Take a look at the business section of any national newspaper. What stories do you see? First there’s the economy, rebounding, downturning or waiting a little while in the door. Then there’s a collage of disconnected topics: innovative network security; the new iPhone OS; the next generation of pooled capital investments and private equity financing; the best place to put your money while interest rates cling defiantly—or diffidently—to the floor.
But that’s not what Ross Sinclaire & Associates’ Director of Investment Advisory Tom Williams sees. He knows exactly how these stories are connected. And when he reads about innovative financing and next-generation widgets, chances are he’s reading about something in which he’s already been immersed for some time.
Ross Sinclaire & Associates is a regional brokerage firm with roots in public finance and municipal securities. Historically the firm was occupied by underwriting bonds then selling them to individual banks, mutual funds, insurance companies and the like through a distribution network of retail brokers and institutional salespersons. But a slew of changes both within and without Ross Sinclaire, including that small fiscal hiccup we’ve resourcefully termed The Great Recession, inspired the brokerage to expand its offerings. Thus Williams joined the firm in 2010. With more than 30 years’ experience in investment management and capital markets, Williams began offering fee-based investment management services to clients through Ross Sinclaire’s Registered Investment Advisory (RIA).
“With a traditional brokerage you typically aren’t sure what the broker is making on the sale, or there can be a conflict where the broker recommends what might make them the most money instead of what is best for you,” explains Williams. “An advisory firm like ours takes all of that away. We disclose what we charge based on the amount of assets under management as a fixed percentage. That way we can only make money if the assets grow, so our interests are aligned with those of our clients.”
An RIA portfolio at Ross Sinclaire leverages the firm’s preexisting expertise in municipal bonds and tax credit project financing, in addition to the traditional list of equities: individual securities, exchange traded funds (ETFs) and, to a lesser extent, mutual funds.
“The challenge with bond mutual funds is if interest rates go up the bond price goes down,” says Williams. “As the price of the bonds go down the net asset value, or share price, of the fund goes down. As an investor in a bond fund you own a pro rata share of the entire portfolio, not any individual bond. So as other investors sell their shares the manager has to sell bonds, often at a loss, to meet the redemptions. Investors who stay in the fund will receive their pro rata share of the realized losses and the continued decline in the share price.” The solution, he alludes, is in individually managed bond portfolios.
That, of course, is where RSA’s portfolio management service comes in. RSA provides clients professional management of its own custom tailored bond portfolios. So when interest rates go up, as they likely will, the portfolio will be positioned appropriately and any individual bond can be held to maturity at per. “Over the last 30 years we have seen nothing but interest rates go progressively lower, so a lot of brokers and advisers today have never experienced a rising interest rate environment,” he says. “They don’t really know what to do.”
But Williams has enough experience not to be phased. He’s anticipating that inflationary environment by highlighting what the firm already offers – an advisory that tailors its portfolios to the specific income, tax and risk parameters of each client.
But he’s also seeking out alternative investments because his clients are increasingly looking for something removed from the traditional, sometimes turbulent world of stocks and bonds.
“They’re fatigued with the market. They don’t understand what drives stock prices anymore and they’re wary of bonds,” he says. “They would like to see alternative investments that have a good ROI but aren’t correlated to other assets.”
One type of alternative investment Williams and his team have gotten into is film production tax credits. Many states, including Ohio, use tax credits as incentives for film studios to do business there. The credits typically amount to around 30 percent of the film budget and are transferrable, so Ross Sinclaire can market them.
“As long as the money is spent in that state, the credits are issued,” says Williams. “The credits aren’t predicated on the success of the movie. Often producers use performance bonds from highly rated insurance companies to guarantee the production is completed. In those cases, we lend to the producers by creating structured notes, with an insurance company guarantee that the money will be spent and the credits issued, through which our clients earn a 10 percent interest rate.”
Williams has also been able to establish a relationship with a private equity firm, which itself has strong relationships with research institutes at universities around the country. These institutes have portfolios of technology with which they’re looking to establish commercial enterprises. Apple’s Siri is an example of such a technology, developed and commercialized at Stanford Research Institute (SRI) then purchased by Apple.
“The folks we are working with don’t need venture capital to provide management expertise. They have that already,” says Williams. “They’re looking for capital from angel investors that will take them from the seed money stage through the A or B round of financing and get them to an inflection point where they’re ready to go public or be acquired."
Williams and Ross Sinclaire are currently involved in an SRI project to commercialize technology, initially funded by U.S. government grants that represents a paradigm shift in the way IT network specialists approach cyber security.
“Every day you hear about another system being breached,” says Williams. “The hackers are becoming more sophisticated and aggressive every day. It’s clear that traditional system defenses are not adequate to protect against today’s hackers. I believe this company has disruptive technology that is going to change the world of cyber security.”
That project and others like it have created a slew of opportunities for Ross Sinclaire, and Williams couldn’t be happier with the results.
“We’ve found ourselves in a niche. We can bring to our clients in Cincinnati the opportunity to invest in exciting new technology coming out of some really exciting places driven by a highly professional management teams. It’s not a hedge fund with a lot of fees and split returns. No one is taking anything off the top. It’s simply a unique opportunity for someone to be able to invest and see where every dollar of their investment goes,” Williams says. “We’re really excited about it.”
Williams has set Ross Sinclaire’s RIA apart. Its individual bond management can be specifically tailored to a client at a time when it is imperative that bonds are individually owned. Its product line includes high-return tax credit notes that are as secure as the underlying insurance company that guarantees them. And it is actively investing in the next disruptive technology.
Who would’ve thought the asset management business could be so exciting? The economy has forced it to be—it’s forced people of Williams’ experience and caliber to alter existing financial products and find exciting new ones by “connecting the dots,” as he puts it, between trends in diverse industries.
As for what Williams is working on right now?—what might be on the front page of the business section in 2015? “Nano manufacturing,” Williams says. “Chips with circuits one copper atom across.”
He smiles. There’s a confidence in Williams’ words that derives from his lengthy experience in the field of finance. His explanations are professorial, patient and simple: complex ideas are rendered thoughtfully into digestible nuggets. But he’s a bit giddy too. This is the future, after all. And Williams has already seen it. More than that, he’s making it happen. And if you’re a client of his, you’re making it happen too.