Investment of Risk Management Firms

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CohnReznick Advisory Group

The CohnReznick Advisory Group provides valuation services for public companies and closely-held businesses. It invests in financial assets, such as common stocks, private debt instruments, and derivatives. It engages intangible assets, such as real estate and alternative sources of energy. Some of the services it provides include financial reporting valuations, tax-related valuations, asset-based appraisal of tangible assets, transaction and strategic advisory, dispute, and litigation services, and divorce valuation services (CohnReznick par. 1-4).

The firm’s strategy is to combine capital market, real estate, and complex securities. It relies on its expertise to carry out valuations. The major strength of its strategy is that it is able to reduce sector risk and concentration risk (Morningstar 46). The main weakness is that real estate is vulnerable to price risk. Complex securities are more volatile than ordinary securities.

Merrill Lynch, Bank of America

Some of the financial products provided by Merrill Lynch include investment choices, options, stocks, ETFs, Mutual Funds, Fixed Income & Bonds, managed portfolios and annuities (Merrill Lynch Investing & Banking Connected table).

Merrill Edge self deposits seek to minimize transaction costs by allowing investors, who meet a minimum of $25,000 investment, to make as many as 30 online equity trades a month without commission fees. An individual with several accounts can have the amount summed up to find out if they meet the minimum requirement. Commission fees apply if the individual’s investment does not meet the two requirements (Merrill Lynch Merrill Edge par. 2).

One of the firm’s strategies is to offer advisory services so that clients can make investments on their own. The strategy is supported by the Merrill Edge MarketPro program that provides real-time market analysis to allow clients to make informed decisions. The main strength of its key strategy is that investors can make informed decisions independently, which diverts blame in case of low returns. The main weakness is that the firm’s performance may be undermined if investors make the wrong choices.

Lord Abbett

Lord Abbett aims to provide monthly income for its clients through investment in stocks of the U.S. companies and multinational companies. The firm invests in municipal bonds, treasury bonds, and equity, among others. It invests in a firm with mid-size, large and small capitalization. One of its products is the multi-asset growth fund, which includes Class A, Class C, and Class F assets, among others (Lord Abbett par. 1).

It invests in tax-free-income assets, fixed-income assets, and multi-asset class strategies. It invests in the U.S. equity, and emerging markets’ equity. Another strategy it uses is the flexibility given to its managers to shift assets when they identify market signals earlier than other investors. The main strength in its strategy is that the treasury bonds and municipal bonds are not exposed to market risk. However, they are exposed to credit risk, inflation risk, and interest rates risk. Emerging markets pose market and sector risks (Miller, 11).

Goldman Sachs

Goldman Sachs activities are grouped into four categories, which include investment banking, institutional client services, investing & lending, and investment management. Goldman Sachs serves corporations, financial institutions, investment funds and governments with investment banking.

It provides institutional clients with fixed income, equity, currency products, and commodity products. It engages in long-term loans to provide capital for its clients. Its investment management activities engage in mutual funds, and private investment funds, among others (Goldman Sachs Who We Are: at a Glance par. 1).

The company manages equity, fixed income funds, money market funds, alternatives, commodities, and real estate securities. The mutual funds are arranged by global regions and share classes.

One of its strategies is to serve institutional clients and individuals with a high-net-worth. Another strategy is that Goldman Sachs uses separately managed accounts and commingled vehicles to manage risk (Goldman Sachs Mutual Funds par. 1). The firm uses industry-specific metrics so that it invests with a high degree of assurance.

It also makes use of market biases to increase returns. Fixed income strategies include asset allocation and security selection. The firm’s research team tries to reduce risk by evaluating the underlying asset value, the strength of cash flows, balance sheet quality, and the competence of the management team (Goldman Sachs Mutual Funds par. 2).

The main strength of its strategy is that institutional clients are patient for long-term returns. The firm may reduce market risk through its metrics. Relying on market biases to make investments exposes the firm to price risk. Price risk occurs when assets are bought at a higher price (Morningstar 47).

Overbrook Management Corporation

Overbrook aims to create a stable growth in assets and income using a diversified portfolio. It focuses on preventing the principal from declining. It also seeks for tax-efficient choices. The firm does not concentrate on short-term cyclical fluctuations. Its alternative investment includes products such as hedge funds, private equity, real estate, and commodity-related investments (Overbrook Management Corporation Alternative Investment par. 1).

The fixed-income fund may be invested in “municipal bonds, U.S. Treasury bonds, agency bonds, corporate bonds, mortgage-backed bonds, convertible bonds, preferred stocks, and cash equivalents” (Overbrook Management Corporation Fixed Income Strategy par. 2).

The firm’s strategy is to invest in firms that have strong financial positions. It looks for investment opportunities with high free cash flow and high returns on investment. It avoids firms with consistent losses or declining profitability. It looks at the situation presented by the balance sheet of the company it considers for investment.

The firm invests in businesses that are less volatile in relation to the industry and economic cycles. They also look for high-quality disclosure and accounting practices. It considers the competence of the management team that runs the businesses (Overbrook Management Corporation Equity Strategy table).

Overbrook uses liquidity and liability analysis, forensic accounting, primary research, and competitive analysis to manage business and credit risks. The investor relies on identified weaknesses of firms before the equity markets (Overbrook Management Corporation Equity Strategy table).

The main strength is that its liquidity analysis and forensic accounting may protect the firm from liquidity risk posed by some firms that misappropriate figures (Morningstar 48). The firm also invests in assets with low risk. The investing firm is exposed to interest rate risk and inflation risk. The risks occur when the interest rate and inflation rate rise above the coupon rates issued by the government.

Rockefeller Group Investment Management (RGIM)

RGIM has longstanding expertise in managing real estate investments. It collaborates with other firms in the real estate industry to maximize value for investors. It mainly collaborates with Mitsubishi Estate (in Japan) and Europa Capital (in Europe) to build and manage estates for clients (RGIM par. 1).

Its subsidiary Rockefeller & Co., engages in asset and wealth management. It works through Rockefeller Asset Management to provide clients with the best choices for financial assets. It also manages trust funds. It offers alternative investments such as hedge funds, private equity, real estate funds, and multi-manager vehicles (Rockefeller & Co. Asset Management par. 1).

Rockefeller & Co. has a philosophy that long-term goals cannot be achieved by pursuing short-term outcomes. The firm examines the large picture when selecting businesses for investment (Rockefeller & Co. Company Overview par. 1).

One of its strategies is that the firm uses sector analysis to determine the target sector’s strengths and weaknesses from a global perspective. The firm invests in securities that belong to firms that are likely to grow within three to five years. The firm builds its long-term goals by capitalizing on short-term opportunities that may result in capital gains (Rockefeller & Co. Alternative Investment par. 2).

In equity management strategies, the firm recognizes global equity, global sustainability & impact investment, U.S. small capitalization equity, balanced portfolio, non-U.S. equity, and U.S. large capitalization equity.

The main strength of its strategy is diversification, which reduces the market risk that may occur when a single market underperforms. The main weakness is that emerging markets pose a risk because they have unpredictable sectors and weak institutions.

Saw Mill Capital

Saw Mill Capital focuses on acquiring small and medium-sized manufacturing companies, as well as companies in the service sector. It aims to maximize the value of shareholders by partnering with companies’ management teams to make them realize their companies’ full potential. The firm recognizes its strategy as a collaborative model. They offer resources to companies depending on their growth prospects, and confidence in the firms’ leadership (Saw Mill Partners on the Road to Success par. 2).

The firm aims to find value in firms that other investors overlook. It manages to create value by collaborating with the management teams for operational improvements. Saw Mill focuses on medium-sized businesses that have not reached their full potential and promise stable growth.

The firm does not rely entirely on valuation metrics (Saw Mill Partners on the Road to Success par. 2). It assists other firms to reach their full potential, which offers mutual benefit. It seeks to invest in other businesses that investors ignore, but could give higher returns when provided with adequate resources and guidance.

The risk that the company may face is concentration risk, which occurs when an investment is made in a few firms. It may be prone to business risk, which may involve a business failing to manage the intensity of rivalry. The earnings may be higher than other types of asset management firms, but they also have a higher risk. The firm manages risks by trying to invest in many companies.

Some of the companies that Saw Mill invests in include Jason Incorporated, NetShape Technologies, GateWay Packaging Company, and other four companies. They include its current investments (Saw Mill Current Investments par. 3). The entire list will show that Saw Mill focuses on manufacturing companies. It may be a strategy to reduce risk and increase returns because manufacturing firms have fixed assets to back up equity, and are likely to have stable growth rates.

Riverpark Funds

Riverpark Funds aims to provide investors with the “best in class portfolio management services in a select number of style boxes” (Riverpark Funds par. 1). The main objective is to invest in firms that will have long-term capital gains. Some of the products it offers include Riverpark Large Growth Fund, Wedgewood Fund, Short Term High Yield Fund, and the Gargoyle Hedged Value Fund, among others.

The firm relies on its valuation expertise to invest in companies that, according to its forecasts, will grow. It seeks to capitalize on biases generated by short-term cycles that may be misunderstood by some investors or other analysts. The firm invests in equity securities, securities in foreign countries, and growth stocks, among others.

The key strategy of the firm is to invest in other firms with large capitalization and above-average growth prospects. The firm invests about 80% of the funds in large capitalization companies, where large capitalization firms are those with $5 billion worth of capitalization (Riverpark Funds par. 2). The firm examines cash flow, revenue, and income of potential investment companies to determine the ones that it is likely to select for investment.

It mainly invests in the U.S. companies, but may also invest in ones outside the U.S. The firm seeks to invest in companies that have latent pricing power, which increases the probability of the firms generating high-profit margins. It also seeks to invest in companies based on the expertise of their management teams. It uses models and long-term forecasts to determine businesses, which are likely to generate high returns.

The main strength is that firms with large capitalization tend to have low price risk and competent management teams. The main weakness is that firms with large capitalization may have liquidity risk, which involves holding large amounts of assets that cannot be sold easily (Morningstar 48). Large firms may be in the declining life cycle.

Alvarez & Marsal

A&M aims to help firms to have a breakthrough by providing them with resources and risk management services. The firm relies on the expertise of its professionals to carry out primary research and develop effective and practical solutions. Its main services are valuation and financial advisory (Alvarez & Marsal, par. 1).

The main strength is that the firm is likely to generate higher returns than other management firms by focusing on firms that are not mature in the firm’s life cycle. The main weakness is that there may be concentration risk, which occurs when large amounts of funds are invested in a few firms.

MEAG

MEAG mainly operates in Europe. It manages assets for Munich Re, ERGO, and other partners. MEAG aims to generate positive returns in “an absolute approach with limited risk, in both rising and falling markets” (MEAG table). It invests in all major assets, including bonds, equities, funds, and real estates. MEAG manages risk for investors with a goal of attaining long-term outperformance of the set benchmarks (MEAG table).

The firm uses asset diversification, and derivative strategies to increase revenues for investors. The firm avoids “an asset class for which a consecutive impairment is assumed” (MEAG par. 2). The firm has large holdings in real estate management. The firm invests in many regions, which include Europe, North America, and Asia.

The main strength is the diversification of assets through classes and regions. It reduces market risk and business risk. However, the investments are exposed to emerging markets risk and liquidity risk (Miller 9).

Conclusion

Most firms highlight the expertise of financial analysts that are engaged in valuations and analyzing market signals. The competence of the financial analysts to accurately understand short-term cycles is essential in successful investments. Firms that invest in international markets are likely to invest in Asia, which promises high returns with higher risks than advanced economies. Firms may choose real estate as a low-risk investment.

Analysts realized that real estate is vulnerable to price risk after the global financial crisis (over-valuation). Risk Management firms, such as Saw Mill, choose a few firms and invest in them. They may have higher returns but pose a higher concentration risk. All firms use diversification to manage market risk.

Works Cited

Alvarez & Marsal. About Alvarez & Marsal. Web.

CohnReznick. Valuation Advisory. Web.

Goldman Sachs. Who We Are: at a Glance. Web.

—. Mutual Funds. Web.

Lord Abbett. Strategies. Web.

MEAG. System concepts. Web.

Merrill Edge. Investing & Banking Connected. Web.

—. Merrill Edge. Web.

Miller, Merton. “Financial Markets and Economic Growth.” Journal of Applied Corporate Finance 24.1 (2012): 8-14. Print.

Morningstar., Understanding mutual fund strategies and fundamental risk. Web.

Overbrook Management Corporation. Alternative Investment. Web.

—. Equity Strategy. Web.

—. Fixed Income Strategy. Web.

RGIM. About Us. Web.

Riverpark Funds. Riverpark funds. Web.

Rockefeller & Co. 2014. Alternative Investment. Web.

—. Asset Management. Web.

—. Company Overview. Web.

Saw Mill. Partners on the Road to Success. Web.

—. Current Investments. Web.

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