Aug. 13 (Bloomberg) -- Rebecca Patterson is preparing the investments of the 1 percent for catastrophe.
From her corner office in New York’s Rockefeller Center, the chief investment officer of Bessemer Trust Co. is putting $55.7 billion in client assets under geopolitical stress. As conflict escalates in Gaza, Patterson is plotting returns against prior spikes in oil prices and recommending more exposure to energy stocks. She’s mapping out losses from assets that rely on Russia-Ukraine trade routes and reducing equity allocations to developed Europe, where tensions mount.
“We know history won’t repeat but it might rhyme,” said Patterson, 46. “It won’t take us days or weeks to respond.”
Patterson joined Bessemer, the world’s third largest multi-family office, from JPMorgan Chase & Co. two years ago. The average family has $43 million in assets under supervision at Bessemer and the wealth of its founder, steel-mogul Henry Phipps and his descendants, remains the largest relationship.
“My owner is a client,” Patterson said.
Such proximity is why chief investment officers at family offices require “nerves of steel,” especially following the 2008-2009 credit crisis, said Dan Farrell, chairman and chief executive officer of Privos Capital, a global family office advisory firm based in New York.
“The CIO carries the weight of the family’s world on his or her shoulders,” Farrell said.
Patterson sets asset allocation recommendations in general and the firm’s managers pick the companies in which to invest. Bessemer’s main model allocation, which has a risk profile of 70 percent equities and 30 percent bonds, last year returned 14.8 percent, beating its benchmark’s 12.6 percent gain, according to the company. That allocation returned 16 percent compared with 14.9 percent for the benchmark in the 12 months through June.
The benchmark is a composite Bessemer created using the Bank of America Merrill Lynch 1-10 Year AAA-A U.S. Corporate & Government Index, the Standard & Poor’s Global Broad Market Index and Dow Jones-UBS Commodity Index.
This year Patterson trimmed a portion of the investments to small-and-mid-cap stocks while adding to large-cap equities and commodities such as oil and agriculture because she thinks U.S. inflation is showing signs that it will rise over the next several years.
“I don’t want to wait until wages are rising at a 4 percent pace to make this move,” Patterson said. “I want to start building into it now.”
She’s also increased allocations to emerging markets in recent months, expecting regions such as Asia to expand like the U.S. “I’m increasingly biased to having more global exposure,” she said.
Patterson’s global outlook stems from her time living in France, Italy, England and Singapore during a career that started in journalism and led to finance.
She grew up in Largo, Florida, and attended the University of Florida. Her first job was reporting on politics in Washington for the St. Petersburg Times. After receiving a master’s degree from the Johns Hopkins School of Advanced International Studies, she covered foreign-exchange markets in New York and London.
In 1997, JPMorgan offered her a position in its investment bank as a foreign-exchange research analyst.
“The first couple of years my learning curve was beyond steep, it was vertical,” Patterson said.
During her next 15 years at the New York-based bank, Patterson married Robert Frank, then a Wall Street Journal reporter and later author of books such as “Richistan.” She received an executive master’s in business administration degree from New York University four days before giving birth to her first child, a daughter. She graduated No. 2 in her class.
“I wanted to graduate first,” she said of her ranking. “I was disappointed.”
She also put her journalism skills to work.
“She was very news-focused, which in foreign exchange was very handy,” said Larry Kantor, who was head of foreign exchange research at JPMorgan during her time there and now is head of research at Barclays Plc. “Rebecca doesn’t need a lot of time to respond.”
Mary Callahan Erdoes recruited Patterson in 2008 to JPMorgan’s asset management unit, which Erdoes runs today. During the next four years, Patterson was global head of currencies and commodities for the private bank, producing forecasts for the asset classes and managing a global trading desk, and later served as the chief investment strategist for institutional clients such as pension funds.
“I had to come up with targets for oil and gold and wheat,” Patterson said. “Not everyone wants to go home at night worrying about how a position will do while they’re sleeping, but I like it.”
Patterson’s office at Bessemer has stacks of research arranged inches apart on her desk and a shelf behind it. She arrives most mornings by 6:30 so she can return home by 7 p.m., in time for dinner and homework with her two daughters, who are six and nine.
“My husband and I are just ridiculously organized,” Patterson said, adding that they exchange schedules weeks in advance. She travels to clients or one of Bessemer’s 18 offices worldwide at least once a month, she said.
She said her main focus will continue to be adding macro views on global events and stress-testing portfolios.
Phipps founded Bessemer in 1907 to manage his wealth after selling his interest in Carnegie Steel to J.P. Morgan. The company is named after Henry Bessemer, the inventor of the steel-making process that was instrumental to the success of Carnegie Steel, according to Bessemer’s website. The closely held firm opened to other families in 1974 and now has about 2,200 clients, according to the website. It offers services including investments, estate planning and tax advice, and supervises $97.5 billion in total assets.
Last year Bessemer ranked third by assets under advisement among firms worldwide that cater to wealthy families, behind HSBC Private Wealth Solutions and Northern Trust Corp., according to data compiled by Bloomberg.
Bessemer has a hybrid approach to investments. The firm runs its own mutual funds including those that invest in small-and-mid cap stocks and global equities.
“There are so many benefits to having some money run internally so you are touching the market every day,” she said. She also judges Bessemer’s performance against external managers.
Investments in alternatives such as private equity and hedge funds are managed by other firms such as Bain Capital LLC and Anchorage Capital Group, Patterson said. Last year she recommended exiting U.S. high yield bonds, which were another asset class that Bessemer invested in for clients using outside managers. The debt has returned 4.61 percent this year and lost 1.35 percent last month, according to the Bank of America Merrill Lynch U.S. High Yield Index.
The main goal is limiting risk for families’ investments, Patterson said.
“Our clients have spent a significant part of their lives building their wealth and don’t want to have to start over,” she said. “The more I can anticipate and plan for what can go wrong, the faster I’m going to be able to react and make sure we do protect their irreplaceable capital.”
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