MDE Group is a wealth management firm serving high-net-worth families, corporate executives, institutional investors, and other advisors. It has $1.3 billion in assets under advisement.
Registered Rep.: These days, investors are looking to protect their capital and limit risk. How are you seeing this play out?
Mitchell Eichen: In the past, everybody had been focused on chasing returns, and this made investors take hits they didn't understand. Now, we're in a new market reality, characterized by an extended period of slow growth and some volatility, and this new reality requires a new approach to investing.
RR: How do you help clients deal with this new reality?
ME: Our new investment platform, Risk 3.0, takes a risk-first approach, focusing on how much you preserve on the downside, rather than what you make on the upside. We have to abandon this notion of chasing returns.
The Risk 3.0 strategy uses our Planned Return Strategy, which protects against the first 10 to 12 percent of market decline and offers double returns up to a cap, which is generally 10 to 12 percent. It employs an S&P 500 exchange-traded fund as well as a series of puts and calls to create the return pattern. Planned Return was launched in August 2009, but we're just starting to roll out the strategy to registered investment advisors.
Within the Risk 3.0 platform, investors can also opt in to our Third Rail Strategy, if they are worried about another Black Swan event. This strategy provides a buffer against steep market declines, with a linear return similar to long-only. All the alpha is captured on the downside, as losses flatten out at a certain percentage.
RR: You said you're just now starting to target RIAs with your Planned Return strategy. Why do you think this type of strategy will be appealing?
ME: RIAs have had difficulty retaining their clients and getting new clients, and this gives them a new level of dialogue with their clients. Clients are tired of hearing the same old story about staying the course for the last 10 years. It's not the same old, same old. High-net-worth clients are looking for more certainty and more predictability, and this strategy can offer a more appropriate set of returns. This will also help clients move money off the sidelines.
RR: Have you seen interest from any other sectors?
ME: We've seen some interest in the institutional space, particular from small to mid-size institutions. In fact, we recently had a meeting with the head of a $50 billion pension fund, who thought the strategy had legs. A lot of these institutions are underfunded, and everyone has risk management issues at the moment.
