Advisory
Our advisory business is comprised of Westwood Management and Westwood International
and encompasses three distinct investment teams – the U.S. Value Team,
the Global Convertible Securities Team, and the Global and Emerging Markets
Equity Team.
Westwood Management provides investment advisory services to large institutions,
including corporate retirement plans, public retirement plans, endowments and
foundations. Institutional separate account minimums vary by investment strategy
and generally range from $5 million to $25 million. Westwood Management also
provides advisory services to individuals, the Westwood Funds® and UCITS
funds, as well as subadvisory services to other mutual funds and pooled investment
vehicles. Westwood Management’s investment strategies are managed by the
U.S. Value Team, based in Dallas, Texas, and by the Global Convertible Securities
Team, based in Boston, Massachusetts. Our investment professionals average fifteen
years of investment experience. We believe team continuity and years of experience
are among the critical elements required for successfully managing investments.
Westwood International, based in Toronto, Canada, provides investment advisory
services to large institutions, pooled investment vehicles and UCITS funds,
as well as subadvisory services to the National Bank Westwood Funds, which are
mutual funds offered by National Bank of Canada. Institutional separate account
minimums vary by investment strategy and generally range from $10 million to
$25 million. Westwood International's investment strategies are managed by the
Global and Emerging Markets Equity Team. Westwood International has entered
into a Memorandum of Understanding (“MOU”) with Westwood Management
pursuant to which Westwood International is considered a “participating
affiliate” of Westwood Management as that term is used in relief granted
by the staff of the SEC allowing U.S. registered investment advisers to use
portfolio management or research resources of advisory affiliates subject to
the supervision of a registered adviser. Pursuant to the MOU, Westwood International
professionals provide advisory and subadvisory services to certain Westwood
Funds®, pooled investment vehicles and large U.S. institutions under the
supervision of Westwood Management.
Investment Strategies
We offer a broad range of investment strategies, which allows us to serve a
variety of client types with different investment objectives. We currently manage
five investment strategies each with over $1 billion in assets under management,
including our Income Opportunity, LargeCap Value, SMidCap Value, Emerging Markets
and Emerging Markets Plus strategies.
U.S. Value Team
The U.S. Value team employs a value-oriented approach. The common thread that
permeates the team's strategies is a disciplined approach to controlling risk
and preserving client assets whenever possible. The team seeks to invest in
companies with high levels of free cash flow, improving returns on equity and
strengthening balance sheets that are well positioned for growth but whose value
is not fully recognized in the marketplace. Through investments in companies
that exhibit these characteristics, we seek to generate consistently superior
performance relative to our industry peers and relevant benchmark indices. This
investment approach is intended to preserve capital during unfavorable periods
and provide superior real returns over the long term. We believe that we have
established a track record of delivering competitive risk-adjusted returns for
our clients. The principal investment strategies currently managed by the U.S.
Value Team are as follows:
LargeCap Value: Investments in equity securities of approximately 40-60 seasoned
companies with market capitalizations at purchase generally over $7.5 billion.
This portfolio is invested in companies where we expect that future profitability,
driven by operational improvements, will exceed expectations reflected in current
share prices.
Concentrated LargeCap Value: Investment in equity securities of approximately
15-30 companies with market capitalizations at purchase generally over $5 billion.
This portfolio is invested in companies where we expect that future profitability,
driven by operational improvements, will exceed expectations reflected in current
share prices.
SMidCap Plus+: Investments in equity securities of approximately 45-65 companies
with market capitalizations at purchase between $2 billion and $15 billion.
Similar to our other value-oriented investment strategies, we seek to discover
operational improvements driving earnings growth within small to mid-sized companies
that can be purchased at reasonable prices.
SMidCap Value: Investments in equity securities of approximately 50-70 companies
with market capitalizations at purchase between $500 million and $8 billion.
Similar to our other value-oriented investment strategies, we seek to discover
operational improvements driving earnings growth within small to mid-size companies
that can be purchased at reasonable prices. This strategy reached its asset
capacity in 2010 and is now closed to new investors.
SmallCap Value: Investments in equity securities of approximately 50-70 companies
with market capitalizations at purchase between $100 million and $2 billion.
Similar to our other value-oriented investment strategies, we seek to invest
in high quality companies whose earnings growth is driven by operational improvements
not yet fully recognized by the market.
AllCap Value: Investments in equity securities of approximately 50-80 seasoned
companies. The portfolio generally comprises our investment professionals’
best ideas for companies with market capitalizations at purchase above $100
million. Similar to our other value-oriented investment strategies, we seek
to invest in companies across a broad range of market capitalizations where
we expect that future profitability, driven by operational improvements, will
be higher than expectations currently reflected in share prices.
Concentrated AllCap Value: Investments in equity securities of approximately
15-30 companies with market capitalization at purchase generally over $100 million.
We seek to invest in companies where we expect that future profitability, driven
by operational improvements, will be higher than expectations currently reflected
in share prices.
Income Opportunity: Investments in dividend-paying common stocks, preferred
stocks, convertible securities, master limited partnerships, royalty trusts,
REITs and selected debt instruments. This portfolio’s strategy focuses
on companies with strong and improving cash flows able to support sustainable
or rising income streams. This strategy is targeted towards investors seeking
current income, a competitive total return and low volatility via dividend-paying
or interest-bearing securities.
Worldwide Income Opportunity: Investments in a diversified group of global income-producing
companies that may include market capitalizations of any size, global preferred
equity, global convertible preferred, global fixed income, global REITs, Royalty
Trusts, MLPs and cash. This portfolio's strategy focuses on companies with strong
and improving cash flow sufficient to support sustainable or rising income streams.
Master Limited Partnership Infrastructure Renewal (“MLPs”): Investments
include MLPs (including limited partnerships and general partnerships) and other
securities, focusing on partnerships that exhibit higher distribution yields,
stable and predictable cash flows, low correlations to other asset classes,
and growth potential.
Global Convertible Securities Team
The Global Convertible Securities Team manages both long-only and liquid alternative
global convertible securities strategies employing a disciplined investment
process and rigorous risk management. The team's investment philosophy is based
on the following beliefs:
the asymmetric return profile of balanced convertible bonds can provide superior
risk-adjusted returns over medium- to long-term time horizons;
convertible securities markets are inefficient and opportunities exist to benefit
from pricing anomalies;
a global focus provides more robust opportunities and a clearer picture of the
broad convertibles universe; and
proprietary fundamental research is the best way to identify solid companies
with attractive risk-adjusted return profiles.
The team draws on the proprietary fundamental research of all three of Westwood's
investment teams in order to identify securities with an attractive risk-adjusted
return profile. The principal investment strategies currently managed by the
Global Convertible Securities Team are as follows:
Strategic Global Convertibles: This strategy seeks to provide equity-like returns
with lower volatility by investing in a balanced portfolio of 60-90 worldwide
convertible securities.
Market Neutral Income: This liquid alternative strategy seeks to produce positive
absolute returns over a full market cycle with low volatility by combining a
yield-focused portfolio that invests in high quality, short duration convertible
securities with a hedged portfolio utilizing convertible arbitrage and other
hedging strategies.
Global and Emerging Markets Equity Team
The Global and Emerging Markets Equity Team emphasizes Economic Value Added
(EVA) in its investment process and seeks to identify mispriced businesses that
can generate sustainable earnings growth. The team offers global and emerging
markets equity investment strategies. The principal investment strategies currently
managed by the Global and Emerging Markets Equity Team are as follows:
Emerging Markets: This strategy invests in the common stocks of 70-90 companies
that are located or have primary operations in emerging markets with market
capitalizations above $500 million. The portfolio is invested in companies that
we believe represents sound businesses that are mispriced and can generate sustainable
earnings growth.
Emerging Markets Plus: This strategy invests in the common stocks of 50-70
companies that are located or have primary operations in emerging markets and
have market capitalizations above $1.5 billion. The portfolio is invested in
companies that we believe represent sound businesses that are mispriced and
can generate sustainable earnings growth.
Emerging Markets SMid: This strategy invests in the common stocks of 70-90
small- and mid-cap companies that are located or have primary operations in
emerging markets and have market capitalizations between $150 million and $9
billion. The portfolio is invested in companies that we believe are sound businesses
that are mispriced and can generate sustainable earnings growth.
Global Equity: This strategy invests in the common stocks of 65-85 companies
located throughout the world, with market capitalizations above $1 billion.
Similar to our Emerging Markets strategy, the portfolio invests in companies
that we believe are sound businesses that are mispriced and can generate sustainable
earnings growth.
Global Dividend: This strategy invests in the common stocks of 65-90 well-established
companies around the world, with an emphasis on sustainability and growth of
dividends. It seeks to invest in strong franchises that we believe are mispriced,
with good liquidity, the ability to generate sustainable economic profits and
potentially pay dividends.
Our ability to grow assets under management is primarily dependent on our
ability to generate competitive investment performance, our success in building
strong relationships with investment consulting firms and other financial intermediaries,
as well as our ability to develop new client relationships while nurturing existing
relationships. We continually seek to expand assets under management by growing
our existing investment strategies, as well as identifying and developing new
ones. We intend to grow our investment strategies internally but may also consider
acquiring new investment strategies from third parties, as discussed under “Growth
Strategy” below.
Westwood Management and Westwood International manage client accounts under
investment advisory and subadvisory agreements. Typical for the asset management
industry, these agreements are usually terminable upon short notice and provide
for compensation based on the market value of client assets under management.
Westwood’s advisory fees are paid quarterly in advance based on assets
under management on the last day of the preceding quarter, quarterly in arrears
based on assets under management on the last day of the previous quarter, or
are based on a daily or monthly analysis of assets under management for the
stated period. A few clients have contractual performance-based fee arrangements,
which generate additional revenues if we outperform a specified index over a
specific period of time. Revenue for performance-based fees is recorded at the
end of the measurement period. Revenue from advance payments is deferred and
recognized over the period that services are performed. Pursuant to these agreements,
Westwood provides overall investment management services, including directing
investments in conformity with client-established investment objectives and
restrictions. Unless otherwise directed in writing by clients, Westwood has
the authority to vote all proxies with respect to securities in client portfolios.
Westwood Management and Westwood International are parties to subadvisory agreements
with other investment advisors under which they perform similar services under
advisory agreements. Our subadvisory fees are generally computed based upon
the average daily assets under management and are payable on a monthly basis.
Trust
Through the combined efforts of the Dallas, Omaha and Houston offices of Westwood
Trust, we provide fiduciary and investment services to high net worth individuals
and families, non-profit endowments and foundations, public and private retirement
plans and individual retirement accounts ("IRAs"). Westwood Trust
is chartered and regulated by the Texas Department of Banking. Fees charged
by Westwood Trust are separately negotiated with each client and are typically
based on assets under management. Clients generally have at least $1 million
in investable assets.
Fiduciary Services
Westwood Trust’s fiduciary services include but are not limited to: financial
planning, wealth transfer planning, customizable trust services, trust administration
and estate settlement. Westwood Trust also provides custodial services, tax
reporting, accounting of trust income and principal, beneficiary and retiree
distributions and safekeeping of assets.
Investment Services
Westwood Trust utilizes a consultative approach in developing a client’s
portfolio asset allocation. Our approach involves examining the client’s
financial situation, including their current portfolio of investments, and advising
the client on ways to reduce risk, enhance investment returns and strengthen
their financial position based on each client’s unique objectives and
constraints. Westwood Trust seeks to define and improve risk/return profiles
of client investment portfolios by offering a comprehensive investment solution
or enhancing clients’ existing investment strategies. Westwood Trust manages
separate portfolios of equity and fixed income securities for certain agency
and trust clients. Equity portfolios are generally patterned after the institutional
strategies offered by Westwood Management or developed by the internal investment
team in our Houston Woodway office. Fixed income portfolios consist of targeted
laddered portfolios of primarily high quality municipal securities.
Westwood Trust also sponsors several common trust funds in which client assets
are commingled to achieve economies of scale. Westwood Trust’s common
trust funds fall within two basic categories: personal trusts and employee benefit
trusts. Westwood Trust sponsors common trust funds for most of the investment
strategies managed by Westwood Management and Westwood International. Westwood
Trust has also engaged SKY Harbor Capital Management, LLC, William Blair &
Company, LLC and Brandywine Global Investment Management, LLC, all registered
investment advisors, to subadvise our High Yield Bond, Domestic Growth Equity
and International Fixed Income common trust funds, respectively.
Westwood Trust also develops asset allocation models for certain clients utilizing
mutual funds managed by Westwood Management and Westwood International, as well
as from certain other mutual fund families.
Enhanced Balanced® Portfolios
Westwood Trust is a strong proponent of asset class diversification and offers
its clients the ability to diversify among many different asset classes. Westwood
Trust Enhanced Balanced® portfolios combine these asset classes into a customizable
portfolio for clients seeking to maximize return for a given level of risk.
Periodic adjustments are made to asset class weightings in Enhanced Balanced®
portfolios based on historical returns, risk and correlation data and our current
capital markets outlook.
Distribution Channels
We market our services through several distribution channels to optimize the
reach of our investment advisory and trust services. These channels enable us
to leverage distribution infrastructures and capabilities of other financial
services firms and intermediaries while focusing on our core competency of developing
and managing investment strategies.
Institutional
In our institutional channel, we market our investment strategies through institutional
investment consultants, financial intermediaries, managed accounts programs
and directly to institutional investors. Institutional investment consultants
serve as gatekeepers to the majority of corporate retirement plans, public retirement
plans, endowments and foundations, which represent Westwood’s primary
institutional target markets. Consultants provide guidance to their clients
in setting asset allocation strategies, as well as creating investment policies.
Consultants also make recommendations for investment firms they believe can
best meet their client’s investment objectives. We have established strong
relationships with many global, national and regional investment consulting
firms, which collectively have contributed to our being considered and hired
by their clients. Continuing to enhance existing consulting firm relationships,
as well as forging new relationships, increases the awareness of our services
in both the consultant community and within their institutional client base.
Marketing our investment strategies to financial intermediaries, via subadvisory
relationships, allows us to extend the reach of our investment advisory services
to clients of other investment companies with broad, established distribution
capabilities. In subadvisory arrangements, our client is generally the investment
company through which our services are offered to investors, typically via mutual
fund offerings. The investment company that sponsors the mutual fund is responsible
for appropriate marketing, distribution and operational and accounting activities.
Managed accounts are similar in some respects to subadvisory relationships
in that a third-party financial institution, such as a brokerage firm or turnkey
asset management program provider, handles distribution to the end client. The
end client in a managed account is typically a high net worth individual or
small institution. In these arrangements, the third-party financial institution
is responsible to the end client for client service, operations and accounting.
We also market our investment strategies directly to pension funds, endowments,
foundations and other institutional investors.
Mutual Funds
In our mutual funds channel, we market our registered mutual funds, the Westwood
Funds®, to institutional investment consultants, financial intermediaries,
registered investment advisors, select broker-dealers and fund supermarkets.
By leveraging our existing relationships with institutional investment consulting
firms we are able to participate when their defined contribution and other retirement
plan clients require a mutual fund vehicle. We also seek relationships with
financial intermediaries that manage discretionary fund models in order to have
our funds placed in such models. Our wholesaling group markets our funds directly
to registered investment advisors, select broker-dealers and mutual fund supermarkets.
Private Wealth
In our private wealth channel, we generate awareness of our trust fiduciary
and investment services through investment consultants, centers of influence,
community involvement and targeted direct marketing to high net worth individuals,
families and small to medium-sized institutions. A significant portion of our
new asset growth has been generated by referrals from existing clients.