XYZ funds . . .
WindRock: I think common sense and anecdotal evidence suggests that if you examined client statements from all wealth advisory firms, you will not find the ownership dispersion you would expect if wealth advisors truly provided independent advice. This Wall Street sales culture permeates many firms. Unfortunately, the more wealth advisors serve as salesmen, the less they act as a trusted advisor.
Question: With all of these problems in the industry, why should investors even consider using a wealth advisor?
Unfortunately, the more wealth advisors serve as salesmen, the less they act as a trusted advisor.
WindRock: Doing it yourself can be an option. And perhaps a fairly viable one when compared to the alternative of using many of these firms. But there are still compelling reasons to use a wealth advisory firm. For example, since wealth advisors possess buying power by representing numerous clients, we can have access to certain investment vehicles which may simply be unavailable to the individual investor. In addition, we can negotiate lower fees and minimum investments with the funds we utilize. But in a greater context, maximizing returns and minimizing risks for any investment portfolio requires time, research, money, judgement, and knowledge. It’s a full-time job, especially in today’s world of massive government intervention in the economy and the financial markets, to manage a portfolio. This is why we created WindRock, because wealth advisory has its place – it just needs a different economic viewpoint, a unique investing mindset, and greater independence.
Question: How can anyone interested contact you to learn more about WindRock’s services?
WindRock: Of far greater importance than what we do is what we believe. All of our marketing is driven by thought-leadership, so I encourage any interested parties to visit our webpage at www.windrockwealth.com to read about our philosophy as well as our regularly posted research and analysis. I also suggest interested parties to sign up for our mailing list.
WindRock Wealth Management is an independent investment management firm founded on the belief that investment success in today’s increasingly uncertain world requires a focus on the macroeconomic “big picture” combined with an entrepreneurial mindset to seize on unique investment opportunities. We serve as the trusted voice to a select group of high-net-worth individuals, family offices, foundations and retirement plans.