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GSCM Difference Separately Managed Accounts View Your Portfolio
Separately Managed Accounts
As Separate Account Managers, we are able to customize each portfolio to our investors’ needs and preferences (risk profile, personal bias, goals, etc).

Separately Managed Accounts are similar to mutual funds in that a professional investment manager takes care of security selection and monitoring of the portfolio. However, a separate account manager holds the investor's assets in a segregated account instead of placing them in a pool with other investors.

Separate Account Managers are typically used for high-net-worth individuals, who have the assets necessary to properly diversify through an individual account. Under this format, each investor has a separate account, which actually holds specific securities. By contrast, a mutual fund or hedge fund is a pooling of investors into a general account.
Comparison
   
In our opinion, during the late 1990's bull market few people were concerned with management fees. We believe as equity returns potentially become compressed, investors should be more concerned with the fees eating into their returns. GSCM charges a maximum annual fee of 1% of assets under management. According to a 2003 study by Morningstar Inc., the average mutual fund charged 1.57% in annual expenses.

Through GSCM an investor has access to discuss investments directly with the portfolio managers responsible for decision making. In a mutual fund investors may or may not be able to communicate directly with the portfolio manager.

Separate Account Managers can tailor an account to an investor's specific requirements, preferences, and investment objectives. In a mutual fund, the portfolio manager invests in accordance with the fund's objectives.
Mutual fund managers may leave and there is no guarantee the replacement manager will be as good.

We believe there is survivorship bias in the returns of certain mutual funds, which do not include returns of terminated mutual funds in advertised performance. According to a 1996 study in CFA Digest, the authors estimate that survivorship bias approximates 1.11% a year, over a 20-year period. GSCM has never terminated any investment composite.

Mutual funds may be forced to liquidate certain positions in an untimely fashion, due to redemptions from investors. In a separate account the manager does not have pressure from redemptions.

Tax advantages to Separate Accounts.

 
In a separate account, the investor starts with a clean tax slate upon the account's inception. In a mutual fund, an investor has no control over taxable events.

In a separate account, the investor owns all holdings in the account and the manager may help customize an account that meets his/her specific needs. In a mutual fund, an investor owns a percentage of the fund.

In a separate account, an investor is taxed on his/her individual account gains and losses. Investors in pooled investments, such as mutual funds, may be forced to pay capital gains tax on gains the individual did not participate in.
Comparison
   
GSCM typically has low turnover and holds stocks for a long period. We hope this results in lower capital gains taxes. Many hedge funds are not sensitive to an investor's tax situation. The difference between a tax managed account and an actively traded account can be as much as a 15% tax rate vs. a 35% tax rate on any short-term gains. This difference in capital gains taxes can amount to a substantial dollar-value over time. (The 35% tax rate is for high-income investors in the highest tax bracket. Your tax rate may be lower depending on your individual circumstances.)

GSCM charges a maximum 1% of assets under management and does not participate in any of our investor's gains. A hedge fund may charge a higher fixed annual fee and keep a certain percentage of investor's gains.

We offer our investor's liquidity at current market prices, transparency of holdings, and regular contact with investment staff. Many hedge funds do not offer daily liquidity.

Our investment process is not a recent phenomenon and has been successful for over 40 years. We invest in large-cap companies that we believe will provide superior risk-adjusted returns over the long-term. Few hedge fund managers have an investment process that has been successful for more than 40 years.

Advantages of Separate Accounts.

 
In a separate account, the investor starts with a clean tax slate upon the account's inception, which can allow the investor to have more control over taxable events. Such as the timing of when to realize capital gains and losses. In a hedge fund, an investor has no control over taxable events.

In a separate account, the investor owns all holdings in the account and the portfolio manager may help customize an account to meet individual needs. In a hedge fund, an investor owns a percentage of the entire fund.

In a separate account, an investor is taxed on his/her individual account gains and losses. Investors in pooled investments, such as hedge funds, may be forced to pay capital gains tax on gains the individual did not participate in.
 
Whenever an investment becomes extremely popular with the investing public, we at GSCM usually get concerned. At a time when most individual investors are newly fascinated by hedge funds, we note that some experts are less enthusiastic:

In December 2004, the CEO of Harvard Endowment Fund (one of the earliest hedge fund investors and once the largest hedge fund investor) Jack Meyer said, "The opportunity set in the hedge-fund world is way down from what it was two to two-and-a-half years ago. There is too much money in there. I suspect thousands of these funds will go out of business. Returns will keep going down. So it's hard to get real optimistic." In 2004, Warren Buffet said, "Hedge funds are a huge fad. You can pick any ten hedge funds and I'll bet that on average they will under perform the S&P over the next ten years. You can't create more money out of American business than the business itself creates; so most of these hedge funds will not be able to justify their outlandish fees over the long-term and they will disappear."

1722 Routh Street, Suite 760   |   Dallas, TX 75201   |   Phone 214-367-6170   |   Toll Free 800-301-8849   |   Fax 214-367-6180