First Ascent Case Study (Part 3)

I was analyzing the TPAM First Ascent when I got majorly sidetracked on the matter of performance. Today I want to get back to First Ascent for the purpose of understanding where I might fit in with regard to asset management.

I do not see performance reporting on the First Ascent website. In an attempt to learn about the value they provide, I looked at some other tabs. One of First Ascent’s portfolio descriptions reads:

     > Each Global Explorer core is the foundation of the portfolio and provides
     > broad diversification among global securities markets. Each core consists
     > of low-cost exchange-traded funds (ETFs) that track domestic and
     > international stock and bond markets.

This could simply be a basket of ETFs easily purchased by a retail trader.

     > We may add satellites to a portfolio to complement the core. Satellites
     > may consist of actively managed mutual funds or passively managed
     > index funds or ETFs.

This sounds like more ETFs or mutual funds that any retail trader could purchase.

     > Satellites give us the possibility to add value for clients through
     > active managers.

So the TPAM outsources some of its work to a fourth party? It makes sense to me that advisers might outsource asset management to third parties who focus exclusively on investing (e.g. executing trades, studying strategies and techniques, developing systems). I would not expect TPAMs to outsource for the same reason, though. They are the outsourcing.

     > The goal of adding a satellite is to benefit from… a skilled manager,
     > or specialized strategy that may improve returns, create a new
     > source of diversification, or offer additional downside protection
     > within the portfolio.

The outsourcing having to outsource is a contradiction in terms that makes little sense to me. Furthermore, each intermediary must take a cut in order to be profitable. I would expect more intermediaries to serve as a drag on performance.

The website suggests First Ascent only communicates with financial advisers. I am suspicious of a company that will not communicate with the end client. Are they trying to hide something? Much of what I can see echoes tenets of passive investing, which leads me to expect performance that falls short of the major indices. Given their surprisingly cheap fee structure, this is probably a plain vanilla, garden-variety offering of the sort discussed last time.

Beating the benchmark over the long haul is a very difficult proposition even for professionals. Doing this cheaply seems unlikely because of the significant intellectual capital required.

Subpar performance, as I have discussed, is not a reason to avoid because that can still represent significant improvement.

Opacity, on the other hand, leaves the door open wider to the possibility of fraud. From what I can tell, this is unfortunately what the First Ascent website gives us and this is something I would avoid.