Rick Pitcairn: Pitcairn defines itself as a true family office, meaning that we address the full range of services that are essential for the ultra-high-net-worth clients that we serve. Whether the need is education of the next generation, family governance matters, or a sophisticated investment and tax planning strategy, Pitcairn’s ability to engage in a more holistic discussion about the challenges wealthy families face is what sets us apart. In fact, next year Pitcairn will celebrate its 100th anniversary, which is truly a remarkable milestone to reach in this industry, and a testament to the firm’s longevity and success in advising wealthy families.
Prince: How do you work with families to protect their wealth in the long term?
Pitcairn: At Pitcairn, we have worked hard to design a firm that sits 100% on the same side of the table as the families that we serve. That position allows us to remain objective and to analyze and sort through the numerous opportunities that the financial marketplace brings to these families and maximize the probability that the family achieves its goals and preserves its wealth. That alignment, over a period of time, creates a bond of trust that allows Pitcairn to advise across the range of issues that beset a family and devise strategies that achieve superior outcomes.
Prince: What is your investment philosophy?
Pitcairn: The core of Pitcairn’s investment philosophy is that executing on a well-constructed diversified portfolio that rests on long-term equity ownership is the best way to grow wealth and preserve it across generations.
One of the characteristics of the ultra-high-net-worth client segment is that they normally have extremely long investment time horizons. It is not unusual for our clients to think of their portfolios in a multi-decade context. We feel that such a long-term mentality is a significant advantage in all markets, but particularly in today’s market. History teaches us that if we get all of the good returns markets can deliver over time, we can take all of the bad returns they mete out and still end up far ahead of trading strategies that carry high execution risk and high tax burdens.
Prince: What is the biggest threat posed by inflation for the markets, the economy and investors overall?
Pitcairn: Some level of inflation is not a bad thing for our economy or markets; runaway uncontrollable inflation is. One only needs to study the history of countries that have dealt with chronic high inflation to see how damaging that kind of environment can be. We are dealing with our first round of serious inflation since the 1970s, and that makes today’s environment feel unprecedented and dangerous.
A balanced look at the situation, however, shows that this current inflation could be episodic rather than endemic. The current supply chain woes as well as tightness in the food and energy markets could turn out to be temporary in nature. Furthermore, while global geopolitics may pull back from the globalization of commercial trade, which has been massively deflationary, the tide of technological change, another driver of deflationary forces over the last 30 years, will continue. Time will tell how effective policymakers are at controlling the current round of inflation, but for now, it remains the biggest threat we see.
Prince: What should investors be doing right now to protect themselves?
Pitcairn: The last three leaders of the Federal Reserve have told us the Fed has the tools to control inflation and that deflation was, to them, a bigger worry. Well, now we have the opportunity to find out how effective those tools are.
The Fed’s ability to pull off its goal of inflation control is a hotly debated topic. Some see the Fed successfully controlling inflation and achieving a soft economic landing; others, believe the Fed’s tendency is to be late and then overcorrect, aggressively tightening rates as the economy slows bringing on recession and equity market disruption. Time will tell whether the Fed can avoid that kind of a negative scenario while bringing inflation under control.
We’re not traders. We are strategic investors. We believe in investment discipline and if you have a diverse portfolio properly constructed, you have a portfolio that will do relatively well in an environment of rising modest inflation. While such a portfolio will obviously go up and down as market conditions dictate, over the longer term it will maximize your probability of investment success.
Russ Alan Prince is the executive director of Private Wealth magazine and chief content officer for High-Net-Worth Genius. He consults with family offices, the wealthy, fast-tracking entrepreneurs and select professionals.