The BlackSummit Philosophy on Wealth Management

BlackSummit Financial Group’s (BFG) investment process centers on a holistic approach in evaluating the global economic landscape and the ramifications that the unraveling of global developments may have on portfolio allocation and investment decisions. No investment plan can adequately minimize risks and generate returns without a tested strategy and principled worldview of global markets. The increasing interconnectedness of the global economy demands an approach that can identify the various ways risks can manifest themselves and hedge against them according to the investment objectives.

We have two models on wealth and asset management services. The first is a discretionary approach where, through our custodian, we directly execute trades and strategies on behalf of the client. The second is through asset advisory services, where the client retains their existing managers and custodians and we act as economic/financial physicians providing a second opinion where we advise the client on possible strategies and trades. This second approach is fully explained below.

Our attention to the global environment is at the core of our process and distinguishes us in the industry. We utilize our synthesis and analysis of global economic events to identify areas of vulnerability and opportunity, employing tactics and strategies to protect wealth and make capital grow in the applicable sectors, asset classes, and regions, while maximizing the potential income streams that the client can have. Our analysis gains significantly from incorporating the views of our global network.

In today’s volatile markets it is essential to leverage the expertise of a firm that has a global macroeconomic viewpoint to ensure that your investment portfolio is positioned for optimal growth and protected in the event of a market downturn or economic shock. BFG has a track record of pointing out macroeconomic risks before they impact the markets. Being able to hedge against these risks is a major part of the risk mitigation function BlackSummit offers its clients. Our goal in risk mitigation is for you to realize a stable rate of return consistent with your investment goals rather than merely settling for the mean return between the highs and lows of the market swings.

Our investment philosophy and process can be seen in the following schematics:

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Our analysis has two components, namely the perimeter and the core. We start by analyzing the macroeconomic risks (perimeter). For example, if managers had missed the risks accumulated through derivatives prior to the 2008 financial crisis, they would have suffered significant losses. Following the macro-assessment, we evaluate the investing drivers (such as growth or income needs. Those drivers can be seen in the schematic below). We believe that any portfolio needs to be guided by rules. A portfolio strategy that is not guided by rules is misguided and will fail in the long term. In order to close the perimeter’s circle we evaluate the possible asset allocation based upon the previous three steps (e.g. if the macro-environment points to rising long term rates, we will reduce bond exposure).

We proceed with the core analysis, which is centered on assessing the client’s risk profile using quantitative as well as qualitative criteria. Risk assessment is at the center of our core analysis since it will guide the customized investment strategy recommended. We assign a score to the client’s risk appetite, and we customize an investment strategy based on that score. Our investment strategies take into account market risk, potential black swan events, and proper diversification principles. Finally, our analysis takes into account the value at risk and conducts an attribution analysis to make sure that the client’s risk tolerance and goals are met.

As we unfold our customized recommendations, and as the schematic above shows, it is our belief that a portfolio needs to be anchored using assets that have proved their intrinsic value over time. Therefore, we may recommend a percentage (usually small) of a portfolio to be anchored on such assets, as part of a hedging strategy. A further example of a hedging strategy we may recommend is a covered call approach that generates premiums for the client while also partially protecting the portfolio in a downturn.

While examining different asset classes (debt, equity, hybrid, real estate, commodities, alternatives, private equity, etc.) for strategy deployment as the schematic below shows), we also take into account the client’s growth goals. Moreover, we perform simulations in order to examine the effects that different possible scenarios might have on the portfolio.

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We are of the belief that any strategy should be rules-based, executed with conviction, be of strategic nature, while have a built-in flexibility for tactical re-adjustments (and hence liquidity considerations).

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