When entrepreneur David Barrett couldn't find an investment firm he trusted to manage several million dollars, he created his own.
Six years after opening its doors, Barrett Capital Management LLC manages $125 million for individuals and families who think that great investment opportunities shouldn't go only to endowments.
The Midlothian, Va.-based registered investment advisory firm pursues a strategy of preserving and building capital by focusing on alternative investments such as hedge funds,
private equity and real estate. Mr. Barrett calls it an "endowment style" because the firm provides access to a diverse investment universe that most individuals can't reach on their own or through traditional brokers.
With a $2.5 million minimum, individualized customer portfolios incorporate "anything that is not a buy-and-hold strategy," he said.
Generally, the results are double-digit growth each year, Mr. Barrett said.
The 58-year-old head of Barrett Capital thinks that many baby boomers will be cashing out of retirement funds, or selling businesses or properties, for substantial sums — but still will have less than $10 million to invest. They will want sophisticated money management, but their portfolios will be too small for large brokerage firms to take seriously.
Mr. Barrett calls this potential client pool "mini-millionaires."
His search for a money manager began after he sold his medical-equipment business for $5.5 million in 1996. Previous experiences left him unimpressed with banks and brokerage firms, so he was drawn to independent advisers because they wouldn't have a financial incentive to sell particular investments.
Unfortunately, he discovered that the best independents had $25 million minimums.
As he discussed his dilemma with more people, Mr. Barrett learned of Russell Lundeberg, a former
hedge fund accountant, though other business associates. Mr. Lundeberg was managing and organizing alternative-investment funds for James River Securities Corp. in Manakin-Sabot, Va., when Mr. Barrett approached him with the idea of starting a money management firm.
"I had the money to open the company; he had the intelligence," Mr. Barrett said.
Today, Mr. Lundeberg, 35, is Barrett Capital's chief investment officer and appears about once a month on Bloomberg television or CNBC to discuss the markets.
He said he looks for investments that don't correlate to traditional stock and bond portfolios, and his goal is to create portfolios that have less volatility. A real estate opportunity, for example, might include a private-investment partnership that buys raw land focused on niche geographic regions.
'UNIQUE OPPORTUNITY'
"We look for dynamics that offer a unique opportunity without overall correlation to the macroeconomic picture," Mr. Lundeberg said.
After deciding that the time is right to invest in a strategy or sector, Barrett Capital looks for top-performing managers and negotiates for low fees. About 35% of client assets are in alternative strategies, and the balance is diversified globally in fixed income and equities, Mr. Lundeberg said.
Thanks to its independence from any particular vendor or products, the firm can quickly get out of investments that it thinks are turning south for investors, he said. The firm charges fees that start with 1.5% on the first $1.5 million and slides down to 1% for $5 million and above.
The firm has a $2.5 million asset minimum, although it accepts clients with less if "they will likely have it in the future," Mr. Barrett said.
The seven-person firm is finally starting to be profitable and is now ready for growth. It has set its sights on $200 million in client assets by the end of the year, having spent hundreds of thousands of dollars on money management software.
"The hardest thing is to get clients," said Mr. Barrett, who handles the sales role largely alone.
Each sale requires intense client education, showing people how the largest endowments in the country hold only 15% to 20% in U.S. stocks and preaching the safety net of diversification, he said. Virtually all the firm's customers came from national brokerage firms, and most felt they weren't receiving personalized service, Mr. Barrett said.
