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Procyon Companions was based in 2017 by monetary advisor Phil Fiore with the assist of Dynasty Monetary Companions. Fiore beforehand constructed some of the distinguished institutional consulting teams at Merrill Lynch after which UBS earlier than going unbiased. And whereas a lot of the RIA’s $7 billion enterprise is now non-public wealth, the institutional DNA nonetheless runs via it.
That features the RIA’s portfolio administration course of. The agency’s proxy mannequin portfolio, defined under, consists of a 20% allocation to alternate options, which some could contemplate excessive for a retail wealth administration agency. And that allocation will not be via another platform, resembling iCapital or CAIS, however by way of Procyon’s proprietary funds.
Antonio Rodrigues, accomplice and chief funding officer at Procyon, gives a peek contained in the RIA’s 50/30/20 mannequin portfolio.
The next has been edited for size and readability.
WealthManagement.com: What’s in your mannequin portfolio?
Antonio Rodrigues: In the event you’re going to match what we’re doing to a traditional 60/40 portfolio, we might say it’s going to be 50% fairness, 30% mounted, and 20% in alternate options.
We’re using largely passive methods in our fairness bucket, particular person ETFs for essentially the most half on the fairness aspect, whether or not it’s giant cap, small, mid, worldwide or rising markets. After which we’ll additionally use some thematic ETFs like cybersecurity oil. We have been shopping for some energy-related particular ETFs in direction of the underside of 2020 and held them for a few years.
On the fixed-income aspect, we’re utilizing lively managers, and we’re attempting to maintain our period near the benchmark.
And for alternate options, we’re primarily utilizing our two funds if the consumer qualifies. In the event that they don’t qualify, then we’ll use solely one among our non-public funds that they’ll qualify for and can discover another, possibly a 40 Act fund, as a proxy for our fund.
WM.com: What’s within the fairness and bond buckets, and what’s driving these allocations?
AR: What drives the allocations goes to primarily be our macro funding committee voting members. Every quarter, we have now a survey of all of the members of the committee. We weigh the solutions, and we act accordingly. And we primarily ask them, “In the event you’re 60/40 or regardless of the goal is, what are your tactical weightings? And right here have been the weightings final time, and listed here are how you’d reply it right now.”
We use benchmarking with a purpose to gauge our success. On the fairness aspect, 75% of our benchmark is the Russell 3000, and 25% is the ACWI-ex-U.S.
On the mounted aspect, it’s simply the Bloomberg Mixture Bond Index. And on the non-public aspect, there’s no actual benchmark there. That’s extra manager-by-manager.
We’ll typically substitute or improve our fairness or fixed-income targets with particular person securities or SMAs. We do have a collection of in-house managed fairness portfolios and personal a number of SMA managers throughout the agency for each shares and stuck revenue.
WM.com: Have you ever made any allocation modifications within the final six months to a yr?
AR: A couple of yr in the past, we had an obese to China, and we exited that obese as we noticed that their reopening didn’t happen. We’re market-weight or impartial on rising markets proper now. We even have added slightly bit to small-cap and to developed worldwide just because the anticipated return of diversion from the imply has been so dramatic. In public equities, sometimes, that’s going to revert to the imply versus the U.S.
In the case of holdings themselves, we’re utilizing Vanguard, Schwab ETFs. We’ve acquired 23% in progress. We’ve acquired 20% simply in giant cap mix. We’re utilizing the Capital Group Dividend Worth ETF at 7%. We’ve acquired a 5% place within the NASDAQ Cybersecurity ETF. We’ve additionally added to the Pacer U.S. Money Cows 100 ETF. We’ve gotten out of small-cap worth during the last yr. We’ve added again to small-cap progress with the Pacer U.S. Small Cap Money Cows ETF as effectively.
We’re of the mindset that there was all the time going to be three fee cuts this yr as a result of we are inclined to consider the Fed. We predict if these cuts happen, we’re going to get a better beta out of the expansion aspect versus the worth aspect. Up to now, it hasn’t been priced in that that may happen, however we’re maintaining a tally of it as among the management is altering out there.
On the mounted revenue aspect, we have now moved nearer to period. We’ve primarily exited most of our money positions that we might’ve held during the last two years. We have been obese money; now we’re again to market weight with regards to mounted revenue. On the period aspect, we’ve been brief for a protracted, very long time. We’re transferring nearer to impartial period. However by and huge, we have now lively managers in there, so we don’t wish to over-manage the managers both. We’re tactical the place we have to be on a macro foundation, however we give the managers there a variety of leeway.
WM.com: How are your non-public funds structured, and what do they put money into?
AR: We launched two flavors: One is a classic drawdown collection, in order that’s Procyon Classic I. Inside that’s all non-public fairness and enterprise capital. We’ve funded three managers to this point and seeking to fund a fourth supervisor that was launched in July of final yr. We’re charging no administration charge and no carry for present Procyon purchasers to put money into there. We get the identical income whether or not you personal shares of Apple or a treasury bond otherwise you personal a Procyon fund. We needed to be true fiduciaries, and we needed to ensure we didn’t have only a single supply resolution. So we’ve put collectively a few events which are all unbiased of one another to create these funds and ship them.
The evergreen construction was launched within the fourth quarter of final yr. It’s a 307C fund, whereby all of the investments contained in the evergreen construction are going to be hedge-funded in non-public credit score and slightly little bit of GP. We’ve recognized six managers there, and we’re seeking to fund all of them by the top of April. The goal minimal increase is $25 million. So as soon as we get to the $25 million, we’re capable of deploy all that capital for accredited buyers. Although the underlying investments are QP solely, they’re very excessive minimums, $5 and $10 million minimums. Once more, we take no carry nor administration charge for Procyon purchasers. We’re growing a share class whereby we will permit different RIAs to speculate for a small administration charge hooked up to it.
WM.com: How is the primary fund you talked about, Procyon Classic I, structured?
AR: It’s a feeder fund, and that one is probably going going to shut on the finish of this yr. We’re going to shut that fund as soon as we fund it, and that’ll have a 10-year lockup for buyers, and people are QP-only investments.
WM.com: How are you gaining access to these non-public fairness managers?
AR: We’ve acquired an enormous community throughout the agency of advisors and folks that have labored within the business for some time, so we have now a variety of inputs there. There are lots of people who’re knocking on our door to get into the funds and be part of our platform. We didn’t wish to use iCapital or CAIS to supply the funds as a result of if we may get them on the platform, then we wouldn’t create our personal feeder. We’d primarily simply purchase them on the platform. So we employed a agency owned by F.L. Putnam, Atrato Consulting. Atrato’s sole focus is to do due diligence and supply new managers. They’ve sourced nearly all of the managers there. We gave them the factors of the administration we have been in search of, that are excessive minimums, off-platform, and arduous to entry, and that’s what they discovered us.
We’re taking a look at a diversified basket of managers. So what’ll occur is, within the classic fund, buyers will commit capital, and if there’s sufficient there to fund one other supervisor, then we’ll fund that supervisor. After which it’s a drawdown construction. Every of the managers may have their very own capital calls on the fund. So every of the commitments will get funded little by little over the course of 1 to 2 years. After which what’s going to occur is there’ll begin to be some distributions, and that could be kind of self-funding going ahead.
WM.com: What differentiates your portfolio?
AR: On the general public fairness aspect, we’re delivering low-cost, tax-efficient, tactical, and thematic. We’ve a top-down understanding of the economic system. We’ve a bottom-up understanding of the portfolio, and we run it that approach. Nevertheless it’s very arduous to distinguish on that as of late. You wish to make sure that folks have entry to public markets in an environment friendly approach. So what we’re actually attempting to do is use entry to managers which are arduous to entry.
We’re in search of funds that could be closed, however keen to just accept some fascinating new deposits or new purchasers. We’re doing a variety of work on the choice aspect as a result of that’s the place many of the work belongs. It’s very troublesome to establish good managers on the choice aspect, so we’re delivering a ton of worth there. After which we’re getting entry. So we’re getting calls from individuals who have been investing with us now in alternate options, they usually could have a co-invest alternative for some distinctive purchasers. We’re working actually arduous on gaining access to distinctive alternatives for all of the purchasers.
WM.com: What’s your due diligence course of for selecting asset managers and funds?
AR: We’ve a small group inside our partitions referred to as the Supervisor Analysis Group. It’s a committee whose job is to run all of the due diligence on all of the managers, and it was born a few years in the past. We took Procyon’s institutional due diligence course of as a result of we have now a number of billion in institutional funds, 401(ok)s and pensions. We took that due diligence course of and overlayed the non-public wealth prism on it. In institutional due diligence, it’s all about assembly metrics—backward-looking. In non-public wealth, it’s all about what the anticipated return goes to be. And so we took these two issues and constructed them collectively and created our supervisor analysis group. They meet on a month-to-month foundation.
We have a look at about 11 completely different pillars. A whole lot of that has to do with supervisor tenure, charges, who owns the fund, how a lot is within the fund distribution, potential distributions, after which you’ve got peer group rankings and so forth. All of them should be throughout the prime two quartiles of all the information with a purpose to be thought-about a great fund.
For personal, it’s vastly completely different. The info will not be available to have a look at the market as a complete simply. We wind up having to go supervisor by supervisor; we have now a voting group made up of the primary members of the primary committee, and we get managers lined up, they get proposed, and we do the analysis, and we vote them in or out.
WM.com: What’s the chance you see in investing in alternate options?
AR: You’re purported to be absolutely diversified in a portfolio. Now in the event you’re not an accredited investor or increased, it’s troublesome to get entry to those sorts of issues, primary. So there are boundaries in place for a motive, and so we adhere to these. However what finally ends up taking place is when you change into accredited and certified, then all new doorways open up, and that’s the best way it’s constructed. What winds up taking place is there’s this massive demand within the non-public markets as a result of the general public markets have change into a lot much less diversified.
On prime of that, these days, you possibly can construction investments in alternate options with significantly better liquidity constructions than you’d have been capable of 10 years in the past. The evergreen construction would’ve been tougher. We do consider there’s a premium to be earned when you’ve got much less liquidity, so we wish to seize that for the purchasers. To purchasers and even to some professionals, the general public markets increasingly look “rigged,” and folks don’t belief them as a lot.
WM.com: Do you’ve got any curiosity in bitcoin ETFs or stepping into the crypto markets in any respect?
AR: We’ve entered the crypto markets on a non-discretionary foundation during the last a number of years. Because the demand got here up for us internally, we needed to supply the appropriate resolution versus referring everybody. So we partnered with an organization referred to as Eaglebrook Advisors, and primarily we maintain the whole lot in chilly storage. And now with the arrival of the ETF and the scale and the scope of them, it turns into extra of a tactical determination.
We’ve accepted on our advisable listing, one bitcoin ETF. Basically to us, a bitcoin ETF because it’s structured right now is simply all about what the charges are as a result of they need to all have very low monitoring errors and so forth. However we have now not made an lively determination to allocate to bitcoin, and if we do, that will be within the alternate options portion of the portfolio.
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