Mr. Flam: Bel Air Investment Advisors was founded in 1997 and is a 100% employee-owned independent advisory firm catering exclusively to the needs of high net worth clients. We are an industry leader in providing customized wealth management services and investment advice exclusively to individual families and foundations with 20 million or more in investable assets. The firm distinguishes itself from the financial conglomerates through an open architecture investing platform, which allows for a diverse mix of proprietary and external services and strategies. In servicing the firm's high net worth clients, its founders established many industry-wide best practice concepts at Bel Air, concepts that they first pioneered while at Goldman Sachs prior to establishing Bel Air. These include discretionary brokerage and fee-based private client service offerings. In working with clients, the firm is committed to minimizing potential conflicts of interest and operates with complete transparency. I head a team at Bel Air that manages our two internal equity strategies - one is a large cap core portfolio and the other is a concentrated portfolio of roughly 15 to 25 stocks that represent our highest conviction ideas.
TWST: How do you develop an investment strategy for your clients and how do you
then move on to implementing them from the equity side of the equation?
Mr. Flam: From a broader sense, what we're striving to do on both of the
strategies that we manage internally is use a top-down approach that focuses on
identifying broad multi-year tailwinds and avoid headwinds that we see in the
marketplace. Then from the bottom up, we're looking for leaders in industries
that we think are poised to benefit from these tailwinds, that have superior
return on invested capital characteristics, as well as strong managements that
are good shepherds of capital. While we don't feel that there's any silver
bullet in investing, we focus our attention on the return on invested capital
metric. Basic economics tells you that where excess returns are earned, money or
capital will flow into that industry and drive down returns. So if a company is
able to earn high returns on invested capital over time, it's proving that there
is some sort of barrier to entry that's enabling them to do so, and then beyond
that, it shows management is a good shepherd of the capital that the business
generates. There's a lot of talk about investing in companies with lots of free
cash flow, which is very important and something that we do, but it is also very
important to understand what management chooses to do with that cash flow. So a
return on invested capital metric will demonstrate whether they're reinvesting
wisely.
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