The news was as sweet – for us anyway– as the first crack of the bat in spring training or the sound of Clarence Clemons’ sax solo in “Jungleland.” Earlier this month, SDA proudly announced a game-changing joint venture had been reached with Hudson Valley Investment Advisors, Inc. (HVIA). The collaboration allows us to gain greater control over the investment management process and portfolio construction. HVIA and their force of a Chief Executive Officer and Chief Investment Officer –Gus Scacco—will also serve as our new OCIO (Outside Chief Investment Office) partner.
As Scott Coopersmith, our president and founder noted, “we’ll utilize the OCIO to leverage HVIA’s investment insights and more.” Overall, of the JV, he said, “SDA gets institutional quality advice that will help us optimize their investment experiences and better execute their financial plans.”
For more on the joint venture, view the recent announcement here. For now, however, we’d rather hear about it from the proverbial horse’s mouth. We recently spoke with Scacco about what the JV means for both SDA and HVIA, and a bit about himself. He’s as enthusiastic and excited about the collaboration as we are.
Before we get into the joint venture, we’d love our readers to know a bit more about you. Can you give us a CliffsNotes version of yourself and how you got started 30 years ago?
I started out at what is now JP Morgan. It was a great experience because you got to see how the sausage was made. [After grad school at Hofstra], I went through their training program. It was great because I got to see, feel and touch [everything about] small to midsize businesses—all of these guys and gals started out of a garage or backseat of a car and built businesses into multi-millions at the time. And for every one that actually worked, there were a couple of dozen that went out of business. So you realized it wasn’t about luck. They had a process. You got a perspective of all these different industries from bean importers to guys that were the shirt manufacturing business to public companies like Standard Auto Products. I got that real hands-on experience and from that, took a job with J&W Seligman, which is now part of Ameriprise.
[Eventually,] I worked at an independent business for a year and helped a friend turn around a business so I also got experience running a business in real time. It was a great experience, but I hated it. It wasn’t Wall Street. What I love about Wall Street is every day I get educated. I get to talk to people that are smarter than me, and I learned about all these different businesses, and you have to be on top of politics and the economy.
So I joined Morgan Stanley, working with a partner Peter Herman for about ten years. We took over a fund they were thinking about consolidating, and today it’s the largest fund in Morgan Stanley’s bailiwick. It’s called the Capital Growth Fund. We ended up moving to a firm called Angelo Gordon, working there for about six years. From there, I went to Tiger Management. Tiger was unique. At Morgan Stanley, I got to see retail and institutional, then went to solely institutional business. At Tiger, it was a combination. One day, I ended up getting a phone call to see if I had interest in looking at a small investment firm that did 1/3 institutional, 1/3 high net worth and 1/3 sub advisory which is Hudson Valley Investment Advisors, so I figured let me give it a shot. The hedge fund business was changing quite a bit. This was an opportunity to see, touch and feel individual investors as well as smaller institutions where you really can make a big difference and impact, and you can see it.
We took over the firm about seven years ago, and it went from $400 million to $1 billion. We have a publicly traded mutual fund HVEIX and you can see the performance record on a one, three and a five-year basis. We have a great team and a great history. It’s been around for 30 years and we’re looking to get bigger and better.
SDA: What trends have you noticed over your career and changes during just this current pandemic climate?
Thirty years ago, it all became about education and understanding what the information flow was. It was really a trader’s game and over time it became an investors game. Then traders got taken over by computers. You had an interest rate environment that went from about 15.5% down to almost zero in a 30-year period and all that happened during that period is you got bailed out by interest rates going lower.
Interest rates now are probably going to be heading higher and the markets will need to adjust to this new environment. You’re starting to see an uptick in rates and it will necessitate a transition within investors portfolios to more stocks rather than simply buying an index. The environment requires more idiosyncratic, company specific focus, stock-picking and active management. The market prices things in a lot faster so if you look right now, the market volatility in the short term is likely to be high. It used to be that you saw rate increases and then the yield curve would adjust, and now it’s happening the other way around where things are actually occurring in the fixed income markets a lot sooner. This has implications for Fed policy and what types of stocks outperform.
Let’s get to the joint venture with SDA. How’d it come about?
I’ve known Marc Irizarry for 25 years. We have mutual respect for one another. He was an analyst that gave you insight in terms of public companies that were underwritten by Morgan Stanley. Then he moved over to Goldman Sachs. He’s probably one of the most insightful people when it comes to asset management business strategy, and he’s helped build out firms. Marc said, ‘listen if you are looking to grow organically you have all of these skill sets and all of these assets, but they are not being most robustly used.’ So, that was the first thing. The second thing was Marc’s relationship with Scott and his vision for SDA on the American Portfolios platform. He has been a very good steward of capital for high-net-worth individuals. So, this was a person on a platform that offers client enhancements and strategic benefits for across the organizations.
Hudson Valley Investment Advisors is an RIA, so we don’t sell products for commission. We get paid a fee for investment advice based on the assets under management. We’re focused on managing investments. SDA/Scott Coopersmith is affiliated with American Portfolios Financial Service (Broker Dealer) and American Portfolios Advisors (Corporate RIA). So, they can bring us all these different product sets. Itt allows us to gain the availability of more products for our clients as well as access to a platform where we can take our products and our expertise and act as a chief investment officer, not just for our firm, but we can possibly push that out into a channel that has SDA and other players on it on the American portfolios platform. So, that’s where it made sense.
Talk a bit more about how this joint venture works… What does SDA bring to the table for HVIA?
Well, a couple of things. They have the ability to offer products to different clients that they have and we can give them our expertise in terms of our information and investment knowledge. We’re acting as an outsourced chief investment officer. We’re able to give them updates on the markets and what we’re seeing in terms of changes that are going on. A lot of people are offering services similar to what we’re doing out to the marketplace and SDA has basically bought into our product set based off of our process and the history of our returns. We actually speak and talk to the companies that we invest in. We’re members of the Economics Club of New York. We’re speaking to economists and strategists at Wells Fargo, Piper Jaffrey, etc . We get this mosaic of information and we’re able to put together an investment outlook.
They’re also bringing our clients and relationships a suite of wealth management services that complements what we do.
Where could this JV potentially go?
The sky’s the limit. If you look at other firms that have gone into these types of relationships, it gives you the best of what you do. If I look at the team at SDA, they’re focused on clients and great at marketing, great in terms of making sure they put together balanced plans that take a holistic view of a client. We’re able to give them further investment insight and direction. We’re collaborating in a way where we’re doing what we’re best at and they’re doing what they’re best at. There are also products that we’re able to offer now that we couldn’t in the past. So, 401K plans we were able to offer, but because of the cost structure it didn’t make sense for certain sized plan. There’s now more options
Gus, since we started with asking you about you. Let’s end on the same note, but with a twist. What’s something about you that perhaps people don’t know about you?
The baseball side of things. My dad was an electrician, my mother was a bookkeeper. When I got the opportunity to go to college, it was because of sports (baseball). I went to Adelphi University and stayed local. It was a Division II school, but we played all Division I. I went to two college semifinals in four years, playing against future major leaguers. I became captain of the team as a sophomore. It has actually helped in business. Not many people are captains as sophomores and the upperclassmen just feel that they should be the next captain, so you have to be able to manage that.
The second part is you’re always put in pressure situations and you’re able to deal with pressure as an athlete better than you would if you weren’t. You also had to be able to balance school with athletics and learn time management. So, I think dealing with all these things helped round me into the person I am. You have to do the extra things that sports ingrained to get on Wall Street: lift the extra weight, run the extra mile and do those extra sit ups in order to be better than the guy next to you.