Q4 2017 Letter
January 2018
It is our custom each January to reflect on the year that has ended and look forward to what we aim to accomplish in the coming year. We are particularly reflective this year as we look back not only one year, but on our firm’s first decade in business. While many things have changed over 10 years, our core values and guiding principles remain the same.
When we founded the firm in the Fall of 2007, we intended to build something distinct and enduring. It started rather modestly, with some loyal client families and an unwavering commitment to serve them well. The young firm was tested early with the arrival of the Great Recession. We were able to navigate this difficult period by relying on sound time-tested principles, thoughtful strategies and discipline.
The firm grew organically over time, propelled by warm introductions and referrals from our clients. This organic growth enabled us to broaden and deepen our capabilities. One area where growth has been most beneficial is private investments. This includes private real estate, private debt, and private equity. These opportunities are often more nuanced and complex than opportunities in the public markets. Our continued growth allows us to be thorough in evaluating private investments and enhances our standing in negotiations with both current and potential private investment partners.
Another area where scale has been helpful is in the use of technology to provide an enhanced portfolio monitoring and reporting platform. Furthermore, we discuss investment opportunities on an almost daily basis, and our Investment Management Committee meets on a monthly schedule. We have rigorous due diligence processes in place to evaluate potential and existing investments. We work in teams to service each family relationship. We honor diversity of experience and opinion. All of this contributes to an enduring culture of service. The whole is indeed greater than the sum of the parts.
Source: Federal Reserve Economic Database, S&P Dow Jones, and NHCO (latest available data)
As we look forward to 2018 and beyond, we will be following several trends and themes. One area of particular interest will be the Tax Cuts and Jobs Act of 2017. For a married couple, the estate tax exemption doubles from approximately $10.9 million to $22.4 million. The standard deduction nearly doubles from $12,700 to $24,000 under the new law. At the same time, State and Local tax deduction will now be limited to $10,000. We will be looking closely for planning opportunities and strategies that make sense in this new environment.
On the investment front, markets continue to advance while experiencing historically low levels of volatility. On some measures, this was the least volatile year in the stock market since 1965. The S&P 500 finished the year up 21.8% while international stocks were up 25.6% and emerging market stocks were up 37.3%. Economic growth has been strong and widespread. Corporate earnings have advanced both here and abroad. The S&P 500 has risen for 14 months in a row. Many analysts have been predicting a return of market volatility. So far, we have not seen it, but it would be naive to assume this environment will not change at some stage.
We continue to see potential in international and emerging markets for long-term investors. International markets are somewhat cheaper than domestic markets on some measures. Emerging markets will offer growth and diversification over long periods.
Markets have always been unpredictable and no one knows what the future holds. In light of this uncertainty, we will continue to be driven by our core values and time-tested principles. We will continue to focus on long-term strategic thinking. Planning carefully around expected cash flow requirements remains integral. Continued priorities will be to maintain globally diversified portfolios and be vigilant about the adverse impacts of taxes and fees, while rebalancing away from what is more expensive towards what is more attractively valued. We will continue to scour the public and private markets for attractive investment opportunities. These are the activities that have served our clients well over the years.
We are pleased to announce that Shelley Castaldi has joined the firm as Family Office Coordinator. Shelley is from London and holds a Bachelor of Science in Business & Financial Economics from the University of Leeds in the UK. She has previously worked in a variety of administrative roles. We are delighted to welcome Shelley to the team.
As always, we welcome your thoughts, and appreciate the confidence you have placed in our firm. We are grateful for the opportunity to work with you and your family, and we wish you a happy, healthy, and successful 2018.
Nicholas Hoffman & Co.