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For your convenience Apress has placed some of the front
matter material after the index. Please use the Bookmarks
and Contents at a Glance links to access them.
Contents
Foreword ��ix
About the Author�� xiii
About the Technical Reviewer ��xv
Acknowledgments�� xvii
Part I: An Overview of Professionally Managed Assets�� 1

Chapter 1: Understanding Professionally Managed Assets �� 3
Chapter 2: Why Professionally Managed Assets? ��21
Part II: Mutual Funds�� 39

Chapter 3: The Growth of Mutual Funds ��41
Chapter 4: Long-Term Investing in Mutual Funds ��63
Chapter 5: Mutual Fund Performance Measures and
Selection Criteria��83
Part III: Other Professionally Managed Assets under

the 1940 Act �� 109
Chapter 6: Closed-End Funds��111
Chapter 7: Unit Investment Trusts��129
Chapter 8: Exchange-Traded Funds��145
Part IV: Professionally Managed Assets for

High-Net-Worth Investors�� 163
Chapter 9: Hedge Funds��165
Chapter 10: Managed Futures��189
Chapter 11: Private Equity Funds ��209
Part V: Alternative Professionally Managed Assets �� 229

Chapter 12: Limited Partnerships and Real Estate
Investment Trusts��231
Chapter 13: Individually and Separately Managed Accounts��257
viii Contents
Part VI: Managed Assets and Life Insurance

Companies �� 273
Chapter 14: Variable and Variable Universal Life Insurance ��275
Chapter 15: Variable Annuities��291
Part VII: Summary�� 313

Chapter 16: Summary of the Present and Future of Professionally
Managed Assets��315
Glossary: Glossary��323
Index��337
P A RT
An Overview of
Professionally
Managed Assets
CHAPTER
Understanding
Professionally
Managed Assets
For as long as individuals have invested, they have sought out the services
of someone more experienced than themselves in the buying and selling of
assets. In other words, they have turned to the services of a “professional.”
Historically, the term professional has referred to an individual who is self-
employed, is highly educated, and complies with an explicit ethical code of
conduct. Among those individuals typically thought of as professionals are
physicians, attorneys, accountants, and engineers. Indeed, the IRS classifies
those involved in the health, accounting, legal, and engineering professions as
subject to a possible penalty for engaging in what is known as a personal service
corporation in tax law. Currently, however, the term professional is used much
more broadly to refer to anyone who is a salaried individual and works for
someone else, whether that is an individual or a non-manufacturing corpora-
tion (in other words, not in a “blue collar” industry).
Among those individuals now considered to be professionals are portfolio
money managers, both at the retail and wholesale level. At the retail level,
the professional money manager may be either an investment advisor
or a broker. An investment advisor typically works independently or for
a Registered Investment Advisor, whereas a broker typically is employed by
a wirehouse firm, such as Bank of America Merrill Lynch, or an independent
broker-dealer, such as Walnut Street Securities. It is at the wholesale level of
4 Chapter 1 | Understanding Professionally Managed Assets
investing, however, that most individuals think of professional money manag-

ers. An example is a portfolio manager of an open-ended investment com-
pany, commonly referred to as a mutual fund. This portfolio manager generally
is a very experienced individual skilled in investments and investment theory.
The manager is able to effectively match the characteristics of the investor to
those of the fund investments the investor is making; each fund is then cat-
egorized accordingly to specify the types of investments that will be made by
the portfolio manager. The manager is paid an annual salary by the investment
company, often including a bonus for superior or outstanding investment per-
formance during a given year.
The Definition of a Professionally Managed

Asset
Now that we have described the meaning of the term professional in today’s
investment marketplace, what is meant by the term asset? In the investment
world, an asset is any property of value owned by an individual or individuals.
From a corporate balance sheet perspective, assets may be broken down into
current assets, consisting of cash, accounts receivable, inventory, and short-term
marketable securities; and fixed assets, consisting primarily of any buildings and
land in which the corporation conducts its business, as well as any machinery
or equipment used to generate the product or service the business offers.
When translating the term into a statement of personal financial position,
assets are commonly delineated into cash and cash equivalents, with the latter
including those assets that can be quickly converted into cash without a loss
of value, investment assets, and use assets. Investment assets include securi-
ties, such as stocks and bonds, and are usually further categorized into tax-
able and tax-deferred accounts. Such assets are sometimes further delineated
into financial and real assets, both of which will be discussed in this book.
Meanwhile, an example of a use asset is an individual’s home or personal resi-
dence, even though many individuals consider their home to be an investment
or a purchase intended to appreciate in value.
A professionally managed asset is an investment asset that is managed by some-
one else, usually a money manager with a level of experience and education
that sets them apart from the individual investor (or the investor who invests
without the assistance of a manager). As mentioned, most of the time profes-
sional management refers to management of the investor’s assets at the whole-
sale or fund level, although the term can also be used to refer to an investment
advisor working individually with the investor. In this book, we use the term
primarily to refer to the manager of a fund or of some type of pooled asset,
which may also be held in the form of a trust or insurance-backed investment.
Investments in the form of financial assets (stocks or bonds) are also a pri-
mary focus, but indirect real estate investments are also considered.
The Handbook of Professionally Managed Assets 5
The Ownership and Positioning of

Professionally Managed Assets
As we begin our discussion with respect to the investment assets of individu-
als, it is important to keep in mind two issues: who owns a given asset, and
why the asset is owned.
Although the question of ownership may seem elementary, there are several
methods of owning or titling assets. For example, an asset can be solely or
individually owned. This titling is possible in all states, including those that
recognize “property by the community” in the case of married individuals. In
those states, such as California and Texas, individual property owned by one
spouse and not the other is referred to as separately owned property.
An asset can also be owned concurrently or with someone else. Among the
concurrent forms of asset ownership are these:
• Tenants in common: A form of ownership with the feature
of undivided ownership among two or more individuals,
typically siblings
• Tenants by the entirety: An ownership form available only
to married couples and with rights of survivorship
• Joint tenancy: An ownership form where each individual
owns the entire portion of the property and with rights
of survivorship
• Community property: a form of ownership featuring an
equal one-half interest in all property acquired during
the course of the marriage regardless of which spouse
contributed any or all the funds used to acquire such
property
The second issue involved with investment assets concerns why assets are
owned. For example, is an asset owned to meet an individual’s short-term
financial goals, such as the payment of current or upcoming bills? Or is it
owned to meet a longer-term goal, such as saving to purchase a home, start a
business, or retire at a planned date in the future? This question underlines the
necessity of establishing financial goals for your money; in turn, the establish-
ment of financial goals makes it much easier to discipline yourself to save.
The form in which investment assets are owned depends on the length of
the investor’s time horizon and the financial goal for which the investor is
saving. Most commonly, investment assets may be accumulated in either a
taxable or a tax-deferred account, such as a retirement account. There is a
longstanding dispute with respect to which individual securities (stocks or
bonds) or mutual funds (stock funds or bond funds) to position in which type
of account. Conventional wisdom indicates that investments that generate

ordinary income, such as interest on bonds and bond funds, are best held in a
tax-deferred account, whereas growth investments, such as stocks and stock
funds, are best owned in a taxable account. However, there are academic stud-
ies, including one by this author, showing that the longer the investment term,
the greater the potential benefits from tax deferral. Because this is the case,
it may be beneficial to position higher-return growth investments, such as stocks
and stock mutual funds, in a tax-deferred account.
Here are three criteria you can use to determine where to position your
investment assets:
• What is your marginal income tax bracket? The higher the
marginal income tax rate you pay, the more you should
pay attention to the tax-efficiency of your investment
assets. For example, stock mutual funds that pay dividends
(income funds) for an individual in a 25 percent or higher
marginal tax bracket are best positioned in a tax-deferred
account. Conversely, stock mutual funds that pay little or
no dividends (growth funds) for a high-bracket taxpayer
should likely be owned in a taxable account.
• Do you expect to be in a lower tax bracket during retire-
ment? If you plan to move at the time of retirement to
a state with no income tax (such as Florida or Texas),
you will experience even greater benefits from invest-
ing in tax-deferred accounts. Not only will you benefit
from the tax-free compounding of your returns during
the retirement accumulation period, but you also will pay
lower taxes on the retirement benefits at the time of
distribution.
• What is your investment time horizon? As noted, the lon-
ger you can keep your assets invested, the greater the
potential benefits from tax deferral. In the tax world, to
qualify for long-term capital gains treatment, you only
need to own an asset for more than one year. However,
the time frame for planning for retirement is much longer,
in some cases as long as 40 years. As a result, if you are
planning to save over such a long time frame, the growth
of your assets (capital gain) should be the primary consid-
eration of your investment strategy. This also means the
dividend payout on a stock or stock mutual fund prob-
ably will be much less important to you. Perhaps consider
stocks in a tax-deferred account, which is the opposite of
conventional wisdom as it is usually stated.
Self-Directed Investment Accounts

The major type of non-professionally managed account at the retail level is
the self-directed investment account. These accounts are prevalent in defined-
contribution retirement plans (like Section 401(k) plans), where the risk of
investment falls on the employee/participant. Although these accounts rely
on individual investor expertise (or non-expertise), if individuals invest in one
of the many mutual funds offered by their 401(k) plan, they are afforded the
advantage of access to a professional money manager at the fund or whole-
sale level.
Another popular form of self-directed investment account is the self-directed
individual retirement account (SDIRA). These come in the form of either a
traditional, before-tax, deductible IRA or an after-tax Roth IRA. In either form,
certain investments are prohibited, such as investments in life insurance or
real estate that is personally used by the investor (such as a vacation home).
The majority of investments made in a SDIRA, like the employer-sponsored
401(k) plan, are in mutual funds.
So, what are some considerations to be taken into account by the self-directed
investor when selecting mutual funds? I will have more to say about this in
Chapter 5, when discussing mutual fund selection criteria, but for now, here
are some important tips:
• Many employees/participants in Section 401(k) plans
choose one of the preselected funds offered by the
employer. This is both good and bad. First the good:
because the employer often is worried about poten-
tial liability, it chooses only the best funds of each type
in which the employee may invest. Now the bad: many
employees/participants tend to choose a fund by default
or by adopting a “one-size-fits-all” strategy. Thus, they
tend not to take into account considerations—such as
their age and tolerance for risk—that are important to
long-term wealth accumulation.
• Many people who choose a preselected fund ignore the
fact that some plans offer a self-directed option that lets
them designate a certain portion of their funds to be
placed with an outside financial advisor and invested in
funds that are not offered on a preselected basis.
• Employees/participants tend to trust the credibility and
performance of the mutual fund managers that manage
the preselected funds. This is a mistake. Before investing
in any fund, including in a self-directed 401(k) plan, inves-
tors should investigate the background and tenure of the
mutual fund portfolio manager. The greater their experi-

ence with that same mutual fund company or in manag-
ing mutual fund investments generally, the more likely the
manager has invested throughout any number of market
environments, including both upward (bullish) and declin-
ing (bearish) markets.
• The one thing employees/participants can control is the
fund in which they choose to invest. To avoid a drag on
their returns, savvy investors know to limit their selection
to funds with lower-than-average operating expenses and
management fees. The typical stock mutual fund operat-
ing expense, including management and 12b-1 fees, is
approximately 1.4 percent, according to Morningstar, Inc.
This means 1.4 percent of the fund’s assets are used to pay
operational expenses and reduce the amount of return
that would otherwise be coming to you. The expenses
are even higher for those funds that deal with interna-
tional securities, where exchange-rate conversions must
be made. How do you protect yourself? Choose stock
funds that have operational expenses of no more than
1 percent, preferably lower. Moreover, bond funds have
lower operational expenses.
All these same considerations also apply to an investor in a self-directed
IRA, although the advantages (and disadvantages) of preselected funds by the
employer do not apply.
Life Cycle Investing

Before we move on to outlining the types of professionally managed assets
that are the focus of this book, I should say a few words about a relatively
new form of investing that has been given a significant boost by the Pension
Protection Act of 2006: that of life cycle investing and its two representative
investments, the target-date retirement fund and the lifestyle mutual fund.
Historically, asset diversification has been used to decrease investor risk while
not proportionally reducing the return that can be expected from an invest-
ment portfolio. Such a strategy relies on combining assets that have a low
positive or slightly negative correlation with each other. (Correlation and cor-
relation coefficients will be discussed in Chapter 5 of this book when we
examine mutual fund selection criteria.) Moreover, asset diversification should
be accomplished both within and across industries or sectors of the economy
to ensure that the strategy’s maximum benefit is realized. But is it also possible
to diversify across time? The strategy of life cycle investing posits that it is.
A life cycle fund does this by automatically rebalancing the investor’s portfolio
according to their age and the status of their current lifestyle.
The professional asset mechanisms by which life cycle investing are imple-
mented are the target date retirement fund (target fund) and the lifestyle
fund. A target fund is a mutual fund that automatically resets or “rebalances”
its asset classes, which traditionally include stocks, bonds, and cash equivalents,
according to a selected time frame based on the individual investor’s pro-
jected retirement date. In essence, the fund targets its holdings (and ultimate
wealth accumulation) to a specified future date. As such, such a fund is best
for meeting the general needs of investors with a similar time horizon. A tar-
get fund with an estimated retirement and funding date of the year 2025 may
be invested in a proportion of 70 percent bonds, 20 percent stocks, and 10
percent cash. Alternatively, a fund with a target date of 2045 may be allocated
to maintain a constant percentage of 80 percent stocks, 15 percent bonds, and
5 percent cash. Market fluctuations may cause the allocation to deviate from
its desired percentages, so a computer program will automatically readjust the
allocation to the promised mix of assets.
The lifestyle fund, on the other hand, maintains a predetermined risk level and
generally includes the word conservative, moderate, or aggressive in the fund’s
name to describe the participants’ risk tolerance.
The Pension Protection Act not only encouraged the use of target funds but
also authorized the automatic enrollment of employees in Section 401(k)
retirement plans unless they opt out. Moreover, target funds are now used as
the investment option of choice (the default option) for individuals who never
opt out of automatic Section 401(k) enrollment. This leads to many employ-
ees/default participants who never know which funds or asset classes their
monies are invested in. This is not a good way to invest. Not only have you
given complete oversight of your funds to a computer (not a person), but you
are likely never to consider factors such as the fund’s expense ratio, your own
age, and your risk tolerance—all of which are critical to effective investment
management. At the very least, you need to understand this old investment
maxim: only you are responsible for your investment future, and if you don’t
invest properly, you will not have much of a future!
Types of Professionally Managed Assets

This book will cover in detail the following types of professionally managed
assets:
• Open-end investment companies, commonly referred to
as mutual funds
• Closed-end funds
• Unit investment trusts (UITs)
• Exchange-traded funds (ETFs)

• Hedge funds
• Managed futures
• Private equity funds
• Limited partnership investments
• Real estate investment trusts (REITs)
• Individually managed and separately managed accounts
• Variable life insurance
• Variable annuities
Additional types of professionally managed assets (PMAs) are being developed
daily, but this list constitutes the best-known and commonly accepted types
of PMAs.
Open-End Investment Companies (Mutual

Funds)
The defining characteristic of an open-end investment company, or mutual
fund, is the continuous offering of new shares to investors and the continu-
ous readiness to buy back outstanding shares of the fund from investors on
request. The number of outstanding shares in the fund varies, because shares
are constantly being purchased by and redeemed from the company. There
is no legal limit on the number of shares that may be issued. The shares are
priced daily at the net asset value, which is computed by taking the portfolio’s
total market value less fund liabilities and dividing the remainder by the num-
ber of outstanding shares. Trades do not take place until the end of the mar-
ket trading day, with shares sold and redeemed at net asset value (NAV).
If redemptions requested from the fund exceed purchases, the result is a net
cash outflow and fewer dollars that may be invested from the fund. As a con-
sequence, the fund must estimate (and keep in reserve) a certain amount of
cash assets at all times to service investor redemptions.
Mutual funds are normally classified by their investment objective, which is
specified in the fund prospectus. Although mutual funds can be classified in
numerous ways, generally there are four main categories:
• Money market funds
• Stock (or equity) funds
• Bond (or fixed income) funds
• Hybrid funds (a mix of stocks and bonds in the same fund)
According to the 2013 Investment Company Institute (ICI) Fact Book, as of

the end of 2012, there were more than 8,700 mutual funds with combined
assets of over $13.0 trillion in the United States. Some 45 percent of these
funds were stock or equity funds.
Historically, and to date, most mutual funds are actively managed, meaning the
fund portfolio manager attempts to earn an annual return in excess of some
previously established benchmark. For example, a stock fund investing in large
company stocks might attempt to exceed the performance of the Standard &
Poor’s Index of 500 stocks. But recently, index funds—mutual funds that try to
replicate the annual performance of a specified index—have increased in popu-
larity. The reasons for this increase in popularity will be explained in Chapters 3
and 4 of this book; but with the increase in index fund investing, there has also
been an increasing interest in passive-management investing strategies. Passive
management simply means the fund seeks to match overall market returns and
does not try to outperform a stipulated benchmark index.
Mutual funds are the focus of Chapters 3, 4, and 5 of this book.
Closed-End Funds
Closed-end funds differ from their open-end cousins in that they issue a lim-
ited number of shares following their public offering. Therefore, the closed-
end fund is structured to neither constantly sell shares nor constantly redeem
shares on an ongoing basis. Share prices fluctuate and are determined by
market supply and demand. These shares sell at a discount or a premium to
the fund’s net asset value, a source of continuing (and perplexing) study by
academics, who cannot readily state why this phenomenon occurs. Investors
cannot sell their shares back to the fund but instead must sell them to another
investor on the stock exchange.
Closed-end funds are sold primarily through brokers and tend to be much
smaller than open-end mutual funds. Thus they are costlier to operate and
have higher operating expenses. Per the 2013 ICI Fact Book, at the end of
2012, there were 602 closed-end funds with total assets of approximately
$265 billion.
On a final note, do not be confused by the term closed when it is used to
describe a mutual fund: closed mutual funds are not the same as closed-end
funds. Rather, when a mutual fund is described as closed, it means the fund is no
longer available to new investors. This occurs when the mutual fund becomes
too large, causing market-entry problems for the fund manager. For example,
a mutual fund that is very large typically cannot sell one of its holdings without
a significant market disruption, forcing the market price of that holding down
from where it would otherwise be, given a normal sell order and fund size.
Closed-end funds are discussed in Chapter 6.
Unit Investment Trusts (UITs)

Unit investment trusts (UITs) are similar to closed-end funds in that they
make purchases of a fixed amount of securities. Their shares, known as units,
trade on the stock exchange. However, unlike closed-end funds, UITs never
make any changes in the portfolio’s holdings. Instead, they keep the same secu-
rities until the trust liquidates. This has historically meant that UITs predomi-
nately held fixed-income securities, including both taxable and tax-exempt
(municipal) bonds. That has changed recently, with stocks and equities now
representing more than 50 percent of UIT assets.
UITs are organized by sponsors under trust indentures, which are legal agree-
ments specifying the terms of the trust and the obligations of the sponsor
to the investors or the trust beneficiaries. The actual assets in the portfolio
are placed with trustees, normally banks or trust companies, for safe-keeping
and administration of the trust. The portfolio is not actively managed, and the
assets purchased by the trust are preselected to meet the trust’s investment
objectives. As of the end of 2012, there were more than 5,700 UITs with total
assets of $72 billion.
UITs are discussed in Chapter 7.
Exchange-Traded Funds (ETFs)

An exchange-traded fund (ETF) may be concisely described as a mutual fund
(usually an index fund) that trades like a stock. ETFs are traded throughout
the trading day on the stock exchange at a price determined by the market.
Unlike investors in mutual funds, ETF investors do not have to wait until the
end of the trading day to find out the price at which they bought shares of a
fund. Nonetheless, the price of an ETF is typically close to the net asset value
(NAV) of a mutual fund, because ETFs normally issue and redeem large blocks
of their shares with institutional investors, similar to an index fund. ETFs are
usually passively managed, although in recent years the concept and imple-
mentation of actively managed ETFs has taken hold.
ETFs evolved from the concept of warehouse receipts, which reflect marketable
evidence of ownership and facilitate buy and sell transactions of warehoused
commodities. The underlying concept behind the receipts is that the receipt
itself may be bought and sold, but the actual commodity remains in the ware-
house. As a result, the term depositary receipt has become prevalent in the
marketing of ETFs to investors. Note that there are also exchange-traded
notes (ETNs). Unlike ETFs, which primarily include stock depositary receipts,
ETNs are receipts of company-issued debt.
ETFs are usually structured as hybrid mutual funds or unit trusts and, because
they are typically index funds, feature very low fees. ETFs are also very income
tax–efficient for investors, as will be explained in Chapter 8. ETNs are also

further discussed in Chapter 8. At the end of 2012, there were more than
1,200 ETFs in the United States with total assets of $1.3 trillion. They have
grown in both size and assets since then to rival mutual funds as the primary
form of professionally managed asset.
ETFs and ETNs are discussed in Chapter 8.
Hedge Funds
There is no precise definition of a hedge fund, but the term has come to mean
a loosely regulated, private mutual fund for high net-worth investors. Hedge
funds are “loosely regulated” in the sense that they are not subject to nearly
as much scrutiny as the mutual fund industry is. In fact, hedge funds were
not even envisioned in the Investment Company Act of 1940, the primary
legislation governing open-end companies. Hedge funds are “private” in the
sense that they employ money managers who usually are not accessible to
the general public, as is the case with mutual funds. Next, hedge funds are
mutual funds in the sense that they pool investor money much like mutual
funds do. Keep in mind that unlike mutual funds, most hedge funds are struc-
tured as limited partnerships and not corporations. Finally, the high minimum
amount needed to invest in the fund (usually an initial investment of $1.0
million dollars or more) means only high-net-worth or "accredited" investors
may participate.
There is no doubt that hedge funds are permitted to, and do, take on more
risk than the typical mutual fund. However, there is doubt that this increased
exposure to risk is rewarded by performance that exceeds that of the typical
mutual fund. This irony will be discussed in Chapter 9; for now, just under-
stand that the term hedge, which is typically associated with the management
of downside risk in any investment, means much more (really, whatever the
portfolio manager wants it to mean) when it comes to investing in this type
of fund. According to HFR Global Hedge Fund Industry Reports, at the end
of 2012, there were estimated to be approximately 8,000 active hedge funds
with $2.4 trillion dollars in assets.
Managed Futures
Among the various types of professionally managed assets, managed futures
are likely the least well-known and understood. This is because this com-
plex asset combines two alternative investments—commodities and financial
instruments—into a derivative- futures- and incorporates professional money
managers in an attempt to lower portfolio risk. Moreover, most investment
professionals do not practice in the futures market, a standardized market in
which futures contracts are traded. A futures contract features an agreed-on

price today at a predetermined date in the future (known as the futures price,
which stands in contrast to the spot price, or the price of the commodity
if delivered immediately). These contracts trade on the futures market, the
primary of which, due to the agricultural history of commodities, is the CME
Group in Chicago, Illinois.
The managers who work in the managed futures industry are known as com-
modity trading advisors (CTAs). These managers are required to register with
the federal government’s Commodity Futures Trading Commission (CFTC),
which has regulatory authority over the operations of the futures market.
CTAs generally work for a broker-dealer, such as Wells Fargo Advisors, and
manage their client’s assets using a proprietary trading system. They go long
(buy a futures contract) or short (sell a futures contract) based on their per-
ception (or bet) of which direction future prices for that particular commod-
ity or financial instrument will gravitate. Understanding the nomenclature and
the various strategies of futures trading is critical to success in the futures
market and its private-market counterpart, the forward market. (Note that
because forward contracts are not publicly traded, the term managed futures
does not encompass forward management.)
It is possible for managed futures to outperform (achieve an excess return
relative to) the broader overall stock market, but, as mentioned, the focus
of the practice is to hedge, or minimize the risk of significant portfolio. It
attempts to do this by taking advantage of the proven negative correlation
of futures contracts and traditional asset classes, such as stocks and bonds.
Much more will be said about managed futures mutual funds and proprietary
programs in Chapter 10.
Private Equity Funds

A private equity fund is a limited partnership formed by a private equity firm
(serving as the general partner and investment advisor to the fund) that
makes capital available to non-publicly traded, private companies. Typically,
the private equity firm manages several funds at once and starts a new fund
every three to five years, after the previous fund or funds is fully invested (or
fully subscribed). The investors in the fund are primarily institutional investors,
such as pension funds and university endowments, although depending on the
particular institution’s investment policy statement, the amount of money that
may be invested in private equity funds may be limited. High-net-worth and
experienced investors (defined in securities laws as accredited investors) may
also be interested in private equity investments.
A fund of funds may own the shares of mutual funds, which invest in publicly
traded securities, or the shares of private equity funds, which invest in pri-
vate firms. An investor purchasing a fund of funds does so to achieve cost
effectiveness and the possibility of greater diversification. In other words, the

same amount of money is now spread among many funds, which in turn fea-
ture their own diversification potential, because the investment is made in
many individual stocks, within and across market sectors, or in many private
businesses.
Private equity firms, beyond establishing private equity funds, can also invest
directly in a private business. If it chooses to do so, the firm injects capital
into the private business in exchange for equity (common stock) or preferred
stock that is convertible into equity at a later date. The firm may also loan
money to the private business in exchange for convertible debt. This cash
infusion can come early in the business’s start-up stage, in which case the infu-
sion is known as venture capital, or later in the small business’s life cycle, when
it may be used to improve the efficiency of the business. In either stage, the
private equity firm’s goal is ultimately to take the firm public, meaning to engage
in an initial public offering (IPO) of stock. As a result, the private equity firm
hopes to recognize its return-on-investment (ROI) goals of a 50 to 70 percent
annual compounded rate of return. Private equity firms can also assist in the
reverse process of converting a public company back to a privately held busi-
ness through an investment strategy known as a leveraged buyout.
As of the end of 2012, it is estimated that there are 10,000 private equity
funds with assets of approximately $1.5 trillion.
Private equity funds and the private equity industry are the focus of Chapter 11.
Limited Partnership Investments

Limited partnerships (LPs) can be either non-publicly traded (in the private
equity market) or publicly traded. Regardless of how they are traded, however,
state laws dictate that every limited partnership must have a general partner.
In a real-estate development, this general partner is the developer, who then
syndicates the development among investors who assume only limited liabil-
ity for their investments. Limited liability means if the partnership is sued, the
investor is liable only to the extent of their capital investment in the fund.
This is unlike the general partner, who has unlimited liability for the acts of
the partnership—although many general partners limit their liability at the
partnership level by forming a limited liability company (LLC) to conduct the
partnership’s business.
The most common type of publicly traded limited partnership is a master limited
partnership (MLP), which combines the tax benefits of a limited partnership
with the marketability of common stock by issuing so-called investment units
that trade on an exchange. In order to qualify as a MLP under existing tax
law, the firm organizing the MLP (the general partner) must earn at least 90
percent of its annual income through the partnership’s activities, which most
commonly involve real estate, commodities, or oil and gas ventures. The MLP
entity is not taxed on the profits from the venture until the MLP makes distri-
butions of these profits to the partnership’s unit holders (limited partners).
As will be discussed in Chapter 12, LPs have had a long and checkered history.
This business form was used heavily prior to the Tax Reform Act of 1986 to
provide tax deductions and credits to the limited partner/taxpayer in excess
of their actual capital invested. Beginning in 1987, tax limitations like the at-risk
and passive activity rules came into the lexicon to restrict what Congress per-
ceived as an abuse of the tax law. As a result, the economic potential of LPs is
now much more of a consideration to a potential investor.
Real Estate Investment Trusts (REITs)

An indirect investment in real estate may be made in the form of a mutual
fund, a limited partnership, or a trust. To use the trust form, the investment
is made in a real estate investment trust (REIT). REITs offer an alternative to
direct investment in real estate via the purchase of a home, residential rental
property, commercial rental property, or raw land. REITs may be either non-
publicly traded (private) or publicly traded.
Regardless of whether REITs are traded on the stock market, they possess
even higher risk than stocks or equity. This is because the fund is investing
in real-estate assets, and the location of those assets (and the stability of the
economy in that location) plays a significant role in determining the assets’
value and income-producing potential. For example, in the most recent real-
estate recession beginning in 2007, real-estate values declined as much as
50 percent in some parts of the country. Since then, most areas have recov-
ered much if not all of the value lost, but some pockets are still struggling.
REIT property is also very sensitive to the effect of rising interest rates and
the probability that investors will move into much safer investments, such as
Treasury securities. In addition, the effect of leverage or debt may magnify
REIT losses.
There are three types of REITs:
• Equity REITs invest in and own residential or commercial
rental properties.
• Mortgage REITs deal in the investment and ownership of
property mortgages.
• Hybrid REITs combine the merits of equity and mortgage
REIT investing.
There is also an alternative form of investing indirectly in real-estate prop-
erties: a real estate limited partnership (RELP). Both RELPs and REITs will be
discussed in more detail in Chapter 12.
As of the end of 2012, approximately 170 publicly traded REITS were reg-
istered with the SEC, and these REITs owned combined assets of $650 bil-
lion. Keep in mind that there are also non-publicly traded REITs, as well as
REITs that are neither publicly traded nor registered with the SEC. Internal
Revenue Service records show that approximately 1,100 US REITs in either
of those categories have filed tax returns. The asset holdings of these REITs
are unknown.
Individually Managed Accounts (IMAs) and

Separately Managed Accounts (SMAs)
Individually managed accounts (IMAs) are often confused with separately man-
aged accounts (SMAs). An IMA is a customized money-management service
for high-income individuals who want direct, one-on-one access to a private
money manager, which is usually provided through a private money-manage-
ment company. In contrast, a SMA is a funds-management service designed
primarily for moderate-income individuals who are seeking an alternative to
mutual funds. SMA portfolios are constructed on the basis of a model port-
folio, with each investor receiving exactly the same advice from the fund man-
ager. There are also tax-management differences arising from each account.
Nevertheless, in the investment world, IMAs and SMAs are often used inter-
changeably, with IMAs being marketed primarily to higher-income investors.
Like ETFs, IMAs and SMAs are a sign of investor dissatisfaction with the cookie-
cutter approach taken by many mutual funds. However, unlike ETFs, IMAs and
SMAs are generally only for more affluent investors. The fees charged by pri-
vate portfolio managers are very high, and the investor’s wealth accumulation
is directly linked to the money manager’s performance. This is not the case
with ETFs or mutual funds, where multiple managers and diversification are
the norms.
Because IMAs and SMAs are held at the private money-manager level, the
number of accounts is not a matter of public record. Nevertheless, it is esti-
mated that, like hedge funds, several trillion dollars are currently held in such
a manner.
IMAs and SMAs are discussed in Chapter 13.
Variable Life Insurance

Variable life insurance is a form of permanent (versus temporary or term)
insurance that builds cash value and a death benefit by investing in stocks or
stock mutual funds. The investor/policyholder can also invest in money mar-
ket, bond, or hybrid funds, although in this type of insurance’s pure variable
form, the investor/policyholder generally does not have a great deal of choice
in the investments made by the insurance company. This is not the case in
the variable universal form of life insurance, where the investment choices
are made by the policyholder. In both forms (variable and variable universal
life), the policyholder’s invested monies are set aside in a separate account for
their benefit, an attribute that could be important if financial difficulties occur
for the insurance company at a later date.
In variable or variable universal life insurance, the amount of money accumu-
lated as cash value in the policy is completely dependent on the return earned
by the separate, mutual fund–like accounts in which the accumulated funds are
invested. This may mean an increase in the cash value that the policyholder
would otherwise earn in a more traditional whole or ordinary life policy, as
well as an increase in the death benefit paid to the policy’s beneficiary or ben-
eficiaries. The premiums paid for these advantages are usually greater than
in the traditional whole life form of life insurance, because the expenses of
maintaining the policy are also greater. Premiums paid for pure variable life
insurance are fixed, whereas the premiums allocated to the variable universal
form of life insurance are flexible, requiring that only enough premium is paid
in the period to ensure that the policy’s mortality cost is satisfied.
This book is primarily about assets that are professionally managed by securi-
ties professionals or those individuals who are employed independently by an
investment company or by a broker-dealer. Nonetheless, the broad subject of
PMAs cannot be adequately discussed without considering the forms of insur-
ance products that pool or combine investor assets. Be aware, however, that
any insurance product has an added cost: mortality protection, or otherwise
insuring against the risk of the policyholder’s premature death.
Variable life and variable universal life insurance are discussed in Chapter 14.
Variable Annuities
We conclude this chapter with a brief description of variable annuities. A vari-
able annuity is a contract between an individual, referred to as an annuitant, and
an insurance company, whereby the company agrees to pay the annuitant a
periodic payment, either immediately or in the future. If the payment is made
in the future, as most payments are (because soon-to-be-retired individuals
are the primary purchasers of the product), the annuity is known as a tax-
deferred annuity (TDA). The annuitant may purchase the contract either in a
single payment (a single-premium deferred annuity [SPDA]) or over time.
The annuity has two stages: an accumulation phase and a payout phase. In the
accumulation phase, the annuitant makes payments that are allocated among
various mutual funds to purchase fund shares, referred to in the annuity prod-
uct as accumulation units. The money allocated to each mutual fund increases
or decreases over time, depending on the fund’s performance. The total num-
ber of accumulation units are either distributed to the annuitant over their
lifetime in a process known as annuitizing the annuity or are paid over a period
of installments. Keep in mind that accumulated monies in the annuity may be
withdrawn during the policyholder’s lifetime in a guaranteed manner, assuming
that certain provisions are included in the annuity contract. The contract may
also be written (for an additional cost) to provide for a guaranteed minimum
income benefit, which generally is tied to a specified annual amount or per-
centage of income that the annuitant requires throughout their retirement
period. The major advantage of any annuity product is that the annuitant is
guaranteed never to outlive their money, which is a major fear of any retiree.
A common feature of any variable annuity is the payment of a death benefit
to the annuitant’s designated beneficiary or beneficiaries at the annuitant’s
death. At death, the beneficiary typically receives the greater of 1) the account
value of the total of the accumulation units in the annuity or 2) a guaranteed
minimum amount, such as the total of the purchase payments made during
the annuitant’s lifetime minus any previous lifetime withdrawals. Unlike vari-
able (or variable universal) life insurance, however, a portion of the death
benefit is taxable to the beneficiary. The amount of the death benefit that is
taxable depends on the origin of the purchase payments made by the annui-
tant. In other words, the taxable amount of the death benefit is dependent on
whether the payments were made with so-called before-tax monies (such as
retirement funds) or after-tax dollars (such as the annuitant’s salary or wages).
If before-tax monies were used, all of the death benefit is normally taxable
over time. If after-tax dollars were contributed, only the gains on the annuity
accumulation units are taxed.
Variable annuities (VAs) are the topic of Chapter 15.
This chapter provided an overview of the predominant types of PMAs in
today’s investment marketplace. Each of these types of PMAs will be the focus
of a subsequent chapter in this book. In the next chapter, we’ll address the
question of why an individual may wish to include PMAs in their investment
portfolio.
CHAPTER
Why
Professionally
Managed Assets?
If you have been thinking about investing in one or more types of profession-
ally managed assets (PMAs), you may have already asked yourself the question,
“What is the advantage of investing with professionals instead of selecting
my own securities?” The purpose of this chapter is to answer that question,
first by examining the pitfalls of investing in individual securities and, subse-
quently, by evaluating the advantages and disadvantages of PMAs. The chapter
concludes with a look at the types of managed money investment vehicles in
today’s marketplace.
Individual Investing
The potential pitfalls of individual investing include
• The lack of time and expertise that most individuals have
to stay abreast of the market
• The inherent lack of diversification in individual securities
• Higher transaction costs associated with the individual
purchases of securities
• The outsized difficulty of effective stock picking
We’ll discuss each of these hazards in turn in the sections that follow.
22 Chapter 2 | Why Professionally Managed Assets?
Lack of Investor Time and Expertise

Individual investing appears attractive when it is first considered, primarily
because of its inherent cost advantages. You save the fees paid to a professional
manager, correct? Well, yes, but in the long run, any fees you save are likely to
be earned many times over by the possible excess return on investments that
a credible professional money manager can generate. Remember, professional
managers oversee the management of portfolios for a living! That means, unlike
you, they have the time and expertise to stay abreast of the market and dis-
cern favorable trades. It also means they probably have a level of education
that has prepared them for their career that you do not possess.
Where do successful money managers come from, and what skills do they
possess? Historically, some individuals became money managers by joining
“the family business” and learning skills in market analysis and investment
strategies from an older family member, typically their father or grandfather.
For example, Abigail Johnson, President of Fidelity Investments, was preceded
in the business by her father, Edwin C. Johnson III, and by her grandfather,
Edwin C. Johnson II, who founded Fidelity Investments in 1949. Other money
managers joined investment firms directly out of college or graduate school
and worked their way up. This process involved being mentored by senior
persons in the firm, who shared their many years of experience in varying
market cycles and conditions with the underling. Currently, major invest-
ment management companies are relying more and more on an individual’s
educational background when deciding who to train as money managers.
The optimal educational background for new professional employees is a
Master of Science (MS) in Finance, a PhD in Finance, the Chartered Financial
Analyst (CFA) designation, or some combination of the three. An individual
must pass three rigorous, six-hour examinations over a minimum of three
years to receive the CFA designation or charter, and they must also have at
least three years of investment experience as a financial analyst. Individuals
who pass the CFA exams often already have a graduate degree in finance,
because the exam material extends considerably beyond what is taught in any
undergraduate degree program in investment or finance.
The likelihood that people with preferable educational and professional back-
grounds (experience) will become successful money managers also depends
on their ability to retain their existing investing knowledge while remaining
current in their field. Thus, continuing education is a practical necessity for
money managers. Additionally, the prevailing theory in the securities market
today that markets are efficient means rational investors outnumber those
investors who sometimes act irrationally. As a result, money managers need
to think quickly and exhibit rationality on a daily basis to be successful.
There is a market maxim that informs money managers that the time to sell is
when the inexperienced investor enters the market. Rational money managers
were probably responsible for formulating this maxim, because inexperienced

investors are more prone to make irrational decisions.
It also seems intuitive that more experienced money managers outperform
their less experienced counterparts. But how much experience is enough to
ensure success? Unfortunately, there is no quantitative answer to this ques-
tion. Empirical studies with respect to how much experience is enough have
proven inconclusive. The Marcus study, which in 1990 analyzed the sterling
performance of portfolio manager Peter Lynch and his Fidelity Magellan Fund,
determined that the fund’s outperformance of the Standard & Poor’s 500 mar-
ket index was probably due to Lynch’s personal investment beliefs and not his
years of experience. A striking aspect of the study was the finding that there
was only a 5.9 percent probability that any one of the generally acknowl-
edged 500 best portfolio managers would outperform the index in each of the
13 years studied. So, how much experience is enough? All that can be said with
some certainty is that more experience is better than less!
Lack of Diversification in Individual Securities

Diversification is the art of constructing a portfolio (a collection of assets) to
reflect less total risk—as measured by the statistical concept of standard
deviation—without experiencing an equal reduction in expected return. For
example, if you put two or more stocks together with an average expected
return between the two of them of 20 percent (Stock A has an expected
return of 25 percent and Stock B has an expected return of 15 percent)
and a total risk of 20 percent (Stock A has a standard deviation of 25 percent
and Stock B has a standard deviation of 15 percent), you get an expected
return on the portfolio of 20 percent while reducing the total risk of the port-
folio to 18 percent. Whether you indeed achieve this reduction in the per-
centage of total risk depends on what is known as the correlation between the
two stocks, or the direction—and the degree to which—they move in rela-
tion to one another. Positive correlation means assets move exactly together
(and in the same degree), whereas negative correlation means the assets move
exactly opposite each other (and in the same degree).
Although some assets exhibit a negative correlation, domestic stocks are not
among them. (You may get some negative correlation with international stocks,
but there you must generally deal with currency fluctuations and exchange-
rate conversions.) The best that can be accomplished with domestic stocks is
to try to position together two that have low positive correlations. Even this
is difficult and expensive to do. Most investors simply cannot financially afford
to develop a properly diversified portfolio of individual stocks!
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Varreddes that the scheme of the battle, as it swept from west to
east, is most intelligible to a civilian. The intensity of the fighting is
proved by the profusion of graves, whose flags glitter and shimmer,
with their petals of red, white, and blue, in every direction. Farther
on, above Etrépilly, a large turfed reservoir, perched on a hillock,
forms a landmark, from which the eye explores in every direction the
rolling country, intersected by scarcely visible glens or trenches,
through which the rivers wind. On the summit of this commanding
height we found a curious monument, which called for an
explanation which no one seemed competent to give. It consists of a
metal shield of brilliant vermilion and azure, surmounted by seven
flags—one of them the American flag—and addressed in large
letters, ‘Les Prisonniers de Guerre aux Héros de la Marne.’ What
prisoners these were we asked one another in vain. But it made our
hearts, with a touch of added mystery, thrill in fresh response to
those myriads of memorial flowers that twinkled and sparkled on the
circle of brown fields around us. There is one object of horror that
attracts attention here. It was a great barn or hangar, in which the
bodies of the fallen Germans were heaped up after the battle, and
then burned by their comrades. It is now nothing but a huge skeleton
of twisted iron, grimacing at the sky.
Between Varreddes and Etrépilly, as we prepare to cross the
Ourcq, we pass a little tavern at the left-hand side of the road, which
carries on a newly painted sign the name ‘À l’Obus.’ The excuse for
this is that on its gable-end, close to a window, it displays an
unexploded German shell, rusty and red, which half penetrated the
wall and stuck there, without bursting. Similar bombs are already
pointed out as curiosities in tree-trunks, and will doubtless be much
exploited when tourists begin to be admitted. On the east from
Varreddes we had seen, through a screen of trees, the Marne below
us, and the great bridge at Germigny-l’Evêque, which the Germans
blew up behind them in their final retreat. We are now in the very
midst of the worst slaughter of September 6 and 7, 1914, but it is
very curious to see how little sign of it is left in the countryside.
Occasional remnants of barbed wire, and here and there the
trenches of defence, might easily be overlooked by a hasty traveller.
He will more readily notice that here are orchards, starred with the
rose-colour of ripening apples; there feathery boskage of acacias
delicately green; here we run between violently contrasted fields,
with the sulphur of mustard on one side, the purple of beetroot on
the other; there the oat-harvest descends to little copses of chestnut
and beech, that brood over some unseen rivulet. Everywhere the
peace of uniform rustic experience, unaltered through the sober
centuries, would seem stamped upon the landscape, if the little
occasional groups of flapping tricolors were not there to remind us
that only two brief years ago the question whether European liberty
should or should not be overwhelmed for ever was fought out here
with unsurpassable fury and tenacity.
The winding walled hamlet of Etrépilly is bright with the sunshine
on its new orange and velvet-brown roofs, by which the damage
done by the German shells is concealed. This is not the case with
the little village of Vincy-Manœuvres, through which we pass next on
our northward course. Vincy was heavily shelled on September 7,
and still presents an appearance of dismal dilapidation. Without
doubt, this is a matter which depends on the enterprise or wealth of
individual proprietors, and it will be curious to see what immediate
effect the decision of the Government to repair all private property at
the cost of the State will have in these remote communes. It was on
September 9, 1914, that the German army made a final stand on the
wooded height between Vincy-Manœuvres and Acy-en-Multien, from
which they were dislodged next day by the army of Manoury. This
was the third and conclusive stage of the great struggle, in the
course of which the sixth French army pushed back the half-
encircling corps of Kluck’s reinforcements, and here we felt it
necessary to bear in mind, as much as the peaceful uniformity of the
landscape would permit, the great double line of attack and retreat
which we had now twice traversed.
We sped on north, and were now no longer in the department of
the Seine-et-Marne, but in that of the Oise. No place was more
prominent in the battle than Acy-en-Multien, which we now
approached. This must have been, and indeed still is, much the most
attractive and picturesque of the villages which the battle of the
Ourcq has immortalised. Acy lies in a wooded dimple of the high
plateau, and it is scattered broadly over its site, more like an English
than a French township. When it is considered with what violence
the Germans were hunted out of Acy, it is surprising how few marks
of their presence are left. One large house, of château pretensions,
is a complete wreck, having been bombed out of existence by
German shells, but the beautiful and curious church, with its twelfth-
century octagonal tower and its rudiments of earliest Gothic
ornament, is, so far as the eye can judge, intact. At Acy a prodigious
number of French soldiers are buried in a vast cemetery, which
seems to have been improvised for the occasion. The piety of
relatives and friends keeps these graves so lavishly covered with
nosegays that the cemetery looks like a flower-garden. The epitaphs
and sentiments on the tombstones are poignant, and we lingered
long and with great emotion in this sacred melancholy place. I was
particularly struck by one inscription—that on the tombstone of a
certain Charles Schulz, who died as a corporal, leading on his men.
He had been, till the war broke out, a Protestant pastor, but in what
locality the epitaph does not say. The text chosen for his place of
burial—‘il tint ferme, parcequ’il voyait celui qui est invisible’—may
well have been the echo of his own sentiments when he exchanged
his ministry for the terrible duty of fighting for his fatherland. By his
name, he was doubtless an Alsatian, and curiosity was eager to
know more of this Protestant pastor-corporal who sleeps in the pretty
cemetery of Acy-en-Multien.
In leaving Acy, our motor lost its way up a lane that led only to a
farmyard. By this happy chance, in our descent or retreat, we
enjoyed an exquisite view of the village, nestled in its grove of
chestnuts around the spire of its rather fantastic church—a view
which in other conditions we should have missed, since these
villages, sunken in folds of the upland, have a strange faculty for
making themselves invisible at a little distance. Recovering our
route, we continued northward, over the high rounded plateau of the
Multien, which is the local name for this part of the department of the
Oise. The character of the landscape now changes, and becomes
very English. Proceeding from Acy to Nanteuil-le-Hardouin is like
traversing the high parts of Gloucestershire; the lie of the land
exactly resembles that of the Cotswolds, and I could easily have
persuaded myself that we were driving from Stow-in-the-Wold to
Burford. It is obvious that this rolling country, here entirely deprived
of streams and glens, offers an extraordinary opportunity for the
evolutions of troops, but remarkably little shelter for them.
Nanteuil, a gloomy village, almost a town, with winding narrow
streets, severely grey, and a great church which towers over the
wayfarer, marks the limit of the battle north-eastwards. Although
there was a good deal of fighting around Nanteuil, it shows, so far as
we could perceive, no trace of injury, even on the picturesque façade
of the church. We left it to enter a long avenue of oaks, and there
was no mark of any kind to indicate where the battle ended. My
companion humorously remarked that it was the duty of the
Government to put up a poteau with the inscription, ‘Ici finit le champ
de bataille de l’Ourcq’! But in the absence of such a guide-post to aid
the imagination of the traveller there was nothing in the rolling
agricultural landscape, from which the little flowery flags had now
disappeared, to indicate that here there had been any disturbance of
the peace of the world.
At this point, therefore, a picture of the battlefields of the Ourcq as
they now exist should end. But an impression was awaiting us at the
threshold of the very next village, Baron, which was perhaps the
most poignant and certainly the most extraordinary of our whole day.
As we motored along we noticed, just before reaching Baron, a high
wall on the left hand containing a marble plaque, with an inscription
in gold letters. Curiosity prompted us to stop and read this
inscription, which stated that in the house behind this wall the
musical composer, Albéric Magnard, was shot and burned on
Wednesday, September 3, 1914. A funereal poem by M. Edmond
Rostand described how
Celui-là, qui, rebelle à toute trahison,
had lived there, died to preserve the honour of his art. We were
therefore close to the scene of a horrible crime, which the magnitude
of the events that closely followed it has somewhat obscured in
memory. Albéric Magnard, the author of ‘Guercœur’ and other
operas, born on June 9, 1865, was one of the most eminent and
successful musicians of France. He had for many years possessed a
country-seat at Baron, where he had built a little château, Le Manoir
des Fontaines, in which he had brought together a collection of
musical instruments and books which was famous.
We were reading the inscription on the wall, when a door in the
latter opened and a sad woman appeared, asking us if we would like
to see the place where Monsieur Magnard died. She led us through
a pergola of climbing plants to a point where we suddenly saw
before us what resembled a scene in some opera—a garden blazing
with begonias and African marigolds, surrounded on three sides by a
graceful balustrade, and velvety with green sward. Below the
balustrade a little park, beautifully kept, testified to the elegant taste
of the proprietor. But in the midst of this brilliance and neatness the
livid shell of the house itself stood untouched since the disaster,
producing in the midst of the bright parterres and trim lawns an
extraordinary effect of sinister and ironic horror. It was like seeing a
skeleton in a ball-dress, or a wreath of roses round a skull.
The good woman, who herself had lost in the fighting her two
sons, described to us the murder. A troop of Germans was marching
down the road and, attracted by something in the Manoir des
Fontaines, they had insisted on being admitted by the door at which
we entered. M. Magnard was in his bath-room, at the back of the
house. He is believed to have appeared at the window, and a
German soldier immediately shot him dead. They then set fire to the
house, and they watched it till the half-calcined body of the
composer fell through the rafters on to the floor of the room below.
Meanwhile, they took his son and tied him, facing the scene of his
father’s murder, to the trunk of a tree in the garden, and prepared to
shoot him. But three peasants out of the village of Baron swore that
he was not the son of M. Magnard, but of the gardener; and so,
when their work was done, the Germans went off, leaving the boy
alive, to be released by the villagers. The exact conditions under
which the famous composer was killed are mysterious, and are likely
to remain so, since no French eye witnessed the actual commission
of the crime. It is possible that he offered, or appeared likely to offer,
some resistance to the aggressors.
M. Rostand’s verses suggest that, in the version of the event
which reached him, Magnard was attempting ‘to preserve the honour
of his art.’ Whether he obeyed an instinct of self-preservation, or
whether he fell a passive victim, matters very little. The incident in
any case illustrates that Teutonic spirit of anarchism which Viscount
Grey has stigmatised as a menace to the future of civilisation.
TWO MONUMENTS IN WESTMINSTER
ABBEY.
by sir charles p. lucas, k.c.b., k.c.m.g.
In Westminster Abbey, towards the western end of the nave, on
the northern side, stands a monument of rather special interest at
the present day, upon which there is this inscription:
‘The Province of Massachusets Bay in New England, by an

order of the great and general Court bearing date Feb. 1st,
1759, caused this monument to be erected to the memory of
George Augustus Lord Viscount Howe, Brigadier General of
His Majesty’s forces in America, who was slain July the 6th,
1758, on the march to Ticonderoga, in the 34th year of his
age: in testimony of the sense they had of his services and
military virtues, and of the affection their officers and soldiers
bore to his command. He lived respected and beloved, the
public regretted his loss, to his family it is irreparable.’
Dean Stanley, in his ‘Historical Memorials of Westminster Abbey’

(1869 ed.), makes the following reference to this monument, which
apparently stood, at the date when he wrote, in the south aisle of the
nave: ‘Massachusetts and Ticonderoga, not yet divided from us,
appear on the monument in the South aisle of the Nave erected to
Viscount Howe, the unsuccessful elder brother of the famous
Admiral.’ It is difficult to understand why the Dean used the curiously
infelicitous term ‘unsuccessful’ in this case. The word might have
been applied with some accuracy to the younger soldier brother, Sir
William Howe, most successful in his early military career, but not so
in the War of American Independence, though even in that war he
was a constant winner of battles; but unless to die young is, on the
principle of the survival of the fittest, to be considered a mark of
failure, no word could be more inappropriate to a man whose life,
according to the notice of him in the Annual Register for 1758,
presumably written by Edmund Burke, ‘was long enough for his
honour, but not for his country.’
He was the eldest of three brothers. The second was the famous
Admiral, ‘Black Dick,’ the hero of ‘The Glorious First of June,’ which
we recalled on the occasion of the late great sea-fight in the North
Sea. The third was the general already mentioned. They were a
notable trio, but the eldest, the shortest lived, the ‘unsuccessful’ one
of the three, had in him the promise of greatness of the rarest kind. It
would be difficult to pick out any man whose death called forth such
a consensus of eulogy. Possibly he was felix opportunitate mortis.
Possibly the same might be said of his friend Wolfe, who was killed
in his thirty-third year, as Howe in his thirty-fourth. But assuredly, had
these two men lived on, there would have been a different story to
tell of England and America.
Dean Stanley writes of Wolfe’s friendship for Lord Howe the
Admiral, quoting Horace Walpole’s words, that they were ‘friends to
each other as cannon to gunpowder’; but Wolfe’s friendship for the
‘unsuccessful’ brother must have been as great; his admiration for
him at any rate was unbounded. Wolfe was no great respecter of
persons; he was somewhat impatient and critical of other
commanders, but—‘If my Lord Howe had lived, I should have been
very happy to have received his orders.’ In Wolfe’s eyes Howe was
‘the very best officer in the King’s service,’ ‘the noblest Englishman
that has appeared in my time.’ And so said they all: there was no
dissentient voice, no whisper of criticism, no trace of jealousy.
General Abercromby, to whom Howe was second in command, in
reporting his death, wrote, ‘He was, very deservedly, universally
beloved and respected throughout the whole army.’ Pitt’s testimony
ran that ‘he was by the universal voice of army and people a
character of ancient times, a complete model of military virtue in all
its branches.’ Robert Rogers, the bold leader of the Rangers, in
whose company Howe learnt the art of North American bush fighting,
wrote of him as a ‘noble and brave officer,’ ‘universally beloved by
both officers and soldiers of the army’; while the members of the
Massachusetts House of Assembly, no great lovers of the redcoats
from home, and close-fisted enough in ordinary dealings, voted £250
for a monument to the Englishman, whose character had impressed
them all, and whose person their soldiers dearly loved.
Howe had been made colonel of the lately raised Royal
Americans, the ancestors of the 60th Rifles, the famous King’s Royal
Rifle Corps. Shortly afterwards he was transferred to the command
of the 55th Regiment. Pitt then appointed him to be brigadier to
General Abercromby, who, in 1758, was placed in chief command of
the Central Advance on Canada, along the line of Lake George and
Lake Champlain. Abercromby neither was, nor had the reputation of
being, a first-rate general, and Lord Chesterfield was no doubt
roughly accurate when he wrote, ‘Abercromby is to be the sedentary
and not the acting commander.’ The inspiration and the motive force
were to come from Howe. Early in July 1758 the army, consisting of
over 6000 regulars and some 9000 provincials, was carried on
bateaux and whaleboats to the northern end of Lake George, where,
near the outlet of that lake into Lake Champlain, stood the immediate
objective, the French fort of Ticonderoga. The force was landed, an
advance was made through dense forest and scrub, Lord Howe with
a party of Rangers was leading the principal column, they stumbled
across a French reconnoitring party, there was a skirmish, and Howe
was killed. ‘The French lost above three hundred men, and we,
though successful, lost as much as it was possible to lose in one.’
That is one of the many comments made upon the incident, all on
the same note. Here is another: ‘In Lord Howe the soul of General
Abercromby’s army seemed to expire.’ Two days later Abercromby
ordered a headlong, blundering assault upon the works of the fort,
which ended in terrible losses and complete repulse.
In his dispatch of August 26, 1915, reporting upon the operations
at the Dardanelles up to that date, Sir Ian Hamilton wrote:
‘Lieutenant-General Sir W. R. Birdwood has been the soul

of Anzac. Not for one single day has he ever quitted his post.
Cheery and full of human sympathy, he has spent many hours
of each twenty-four inspiring the defenders of the front
trenches, and if he does not know every soldier in his force, at
least every soldier in the force believes he is known to his
chief.’
Here we have something like a modern counterpart, happily still with

us, of Lord Howe.
It is at once the glory of the British Empire, and its chief source of
strength, that it contains within it so many diverse elements, all co-
operating for the common weal, all owing free and willing allegiance
to one sovereign. Many races combine to make the great community
which we call by the strangely inaccurate term of Empire; and the
British race itself, in the process of transplantation, has developed
different types in differing lands, climates, and surroundings. The
home Briton, born and bred within the four seas of the United
Kingdom, necessarily differs somewhat in character and physique
from the Briton of the Canadian prairies or the Australian backblocks.
The Canadian Briton again differs from the Australasian or South
African, while among Australasians the Australian is of one type, the
New Zealander of another. All supplement each other; all contribute
to the common stock some ingredient which the others have not, and
the sum total is greater and richer than if the units of which it is
composed were all alike and uniform. On the other hand, diversities
demand wise handling, or they may become a source not of
strength, but of weakness. It is as easy to drift farther apart as to
come closer, to exaggerate differences as to minimise them. Every
citizen of the Empire is a missionary of the Empire, for by the
individual citizens the types are judged. The home Briton who visits
Australia leaves behind him a good or bad taste for England among
the Australians with whom he has been brought into contact. The
Australian who comes to the Old Country gives to Australia among
the people of the Old Country a better or a worse name. But of
necessity the leaders are most potent in mission work, and among
the leaders those who lead armed men on active service; who are in
touch with them day by day in the camp, on the march, in the
trenches or on the open battlefield; on whom it devolves to enforce
discipline, and with whom it rests whether or not discipline means
friction. It is impossible to measure the amount of lasting good which
is wrought when overseas soldiers associate tact and sympathy with
home leadership or, on the other hand, the mischief which results
from want of personal assimilation. It is not by any means military
capacity alone that makes the soul of an Empire army. We are all
beginning to know each other, to value each other, to make
allowances for each other, to an extent which was impossible before
steamers multiplied the coming and going of men, and turned
uncertain and spasmodic into regular and assured communication.
Doubts can be at once set at rest and misapprehensions promptly
removed by the use of the submarine cable. Moreover, this
familiarising process, and the annihilation of distance, is a
progressive matter. Every year leaves us rather closer to one
another than we were the year before. If, even under these
favourable modern conditions, the personal element still plays a
most important part, it was all-important in the middle years of the
eighteenth century.
In the Seven Years’ War, when, in the words of Frederick the
Great, England, having been long in labour, had at length brought
forth a man, that man, William Pitt, set himself to fight France in
America, and sent out what were for the time comparatively large
armies to conquer Canada. He called upon the British North
American colonies to co-operate and raise their levies; and
inasmuch as his appeal was made in wise and tactful terms, and the
colonies realised that for once England would not leave them in the
lurch, they, or some of them, answered to the call with patriotism and
goodwill. Thus regular soldiers from England, in greater numbers
than ever before, came among the colonists, and provincial
regiments were raised to march and fight side by side with the troops
of the line. Then was seen and felt in its fullest extent the difference
between the home Briton and his brother beyond the seas, at a time
when the divergence was most pronounced. The regulars were very
regular, the Provincials were very provincial; from a military point of
view the two bodies of men were at opposite poles. The Provincials
knew nothing of training or discipline; they were nondescript,
temporary soldiers of small democracies; they were farmers enlisted
for the campaign, their term of service in any case not exceeding
one year: few had uniforms, some brought guns with them, some
had none to bring: the officers were in effect chosen by the men. The
troops of the line, on the other hand, imported into the backwoods of
North America the stiffness and rigidity of European dress, discipline,
and tactics in the eighteenth century, and between the officers and
soldiers there was a great gulf fixed, as between the ranks of society
in Europe.
It was but natural that these officers should regard the provincial
soldiery with disdain, and that a corresponding resentment should be
felt in the provincial ranks. Some of the greatest soldiers of the day
were not exempt from this partisan feeling. After the disaster to
Braddock’s force in 1755, Washington, who had been present on the
field and who contrasted the conduct of the Virginians in the fight
with that of the regulars, wrote in the bitterest terms of the latter.
Wolfe, on the other hand, had, in 1758, no words strong enough to
express his disgust at the shortcomings of the American soldiers.
‘The Americans are in general the dirtiest, most contemptible
cowardly dogs that you can conceive.’ If these were the views of the
foremost men of the day in the colonial levies and in the regular
army respectively, it must be presumed that the lesser men felt at
least as strongly. Mrs. Grant, the authoress of ‘Memoirs of an
American Lady,’ a book which was published at New York, in 1809,
speaks of the ‘secret contempt’ with which ‘many officers justly
esteemed, possessed of capacity, learning, and much knowledge,
both of the usages of the world and the art of war ... regarded the
blunt simplicity and plain appearance of the settlers’; and among the
officers who came out from England there must have been a large
proportion whose contempt was not unspoken or unnoticed.
It was not merely a case of friction between the professional
soldier and the amateur, the one looking down upon the other, and
the other resenting the airs of the superior person. The mischief was
deeper seated. The northern colonies of British America were
cradled in centrifugal traditions: a large proportion of the first
colonists had come out to be rid of the Home Government, its
discipline and its control. Puritanism was the dominant religious and
political creed; and the surroundings, except at a few town centres,
were of a stern and simple kind. Among men and women born and
reared on these lines, and into their family circles, came regimental
officers from England, many, if not most, of whom had been bred in
the ways of fashionable English Society, which, in the middle of the
eighteenth century, was not, to say the least of it, characterised by
high tone or scrupulous refinement. The settlers in the New World,
by the mere fact of their removal out of the Old World into the
wilderness, had preserved for themselves and their descendants the
old-time feeling and modes of thought in the Old World, and to them
the new leaven from an up-to-date Old World was a leaven of
unrighteousness. Mrs. Grant was the daughter of an officer in the
55th Regiment, Howe’s own regiment, but she had spent her
childhood in the American atmosphere, and had been mainly
brought up in a Dutch family. Consequently she tells us that she was
‘a little ashamed of having a military father,’ and writes of ‘the scarlet
coat, which I had been taught to consider as the symbol of
wickedness.’ It was to some extent as though Cavaliers and
Roundheads had come to life again, and were jostling one another,
while fighting under the same flag and for the same cause, as a
prelude to once more springing at each other’s throats.
At this time and place a man of the type of Lord Howe was an
almost priceless asset to the cause of Imperial Unity—a cause which
can never stand still, but either declines or goes forward, and goes
forward only through intelligent appreciation of existing conditions
and active sympathy with living men. Of high social standing in
England, and acknowledged military reputation, he set himself, by
precept and still more by personal example, to the work of
assimilation.
‘This gallant man,’ says the Annual Register for 1758, ‘from
the moment he landed in America, had wisely conformed and
made his regiment conform to the kind of service which the
country required. He did not suffer any under him to
encumber themselves with superfluous baggage; he himself
set the example and fared like a common soldier. The first to
encounter danger, to endure hunger, to support fatigue; rigid
in his discipline but easy in his manners, his officers and
soldiers readily obeyed the commander, because they loved
the man.’
Wolfe wrote of him as a man ‘whom nature has formed for the war
of this country,’ and Mrs. Grant, that he was ‘above the pedantry of
holding up standards of military rules, where it was impossible to
enforce them, and the narrow spirit of preferring the modes of his
own country to those proved by experience to suit that in which he
was to act.’ She christens him ‘This young Lycurgus of the camp.’
Under Howe everything was literally cut down to meet the
exigencies of American warfare. Gold and scarlet was laid aside:
baggage was reduced to a minimum: the muskets were shortened:
their barrels were darkened: the skirts of the long regimental coats
were cut off: Indian leggings were brought into use. Wolfe writes in
May 1758, ‘Our clothes, our arms, our accoutrements, nay even our
shoes and stockings are all improper for this country. Lord Howe is
so well convinced of it that he has taken away all the men’s
breeches.’ A French writer tells us that the officers and men were
only allowed one shirt apiece. ‘Lord H. set the example, by himself
washing his own dirty shirt, and drying it in the sun, while he in the
meantime wore nothing but his coat.’ And here is the unkindest cut
of all—in Mrs. Grant’s words:
‘The greatest privation to the young and vain yet remained.

Hair well dressed, and in great quantity, was then considered
as the greatest possible ornament, which those who had it
took the utmost care to display to advantage, and to wear in a
bag or queue, whichever they fancied. Lord Howe’s was fine
and very abundant; he, however, cropped it and ordered
every one else to do the same.’
In all things the commander set the example: he never asked his
officers or men to do anything or to give up anything which he did not
do or give up himself. Thus his regiment of regulars was set in order
for backwood fighting and, what was more, it was attuned to the
ways of the land and of the people of the land. ‘They were ever after
considered as an example to the whole American Army.’
Mrs. Grant tells a story, which Francis Parkman has repeated in
his delightful ‘Montcalm and Wolfe,’ of Lord Howe giving a dinner to
his officers in his tent. The furniture consisted of logs of wood and
bearskins, ‘and presently the servants set down a large dish of pork
and pease.’ Howe pulled a sheath with a knife and fork in it out of his
pocket, and proceeded to carve the meat. The officers ‘sat in a kind
of awkward suspense’ for want of knives and forks, until Howe, after
expressing surprise that they did not possess ‘portable implements’
of the kind, ‘finally relieved them from their embarrassment, by
distributing to each a case the same as his own, which he had
provided for that purpose.’ The real point of the story is that, if Howe
had been an ordinary man, his dinner would probably have been
resented by the officers as an impertinent practical joke. But he was
not an ordinary man; among his officers and soldiers he was like
King David: ‘Whatsoever the king did pleased all the people.’
Albany in New York State was always the base for expeditions
against Canada, by the central route, which lay along the line of
water communication. In war time through Albany regiments came
and went, and in and around it they congregated and encamped.
Albany was pre-eminently a centre for the old New York families of
Dutch descent. On the upper waters of the Hudson and the lower
reaches of the Mohawk River, which joins the Hudson a little above
Albany, were the estates of the ‘patroons’ of the Dutch régime, and
here their descendants lived and thrived. Mrs. Grant, in her Memoirs,
tells of the lives and surroundings of one of the foremost of these
families, the Schuylers, whose homes were in Albany and to the
north of it in the district known as ‘The Flats.’ In her book an old Mrs.
Schuyler (‘Aunt Schuyler’) is the central figure, as she was in the
year 1758 the central figure of the Schuyler clan. The book tells of
Lord Howe’s intimacy with the family, though he never took up his
quarters with them, for he ‘always lay in his tent with the regiment
which he commanded’; how the old lady loved him almost as a son,
how sadly and affectionately she sped him on his last advance, and
her grief when the news came that he was killed. ‘Aunt Schuyler ...
had the utmost esteem for him, and the greatest hope that he would
at some future period redress all those evils that had formerly
impeded the service; and perhaps plant the British standard on the
walls of Quebec.’ We have drawn for us the contrast between the
good and bad type of officer, the gentleman and the bully, though
both may be efficient fighting men. Returning to his friends on one
occasion, Howe found to his great indignation that in his absence
Captain Charles Lee had come through and, ‘as if he were in a
conquered country,’ commandeered the loyal old lady’s stock and
property, without having the necessary warrants for his high-handed
proceedings. Lee’s next visit was after the fight at Ticonderoga,
when he was brought back a wounded man to be nursed by those
whom he had browbeaten and robbed. He was a king’s officer; but it
is difficult to deduce from his case the moral that conduct such as his
brought on the Revolution, seeing that he became a general in the
Revolutionary army, of great though somewhat dubious reputation.
In 1757 and 1758 Lord Howe was winning the love and esteem of
all who came into contact with him in America. In 1759 the Assembly
of Massachusetts voted the monument to his memory. In 1765 the
men of Boston were rioting against the Stamp Act, and in 1773
throwing cargoes of tea into Boston harbour. In 1775 came open war
with the Mother Country and the fight of Bunker Hill. At Bunker Hill
hardest of hard fighters among the Americans was Israel Putnam: he
had been by Howe’s side when the latter was killed. The night before
his death Howe had been in company with John Stark, noted among
the New Hampshire Rangers who followed Robert Rogers. It was
Stark who, in 1777, planned and won the fight at Bennington, which
was the beginning of the end of Burgoyne’s army. A young member
of the Schuyler group, who had taken Howe to their hearts, was
Philip Schuyler, afterwards one of the best known and most trusted
of the Revolutionary leaders. Probably England and America had
drifted too far apart at the time of the Seven Years’ War for any
human influence to bring them wholly into line again. Yet, had Howes
been multiplied and English statesmen and commanders been
modelled on his lines, the parting might well have been postponed
and been less bitter when it came. He stands out in history as one
who in his day did all that man could do to bring the Colonies and the
Mother Country closer together; and he is a type of the Englishmen
who are still wanted to-day, and who happily are not wanting, as
shown by the love and confidence borne towards Sir William
Birdwood by the splendid fighting men from the Southern Seas,
whom he led to less and yet to more than victory.
Just over a year from the date of Lord Howe’s death and
Abercromby’s repulse at Ticonderoga, a much abler general than
Abercromby, Jeffrey Amherst, marched once more against the fort.
The French abandoned their entrenchments in front of it, of which
Amherst promptly took possession; and a rearguard, left to hold the
fort itself, after two or three days’ artillery fire, blew it up and left the
ruins to be occupied by Amherst’s army. As the death of Lord Howe
had immediately preceded Abercromby’s attack, so a day before the
second enterprise ended successfully, another officer, well known in
the army and in English Society, though not comparable with Lord
Howe, was killed. An entry in Knox’s Historical Journal runs: ‘The
Honourable Colonel Townshend was picked off to-day in the
trenches by a cannon shot; he is very deservedly lamented by the
General and the army’; a later entry mentions that his body was
taken to Albany for burial. On the south side of the nave of
Westminster Abbey, much farther up towards the Chancel than the
place where the monument to Lord Howe stands, will be found a
monument—
‘erected by a disconsolate parent, The Lady Viscountess

Townshend, to the memory of her fifth son, The Honble. Lt.-
Colonel Roger Townshend, who was killed by a cannon ball
on the 25th of July 1759 in the 28th year of his age, as he
was reconnoitring the French lines at Ticonderagoe in North
America ... tho’ premature his death, his life was glorious,
enrolling him with the names of those immortal statesmen and
commanders whose wisdom and intrepidity in the cause of
this comprehensive and successful war have extended the
commerce, enlarged the Dominion, and upheld the Majesty of
these Kingdoms beyond the idea of any former age.’
The monument is an elaborate one, and the eulogy is obviously
exaggerated. Horace Walpole would evidently have had it otherwise.
In his ‘Short Notes of My Life’ he tells us, ‘I gave my Lady
Townshend an epitaph and design for a tomb for her youngest son,
killed at Ticonderoga; neither was used.’ He also gives us to
understand that the mother was not so disconsolate as the
monument asserts:
‘My Lady Townshend, who has not learning enough to copy

a Spartan mother, has lost her youngest son. I saw her this
morning—her affectation is on t’other side; she affects grief—
but not so much for the son she has lost, as for t’other that
she may lose.’
And again, ‘Poor Roger, for whom she is not concerned, has given
her a hint that her hero George may be mortal too.’ Whatever may
have been the mother’s preferences, the two brothers loved each
other dearly. A few weeks before he was killed, Roger Townshend
wrote to George Townshend’s wife to tell her of her husband’s safe
arrival at Halifax from England in the best of health, and how he had
sent him supplies of fresh vegetables to make up for the long sea-
voyage. The letter continues:
‘My opinion of General Amherst as an honest good man,

and my attachment to him as a soldier I thought would never
allow me to wish that I might serve under any other person in
America, but the tie of brother and friend united is too
powerful, and I confess nothing ever gave me more real
concern than not being employed on the same expedition.’
In turn we have George Townshend writing sadly before the fall of

Quebec of the news of his brother’s death; and after Quebec had
fallen, on the eve of his return to England, he writes to Amherst:
‘I hear I have got Barrington’s regiment. Alas, what a

Bouquet this had been a year or two hence for poor Roger. I
assure you I return thoroughly wounded from America. I loved
him sincerely.’
George Townshend, the eldest son, whom Walpole clearly did not
love, was Wolfe’s well-known brigadier, to whom Quebec capitulated,
and around whom so much controversy gathered. He ended as a
Marquess and a Field-Marshal, and there is no reason to doubt that
he was a competent soldier. So also evidently was the younger
brother. Amherst appointed him to be one of the two Deputy
Adjutant-Generals of his army, his own brother, Colonel Amherst,
being the other. We read of him in connection with the training of the
Provincial regiments, and as commanding a detachment of Rangers
sent to reconnoitre along Lake George. Amherst wrote to Wolfe that
he had intended to send him home with dispatches after the fall of
Ticonderoga, that his loss ‘marred the enjoyment I should otherwise
have had in the reduction of the place.’ We may set him down as
one of the might-have-beens, and Dean Stanley would presumably
have classed him as the unsuccessful brother. If he had marked
military ability, it has assuredly remained in the family; for those who
read the epitaph upon his monument in Westminster Abbey, with its
reference to a comprehensive war and upholding the majesty of
these kingdoms, will carry their thoughts across the seas from North
America to Mesopotamia, from Ticonderoga to Kut.[1]
FOOTNOTES
[1] All who are interested in the personalities of the Seven
Years’ War, as far as North America was concerned, owe a deep
debt of gratitude to Dr. Doughty, the Government Archivist of the
Dominion of Canada, for the immense amount of material which
he has collected and made accessible in ‘The Siege of Quebec’
(Doughty and Parmelee), and in his edition, for the Champlain
Society, of Knox’s Historical Journal.
THE OLD CONTEMPTIBLES: THE
FIRST CHRISTMAS.
by boyd cable.
The Divisional Ammunition and Supply Column had done a long
march on the Christmas Eve. It was not so much that the distance
was long in measured kilometres, but from a point of time, of
dragging weariness, of bad roads, of cold and wet and discomfort it
was prolonged to a heart-breaking length.
The column had taken the road at daybreak, and this meant that
the men had to be on parade a full quarter-hour before, had to turn
out of their uncomfortable billets and sleeping-places an hour and a
half before the time to parade. In that time they had to pack their kits
(a quick enough and simple job, to be sure), put on their wet boots,
water and feed their horses, eat a biscuit-and-cheese breakfast,
scramble for a ‘lick and a promise’ sort of wash, harness up their
teams, pack picketing gear and odd stores on the wagons and sheet
them over, have themselves and everything belonging to them
packed and harnessed and standing ready to turn out promptly to
the shout of ‘Hook in.’ They were all ready, and with a nicely-timed
handful of seconds to spare, when the word came, because the
practice that makes perfect had been their regular routine for a good
many months past, and there had been plenty of times when they
had been obliged to do the same routine in very much less than this
present leisured hour and a half.
It was raining when the wagons turned out, formed up on the road,
and, dropping into place unit by unit, rolled steadily off on the march.
The rain was taken quite philosophically and as a matter of course,
as indeed it had come to be by now and any time for a month past.
There were a good many even by then who had wondered where all
the rain could come from, and held a firm opinion that it must cease

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Part VI: Managed Assets and Life Insurance

Part VII: Summary������������������������������������������������������������� 313

investing, however, that most individuals think of professional money manag-

The Definition of a Professionally Managed

The Ownership and Positioning of

of account. Conventional wisdom indicates that investments that generate

Self-Directed Investment Accounts

mutual fund portfolio manager. The greater their experi-

Life Cycle Investing

Types of Professionally Managed Assets

• Exchange-traded funds (ETFs)

Open-End Investment Companies (Mutual

According to the 2013 Investment Company Institute (ICI) Fact Book, as of

Unit Investment Trusts (UITs)

Exchange-Traded Funds (ETFs)

tax–efficient for investors, as will be explained in Chapter 8. ETNs are also

which futures contracts are traded. A futures contract features an agreed-on

Private Equity Funds

effectiveness and the possibility of greater diversification. In other words, the

Limited Partnership Investments

Real Estate Investment Trusts (REITs)

Individually Managed Accounts (IMAs) and

Variable Life Insurance

Lack of Investor Time and Expertise

were probably responsible for formulating this maxim, because inexperienced

Lack of Diversification in Individual Securities

Celui-là, qui, rebelle à toute trahison,

‘The Province of Massachusets Bay in New England, by an

Dean Stanley, in his ‘Historical Memorials of Westminster Abbey’

‘Lieutenant-General Sir W. R. Birdwood has been the soul

Here we have something like a modern counterpart, happily still with

‘The greatest privation to the young and vain yet remained.

‘erected by a disconsolate parent, The Lady Viscountess

‘My Lady Townshend, who has not learning enough to copy

‘My opinion of General Amherst as an honest good man,

In turn we have George Townshend writing sadly before the fall of

‘I hear I have got Barrington’s regiment. Alas, what a

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Part VI: Managed Assets and Life Insurance

Part VII: Summary�� 313