In 2006, one of our clients asked us to help him to develop criteria for
choosing an investment advisor for his Trust. We think the
resulting document does a good job of conveying our investment
||Driving through New Jersey, Nitze [asked] Dillon if he thought the market
decline an omen of hard times ahead . . . Dillon thought for a few minutes and replied,
“I think it presages the end of an era.” By this Dillon meant that what
lay ahead was not merely a period of retrenchment, after which affairs would be conducted
as before. Rather, the world was in for a major overhauling of institutions.
||—Clarence Dillon and Paul Nitze
The Nightingale Investment Trust (the “Trust”) was created in 2002. The
Trust has approximately $7 million in liquid assets, invested primarily in cash and
securities. Its sole beneficiary and co-trustee (“B-CT”) is moving the
Trust to a new corporate co-trustee and will choose a new investment advisor to manage
the Trust’s financial assets to commence in the new year.
The investment advisor will be chosen from a small group under consideration based
on personal references. The selection will include a review of materials provided
as well as a meeting in person with B-CT. With a beneficiary life expectancy of greater
than 54 years, B-CT’s wealth will be preserved and grow through what has the
potential to be one of the most volatile times in history. This time calls for an
investment advisor of powerful intellect, instinct, integrity and culture—a
firm with the ability to navigate risk and to identify and realize opportunities that
preserve and create financial wealth and the human and living wealth from which it
The purpose of this document is to communicate the criteria used by B-CT to identify
and assess potential investment advisors:
- Alignment with B-CT Investment Objectives
- Alignment with B-CT Investment Principles and Philosophy
- Preference for One Advisor with Diversity of Investment Options
- Excellence in Historical Portfolio Plans, Performance, and References
- Excellence in Portfolio Plan/Investment Policy Statement
- Excellence in Working Relationship with B-CT
- Excellence in Reporting and Communication
- Compatibility with Trust Legal Requirements
- Compatibility with Corporate Co-Trustee Procedures, Requirements, and
Criterion #1: Alignment with B-CT Investment Objectives
The Trust assets are irreplaceable, representing B-CT’s primary assets and
expected source of income. Therefore, principle investment objectives are:
Criterion #2: Alignment with B-CT Investment Principles
- Preservation of wealth: maintaining and augmenting absolute value, i.e., the
preservation of capital in inflation-adjusted terms as well as in “decline of
fiat currency”-adjusted terms
- The maintenance of income: 4% of principle (adjusted on an annual basis for inflation)
to provide for living expenses and separate asset management. Income need not come
solely from yield, but may come from capital gains as well
- Growth of capital in a manner consistent with the first objectives.
B-CT is keenly interested in the Trust’s ability to generate income
and capital gains over the long term and in a variety of future scenarios. This requires
an understanding of the global economy at the deepest systemic levels, including:
The Distinctions and Interplay between Political and Fundamental Economies:
has evolved within the traditional central banking/warfare economic model that has
dominated the First World for centuries. As a result, we have reached a high degree
of centralized management of economies through the financial system—particularly
the central banking, sovereign credit and insurance mechanisms.. This degree of management has resulted
in politically managed markets that are not in sync with fundamental
economics that would prevail if government spending were transparent, interest rates were not managed, markets were more free, and the rule of law prevailed. So, for example, values in the stock
market or gold market are increasingly set by G8 and central bank policy and intervention
as opposed to simply fundamental economics.
The Instability of the U.S. Government and Federal Credit, and the Attendant Risks
to the Global Economy and Global Financial Assets:
As the primary financial mechanism
behind global centralization, the US federal credit, as well as sovereign credit in the developed world, has assumed significant direct
and indirect debt as well as contingent liabilities on and off the balance sheet. Understanding
the political and economic governance of these liabilities is part of appreciating
the possibility of catastrophic warfare and failures ("Collapse Scenario")
or loss over time (“Slow Burn Scenario”).
Managing investment risk in this environment necessitates an awareness and monitoring
of trends which could cause economic disruptions and may indicate niche opportunities
for wealth creation, including:
Significant opportunities and creative responses can and do arise from deep structural
shifts; significant value can be created and profits can be realized. It is essential
that potential risks are recognized so that responses can be anticipated, alternative
scenarios implemented—and yesterday’s sound investment exited at a full
price and tomorrow’s sound investment opportunity identified while its price
is still attractive.
- Peaking global oil production/breakthrough energy technology
- Deterioration of fiat currencies and sovereign balance sheet through mounting and uncontrollable national and
consumer debt and trade imbalances
- Continued degradation of vital ecosystems
- Climate change and severe weather
- Extended use of and economic dependency on military and covert force worldwide
- Deterioration in the rule of law and the emergence of organized crime as a dominant
global economic power.
- Explosive growth and adaption of new technologies
- Increased connectivity of global culture and communication
In that “wealth [not to be confused with money and paper securities . . .
is . . . a command over real resources and over the means to a continued income to
be derived from these resources,” a shift in value from abstract (paper) to
concrete (hard) assets is to be understood. This includes the role of human capital
(great management and learning culture) and intellectual capital (knowledge tools,
technology, and practical application) in the management of hard assets to create real
wealth. Openness to the notion of value lying outside of the world of finance is to
be encouraged, i.e., land, a healthy environment, and the ability to produce food may
at some point be of more value than owning large-cap stocks.
For example, when paper currencies are seen as uncertain, gold and silver are
not only commodities but resume historical roles as forms of monetary exchange without
a government, and therefore can be used in the event of a currency crisis, as the ultimate
The asset allocation model used to manage the Trust’s assets need not be
formulaic. B-CT is not comfortable with the academic models based on market efficiency
during times such as these. Fundamental and technical analyses can’t provide
a complete picture and shouldn’t be the only beacons followed. Whether we are
in a Collapse or Slow Burn Scenario—or a more positive scenario in which
we transform to a global economy in which financial equity is aligned with living equity in in a more civilized manner—flexibility,
adaptability and the ability to move in and out of markets, sectors, regions and securities
will be seen as positives.
A diversified global perspective, as opposed to a U.S.-centric model, is encouraged,
as well as an emphasis on value and entrepreneurial small- and mid-cap companies with quality leadership,
sales not dependent on government contracts or credit, and positions sensitive to
trends in the politics of inflation and deflation. The short sale of securities and
sectors is acceptable, as in the use of options and hedges
This environment calls for an understanding of the total economic return of investments
for purposes of identifying opportunities and further mitigating risk. This means
weighing the impact of investments on natural planetary ecosystems and human society
as part of the investment analytics, and looking for the opportunity to lean toward
the Solari Investment Model that will contribute to—rather than deplete—community
life, whether natural or human. Indeed, good will is a proven strategy for attracting
and generating capital gains and enduring income. Long-term goals are based on the principle that
future good will not be sacrificed for present gain.
In summary, B-CT's investment principles are:
Criterion #3: Preference for One Advisor with Diversity
of Investment Options
- Invest in significant research and understanding of the real economy
- Anticipate risks and opportunities
- Take advantage of the shift from financial to real assets
- Develop strategies for a variety of future scenarios
- Have a portion of the portfolio prepared to weather the storm in the worst case
- Promote decentralization of economic resources as a way to reduce risk and ensure
- Look for opportunities to profit from supporting excellence in business leadership and entrepreneurs who are leading the shift
to address the challenges before us in a profitable manner
- Avoid companies that behave in an irresponsible manner
- Be flexible—do not depend on hard and fast formulas.
The investment advisor is aware
of wealth preservation options and has the capacity to:
- Optimize Trust options in the event of U.S. capital controls
- Assess and execute both onshore and offshore
- Assess and identify opportunities both local and global.
- Do precious metal bullion depository offshore
Criterion #4: Excellence in Historical Portfolio Plans, Performance, and References
This includes experience and a sufficiently “deep bench” in the investment
advisor team, network, and custodial/clearing partners to ensure safety and soundness
in a worst-case scenario. Therefore, a team and network with experience of down markets
and an ability to anticipate and successfully navigate and identify opportunities
within the deeper trends in the politics and economics of the globe are essential. The advisory team should have the knowledge and networks to stay current on and take advantage of developments in new technology.
Historical portfolio plans, performance and references will be requested and reviewed.
Criterion #5: Excellence in Portfolio Plan/Investment Policy
Prior to selection of an investment advisor, a suggested portfolio plan that will
provide a sense of the advisor’s investment style and approach in
B-CT’s particular circumstances will be requested.
A portfolio plan and/or investment policy statement that both investment advisor and
B-CT agree upon will be required before implementation.
Criterion #6: Excellence in Working Relationship with B-CT
Because wealth is a personal matter —a tool for having a joyous life and
achieving goals—an investment advisor/client relationship can entail discussions
of personal feelings (hopes, fears, dreams, values) more often than in other professional
relationships. As a co-trustee, it is particularly important to B-CT to be able to
integrate the day-to-day understanding of what is happening in our world and the risks and opportunities
implied with an understanding of the strategies being used to manage Trust assets.
A successful working relationship will help B-CT manage fiduciary responsibilities
as co-trustee and head of household with ease, elegance, and speed.
Criterion #7: Excellence in Reporting and Communication
Excellence in reporting and communication are the basis of a successful and economic
relationship. This includes:
- Monthly statements and quarterly discussions that address outlook, deeper trends,
strategies, and portfolio performance
- Discussions by phone and Internet as necessary
- At least one annual face-to-face meeting.
In this regard, a sound portfolio plan and the flow of regularly scheduled reporting
and communication from the investment advisor team should go far in supporting a mutually
energizing relationship for both parties.
Criterion #8: Compatibility with Trust Legal Requirements
This includes compliance with accredited investor issues.
Criterion #9: Compatibility with Corporate Co-Trustee Procedures,
Requirements, and Trust Officers
The Trust will be moving to a new trust company at or about the time that the
new Investment Advisor is retained. Hence, a smooth three-way working relationship—Trust
Company, Investment Advisor and B-CT—is desired.
Criterion #10: Fees
The combined trustee and investment advisor fees are to be no more than 1% per
Thank you for taking the time to review the selection criteria for an investment
advisor for the Nightingale Investment Trust. Thoughts and input on these criteria