SBJ/February 20-26, 2012/People and Pop Culture

The 5 percent solution: Advisers set aside share for nontraditionals

Call it the Baron Davis 5 percent plan.

That’s the amount financial advisers allocate to Davis to fund his nontraditional private placements and business ventures that tend to land in Web content and other entertainment production deals.

“Baron has a lot of entrepreneurial spirit, and people are constantly coming up to him, so part of what we have to do is go through those offers,” said Jeff Carbone, a founding partner of Cornelius, N.C.-based Cornerstone Financial Partners, which manages the portfolio.

PATRICK E. MCCARTHY

The Baron Davis Portfolio

Managers

• Cornerstone Financial Partners
• UBS Financial Services
• Convergent Wealth Advisors

Diversification Structure

• 50 percent: Municipal bonds, fixed income and a limited amount of real estate holdings, including a ranch and two other residential properties.
• 40 percent: Equities with holdings in traditional stocks and mutual funds — with 5 percent invested in large-growth companies and 7 percent in large-value stocks and safe-play utility stocks. Another 8 percent is invested in mid-cap stocks, 7 percent in small-company stocks, 10 percent in international stocks and about 3 percent in emerging markets such as Brazil and Chile.
• 10 percent: Alternative investments, such as hedge funds, commodities, oil and precious metals such as gold.

— John Lombardo


The 5 percent is a conservative amount suggested by Cornerstone and it’s kept separate from Davis’ personal portfolio. His regular investment portfolio is made up of 40 percent equities with holdings in traditional stocks and mutual funds, along with 50 percent in municipal bonds, fixed income and a limited amount of real estate holdings, including a ranch Davis owns in Idaho along with two other residential properties. The portfolio’s remaining 10 percent is targeted for alternative investments, such as hedge funds, commodities, oil and precious metals such as gold.

The equity-based portion of the portfolio is made up of a 5 percent allocation for investment in large-growth companies with more than $10 billion in revenue, and a 7 percent allocation in large-value stocks and safe-play utility stocks. Another 8 percent is invested in mid-cap stocks, 7 percent is put in small-company stocks, 10 percent is invested in international stocks and about 3 percent in emerging markets such as Brazil and Chile.

Davis’ bond portfolio includes a mix of municipal bonds, corporate and convertible bonds, and international bonds.

Unlike his early days in the NBA, Davis is becoming a more conservative investor with a portfolio reflecting a decreasing tolerance for risk. Five years ago, the makeup of his portfolio would have been directed more toward the equity markets.

“When I was younger, I would take lots of risks, ” Davis said. “I am very close to my money now but I do let the experts dictate to me what is the best way to invest. If I can make 10 percent, that would be wonderful.”

Davis is on the mark, given that from 2007 to present, his return is averaging about 10 percent, according to Carbone.

“Baron has come a long way,” Carbone said. “He has matured and is more financially minded. His risk tolerance is moderately conservative and his risk has come down as he gets closer to the end of his career.”

Though Davis has lost money on some of his off-the-court ventures, he has been helped by his respectable savings rate that Carbone said averages about 30 percent, along with full participation in the NBA’s 401(k) plan.

“As he made more, he has spent more, but he has good saving habits,” Carbone said. “He has saved a lot of money and he has done a good job in setting himself up.”

Davis is not involved in the day-to-day decision-making strategy but is active in managing his portfolio.

“When Baron is in a meeting, he is tuned in to what is happening,” Carbone said. “He makes the final decisions but he relies on his investment team.”


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