Click here for Part I

Guiding clients toward their independent investment objectives with passion and creativity

Adam Landau is the CEO of Permit Capital Advisors, an independent investment advisory firm headquartered in suburban Philadelphia. For almost 20 years, five of them at Permit, Adam has helped institutions and high net worth individuals meet their investment goals through a customized approach grounded in thorough market analysis. Permit is known for its objectivity, client-first attitude, and sometimes unconventional risk management strategies. Before joining Permit Capital Advisors, Adam was managing director of McCabe Capital Managers, Ltd., where he oversaw the company’s advisory services. Aside from his career at Permit, Adam is also a member of the Global Interdependence Center, and serves on the Board of Trustees of C.B. Community Schools, and the Board of Trustees of Bancroft.

Adam Landau spoke with Jeff Mack of Newmark Grubb Knight Frank for this interview.

JEFF MACK: How does your model compare to other competitive investment firms?

ADAM LANDAU: I really think of what we provide as a service, as opposed to a product shop. There are firms in our business that offer more products than we do. Where we have what you would describe “products,” it’s really where we have created these multi-manager funds in order to offer all of our clients access to the best investment ideas we have. A lot of what we do, if you look at our client investments—they’re direct investments that the client’s making, either in managers, or mutual funds, or ETFs, or individual stocks and bonds, or real estate, or private equity. But there are a couple of cases, in a couple of asset classes, where we put together funds for the purposes of achieving scale. One of those is in the hedge fund space, and we have a multi-manager hedge fund portfolio. Another one’s in the non-U.S. equity space. In both cases, it’s to give access to what we consider to be best in class managers. In both of those assets classes, our highest conviction managers have minimum investments that are $20 million dollars and up. Our client base, which runs the gamut from $5 million to north of $100 million, have different abilities to invest in strategies based on their capacity. In order to provide access to managers across as broad of a swath of our client base as we can, in those two asset classes we created these fund of funds.

Q. How do you use hedge funds?

You know the hedge fund of funds is utilized by just about all of our clients. There are different ways to think about hedge fund investing. We’re always very careful to point out to our clients the types of hedge funds we invest in, because it’s not a monolithic asset class. It’s really not an asset class at all. Hedge funds are, truth be told, more of a fee structure definition than anything else. What we think of as hedge funds are managers that just have the latitude to go anywhere and do anything, and where we tend to utilize them is in more defensive categories of hedge funds—relative value and arbitrage, certain trading strategies. As far as how we utilize them in portfolios, Jeff, when we think about the world of asset allocation, we try to think of it very simply. We take the world, and we bifurcate it between directional investments and nondirectional investments. It goes to the environment that we think we’re in: risk on versus risk off. Generally speaking, we’re going to have exposure to both types of investments, because we’re not trying to make big calls on the timing of the market. But, as to how we utilize hedge funds, we use them in what we call “the nondirectional component,” so these are things that we think are going to generate steady returns—I wouldn’t call them absolute returns, because there are cases in which they’ll lose money—but, generally speaking, they’d almost be a bond substitute for our clients. You know, Richard Worley has an expression that he likes to use that if we’re going to pay fees for hedge fund managers, which are generally higher than your long-only exposures. He doesn’t want to manager that is just going to give you the beta or the direction of the market; he wants a manager, by virtue of some unique ability, that has the ability to manufacture returns in a way that’s not purely dependent on equity market beta or fixed income beta. So, we use hedge funds in that kind of defensive category. On the international side, we use it for all of our clients. It generally represents 90% or more of their non-U.S. equity exposure.

Q. How do you go about analyzing potential investments?

A. There are a lot of different ways to look at potential investments. We go very deep on the manager analysis process. One of the ways that you have to identify best in class is by really understanding the landscape that your manager is operating within. One of the things that I use to describe our process is that if we’re looking at a manager, we’re trying to look at as much in that universe as we can. So, if there’s a manager who runs a strategy that’s a little bit “nichier,” and there are ten other managers in the world that are doing that, we’re going to look at all ten managers. The first thing is that we really want to make sure that we understand the landscape, and then it’s a process that’s both qualitative and quantitative—but I do not want to minimize the qualitative part, because at the end of the day, the managers that we’re allocating capital to are really the stewards of capital for our clients. There’s a significant amount of trust that we are putting in them. Now, we’re sitting on top of them on a quarterly basis, but we spent a lot of time making sure that we understand them as people. Part of that is meeting with them in different configurations, so generally speaking, at the beginning of a process, we’ll meet with the principals of a firm; towards the end of a process, we try to meet with some of the lower level analysts and portfolio managers. We always make sure that we meet with them individually, because we want to make sure what they tells us on a one-off basis is what they tell us on a collective basis. We do a lot of reference checking and background checking. Typically, before we invest in a manager, we’ll probably reach out to two dozen references. Maybe five or six of those are provided by the managers; the rest are ones where we’re trying to use our rolodex because we do have significant contacts in the business—things like LinkedIn and things like Facebook have made it very easy to find information. At the end of the day, when you’re trying to dig up information, you’re trying to find somebody who’s going to say something negative. Just like references on a resume, generally speaking, you know what you’re going to get out of the references that they provide, so we’re trying to find former clients, former employees— anybody who might be disgruntled for one reason or another—and really just digging deep into the fabric of who are managers are.

Q. What’s ahead in the next few years?

You know, our model will not change. We are who we are, and there are certain underpinnings as to how we think about the world and serving clients that won’t change. I think we will continue to scale up, because it’s a fairly scalable business. There will be a point in time where we cut that off. In order to offer customized solutions for our clients the way we do, we can’t have 100 or 200 clients. There are some really good firms that can, but to work with clients the way we want to we wouldn’t be able to do that. But, I think we’ll continue to work with sophisticated clients. I think, importantly, the universe of investment options that we make available to clients will continue to grow, we’ll just get better at what we do. Unequivocally, we are better today than we were five years ago when we launched. Five years ago, we were better than we were five years before that.

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ABOUT NEWMARK GRUBB KNIGHT FRANK

Newmark Grubb Knight Frank (NGKF) is one of the world's leading commercial real estate advisory firms. Together with London-based partner Knight Frank and independently-owned offices, NGKF’s 12,800 professionals operate from more than 370 offices in established and emerging property markets on six continents.

With roots dating back to 1929, NGKF’s strong foundation makes it one of the most trusted names in commercial real estate. NGKF’s full-service platform comprises BGC’s real estate services segment, offering commercial real estate tenants, landlords, investors and developers a wide range of services including leasing; capital markets services, including investment sales, debt placement, appraisal, and valuation services; commercial mortgage brokerage services; as well as corporate advisory services, consulting, project and development management, and property and corporate facilities management services. For further information, visit www.ngkf.com.

NGKF is a part of BGC Partners, Inc., a leading global brokerage company servicing the financial and real estate markets. BGC’s common stock trades on the NASDAQ Global Select Market under the ticker symbol (NASDAQ: BGCP). BGC also has an outstanding bond issuance of Senior Notes due June 15, 2042, which trade on the New York Stock Exchange under the symbol (NYSE: BGCA). BGC Partners is led by Chairman and Chief Executive Officer Howard W. Lutnick. For more information, please visit www.bgcpartners.com.

Jeffrey E. Mack, Executive Managing Director

Jeffrey E. Mack is a senior leader in Newmark Grubb Knight Frank's Philadelphia operation. Jeff has been a significant member of the commercial brokerage community in Philadelphia since 1979. He co-founded Smith Mack & Co. in 1984 and has continued to lease and sell more suburban office space than any other individual agent. He served as past chairman of the Philadelphia Board of Realtors, commercial and industrial division. NGKF acquired Smith Mack & Co. in 2012.

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