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Strategies
While able to offer and employ almost any strategy or financial engineering concept, Private Capital focuses on methods in which it has demonstrated expertise. An overview and brief sampling is described below.
One of the major advances in financial management during the past few decades has been the recognition that the optimum investment portfolio is more than a matter of combining individual securities with desirable risk-return characteristics.
Harry Markowitz first derived the expected rate of return for a portfolio of assets and an associated risk measure. His model led to the theory that a single asset or portfolio of assets is "efficient" if no other asset or portfolio of assets offers higher expected return with the same (or lower) risk or lower risk with the same (or higher) expected return. Accordingly, the "efficient frontier" represents that set of portfolios that has the maximum rate of return for every given level of risk, or the minimum risk for every level of return.
In the chart below, with standard deviation representing risk, Portfolio A dominates Portfolio B as at approximately the same level of risk, A provides higher expected return:
Simple passive strategies, with investors choosing only amongst growth and value styles of mutual funds, or even exchange-traded funds (ETFs), can still benefit from a rigorous review of the relationships between assets within the portfolio.
For more active management, investors may choose to place additional risky assets in their portfolio, such as individual stocks or derivative securities. (Derivatives, whose payoffs depend on an underlying good or security, are an entirely distinct class of financial instruments.)
Derivative strategies can include the purchase of a call option (the right to buy a stock at a specified price) to a spread position on futures (calculating differences between two or more contract maturities for the same or similar underlying deliverable goods), to name two.
For every service provided or strategy employed, Private Capital performs Monte Carlo simulations on each proposal, regardless of the breadth or complexity of the client need.
Monte Carlo software strives to remove the uncertainty from forecasting and risk analysis, performing thousands of simulations to present the entire range of results possible for a given situation. The chart below depicts the range of profits in a hypothetical scenario concerning the purchase of an apartment complex. Given the confidence levels supplied (and 1,000 simulations performed), the program has revealed the probability of this investment proving profitable is over 90%.
From proposed business acquisitions to portfolio allocations, Monte Carlo can provide greater insight into expected returns, expected risk, best and worst case scenarios, probability of achieving desired results, and maybe most importantly, probability of a negative return. As Samuel Goldwyn said, "Forecasts are difficult to make, particularly those about the future." Let Private Capital help.
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