South Street Advisors, LLC (“SSA”, “We” or “Adviser”) is based in New York City and
was formed in 1998 after the dissolution of a predecessor company, Carver Cross &
Carhart. Our founding principal, Thomas Carhart, owned 50% of Carver Cross &
Carhart, which was formed in 1996.
South Street Advisors was established to provide investment services tailored to the
specific financial requirements of not-for-profit organizations and high net-worth
individuals. Our only business is asset management. We do not participate in wrap-fee
programs.
In 2009, Stephen Owen joined South Street Advisors as a principal. Mr. Owen was
previously employed for 23 years as a senior portfolio manager and a managing director
at Brown Brothers Harriman & Co. Mr. Carhart owns 60% of South Street Advisors,
while Mr. Owen owns 40%.
South Street provides financial advice to its clients, which includes setting an investment
objective and related asset-allocation mixture that reflects the short-term, mid-term,
and long-term return expectations and the risk profile of the client. In addition to
financial advice, we offer clients discretionary management of:
• U.S. portfolios of medium and large capitalization equity issues;
• U.S. balanced portfolios of common stocks and intermediate-term fixed-income
securities;
• U.S. balanced portfolios with international equity exposure;
• U.S. intermediate term fixed-income portfolios; and
• Short-term fixed-income portfolios.
In some instances, such as commodities and emerging-market equities, we use
exchange-traded funds to meet our investment targets. Otherwise, all of our portfolios
are managed on a separate account basis, holding individual securities.
We tailor our advisory services to the individual needs of our clients. At the beginning
of a client relationship, we agree upon an investment objective for the client that reflects
his or her return expectations and risk tolerance. We then set a target asset mixture
based on the investment objective. Working with each client, we align target levels with
a range of upper and lower percentage limits for the permitted asset category.
Our clients may impose individual restrictions on our advisory services, such as
prohibiting investments in commercial banks or industrial polluters.
All of our assets are managed on a discretionary basis. As of December 31, 2018, the
Adviser had approximately $479,302,103 in regulatory assets under management.
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We receive an advisory fee based on a percentage of our clients’ assets under
management. This fee is graduated and declines as the value of the portfolio increases,
as follows:
• 1.00% per annum on the first $5 million;
• 0.75% per annum on the next $5 million;
• 0.50% per annum per annum on the excess over $10 million.
This is the only compensation that we receive for our services. Our fees are negotiable.
Our clients have the choice of having advisory fees deducted from their portfolios or
billed to them and paid by check or wire transfer.
Our clients currently use both methods. Most clients are billed quarterly in advance,
but several pay quarterly in arrears.
Our clients pay third-party fees for custody and brokerage. Custody fees range between
6/100 and 15/100 of 1.0%, depending upon the custodian. Brokerage commissions for
equity securities range between six and eight cents per share, depending on the broker-
dealer. One custodian charges a fee of $4.95 per transaction only.
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South Street Advisors provides investment advice to a variety of clients, both individuals
and institutions. Individual accounts form the highest percentage of our assets under
management, followed by U.S. non-profit endowments and private foundations.
Approximately 12.0% of our clients are institutions and not-for-profit organizations,
while the other 88.0% are wealthy families and individuals.
Our minimum account size is U.S. $1,000,000. We reserve the right to change or waive
our established minimum account size.
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Under our investment philosophy, asset allocation is an important determinant of
investment returns. We have a systematic and disciplined approach to asset allocation
based on expected rates of return for equities, bonds, cash equivalents, and alternative
investments.
Each month, one of our principals prepares a forecast of anticipated rates of return
for each asset class. The estimated projected return for each asset category is based on:
• For equities, the expected two-year forward earnings growth capitalized by the
yield on the ten-year Treasury bond, plus a risk premium for common stocks; and
• For bonds, the expected change in yield on the ten-year Treasury bond over the
same time frame.
In our dynamic investing process, equity securities are evaluated continuously,
according to specific quantitative financial criteria that we believe to be reliable
predictors of future investment returns. Each month, we screen a database of 10,000
U.S. and foreign companies according to certain investment criteria.
At the outset of this process, we divide our database into five tiers of market
capitalization. Each company is assigned to a tier and evaluated against a set of peers.
Specifically, we first compare the price of the securities of each company against the
expected two-year forward earnings growth, and we then compare the expected two-
year forward earnings growth against the peer-group average. The projected earnings
growth of the security must exceed the peer-group average, but its price and its forward
earnings multiple must fall below the average. Finally, its current operating profit
margin must be at least 1.2 times its five-year average. We then conduct extensive
fundamental business analysis of the three or four companies that meet these strict
financial criteria; this makes up the second stage of our screening process. Among other
factors, we evaluate the management of a company, its position in its markets, its
growth prospects, and its financial condition.
While we are active bond managers, interest-rate anticipation (meaning the expected
direction of interest rates) represents the cornerstone of our fixed-income analytical
process. Our focus on interest-rate movement emphasizes duration positioning against
the interest-adjusted average maturity of the fixed-income markets above either the
yield curve or sector management.
We manage the duration of bond holdings based on our outlook for interest rates over a
six-month horizon. Duration is either shortened or lengthened using this forecast. We
also position clients in the area of the yield curve that we expect to earn the highest rates
of return over the next six months. Finally, we switch between the U.S. government,
corporate, and mortgage-backed sectors, depending on whether yield spreads are likely
to narrow or widen.
All portfolios are also subject to risk measurement metrics specific to each asset class.
Asset-allocation guidelines are set for each investment category, and levels must fall
within these ranges or be reduced.
In the equity component of our client accounts, we consider the beta of each equity
holding and its impact on the overall risk of the component. We calculate the beta for
our common equity holdings on a monthly basis to ensure that it conforms to our
current policy. The beta of the equity component should not exceed 1.2 times that of the
agreed-upon benchmark index.
In the fixed-income component, we review credit ratings on a monthly basis to identify
potential downgrades and to affirm an overall rating of at least a single A.
Interest-rate risk is constantly monitored through our portfolio accounting system,
which calculates duration for individual issues and the segment as a whole. Duration
should not exceed approximately 20% of the duration of the benchmark index. To
ensure adequate diversification, fixed-income sector weightings are measured against
the percentage exposure of each segment within the index.
Notwithstanding the use of these risk measurement tools, our clients bear the risk of
principal loss on funds invested in the securities markets.
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Our chief compliance officer (CCO) is employed by Cipperman Compliance Services
LLC, a professional services organization based in Wayne, PA. Our CCO also serves in
the same capacity for non-affiliated registered investment advisers. Our CCO is not
actively licensed with any financial services firms.
We believe that these arrangements create no material conflicts of interest. If we believe
that a conflict of interest is material, we discuss the conflict with the client involved in
advance and obtain his or her assent.
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and Personal Trading
South Street Advisors has a code of ethics, which is distributed to and followed by every
Supervised Person of the Adviser. Each Supervised Person is required to provide a
written acknowledgment annually of receipt of the code of ethics. The Adviser will
provide a copy of our code of ethics to any client or prospective client upon request
which may directed to our CCO at
[email protected].
Under the Adviser’s code of ethics, each Supervised Person is expected to act in the
client’s best interest, to comply with securities laws and regulations, and to avoid relying
on nonpublic information to make decisions regarding the purchase and sale of
individual securities. In addition, employees must seek the best execution possible for
securities transactions and must avoid profiting from client relationships.
All Supervised Persons must furnish brokerage account statements for reportable
personal securities transactions with our CCO on a quarterly basis and, in certain
situations, seek and obtain pre-clearance of transactions. Shares of mutual funds are
the primary type of securities that are not reportable. The CCO is not generally
required to preclear personal transactions because he has no direct or indirect control
over personal securities accounts that hold securities other than mutual-fund shares.
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Other than for accounts that have brokerage directed by a client, a majority of our
brokerage transactions are executed through Convergex on behalf of Westminster
Research. Westminster Research acts as our soft-dollar agent in paying for research,
analytical, and security-pricing services. We also execute trades through Wells Fargo
as soft-dollar payment for research. All of the services received conform to the safe-
harbor provisions of section 28(e) of the Securities Exchange Act of 1934 and are used
exclusively in our analytical and investment decision-making processes.
If we did not use soft dollars to pay for these services, the scope of information available
to us might be limited. We receive a benefit when we use client brokerage commissions
to obtain research and other products and services because we do not have to produce or
pay for the research, products, or services. We have no incentive to select or
recommend broker-dealers based on our interest in receiving the research and other
products or services.
We seek the best execution possible for our clients. We direct our brokerage to one
agent that then is responsible for compensating our various service providers.
Consequently, we do not tie brokerage commissions to specific research that we may be
interested in receiving.
Because commission rates vary from broker-dealer to broker-dealer, there may be
instances in which our clients are charged a higher rate in return for soft-dollar benefits.
Soft-dollar benefits are used to service all client accounts, since our brokerage activities
are limited.
The products paid for with soft-dollar commissions include pricing services (such as
NYSE, NYSE Amex Equities, NASDAQ, and options services) and informational
databases used in our screening and evaluation process (such as Factset, Bloomberg, and
First Call). Of these services, Bloomberg and Factset provide us with third-party
investment research.
In placing an order, the number of shares to be bought and sold is calculated for each
client and, for non-directed accounts, aggregated into a single block trade. An order is
placed with the broker-dealer with instructions as to how it should be executed (such as
to enter the order quickly it the security is highly liquid and stable or more slowly if the
security if illiquid or trading erratically).
A client is permitted to direct brokerage to the broker-dealer of his or her choice.
Orders for clients who have directed brokerage are placed with the directed broker-
dealers immediately after the non-directed order is entered. A directed order may not
receive as favorable execution as the non-directed order. Since directed orders are not
aggregated, they may be subject to higher commission costs.
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Accounts are reviewed on a quarterly basis by one of the two principals prior to SSA
sending an evaluation to the client. The principal reviews the performance of individual
segments against the agreed-upon benchmark, checks the asset allocation of the
portfolio, and identifies the factors contributing to the account’s return.
We may review accounts on other than a quarterly basis. These reviews generally occur
when our monthly outlook for the securities markets changes significantly, or we plan
on implementing a change in asset allocation, or both. Accounts are reviewed to
determine if a change is appropriate based on reinvestment and tax implications for the
client.
One of the principals provides each client with a written appraisal of his or her portfolio
on a quarterly basis. The appraisal includes the asset allocation of the portfolio and
investment returns compared against the agreed-upon quantitative benchmark. The
evaluation analyzes performance, summarizes the reasoning behind changes in the
portfolio, and provides a review of and outlook for the securities markets. We also strive
to meet with our clients in person at least annually to discuss their portfolios and any
changes in their investment objectives, financial needs, or risk tolerances.
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South Street Advisors, as permissible, compensates a third-party agent for referring
advisory clients and in accordance with Rule 206(4)-3 of the Investment Adviser Act,
which mandates a written solicitation agreement between the Adviser and the solicitor.
SSA will initially review the solicitor’s qualifications to ensure he or she is eligible to act
on behalf of the Adviser as a solicitor and periodically thereafter to ensure they follow
established procedures. The compensation of each referral agent shall be based on a
percentage of our investment management fee. Each agent shall deliver a copy of this
Brochure, and the solicitor’s disclosure document that notified the prospective client, in
advance and in writing, that the agent would receive compensation from us for the
referral. The terms of our arrangement are shared with the prospective client who, in
turn, provides written acknowledgment of his or her understanding.
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The Adviser often furnishes instructions to independent qualified custodians acting as
an agent for a firm client to deduct advisory fees directly from client accounts. As such,
SSA is technically considered to have custody of client assets. On at least a quarterly
basis, our clients receive account statements directly from independent qualified
custodians through the mail or made available electronically. Clients should review
the statements provided by the custodians carefully. The Adviser does not send
custodial account statements to its clients directly.
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South Street Advisors has discretionary authority to direct and supervise the investment,
trading, and reinvestment of the cash and securities held in client portfolios. We
manage our portfolios within a set of investment guidelines that vary according to client
requirements. Before we assume discretionary authority, a client executes our
investment management agreement, which includes a comprehensive power of attorney
related to investment decision-making.
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The Adviser has authority to vote proxies in connection to securities held in the
portfolios of our advisory clients. Under our proxy-voting procedures, one of the two
principals review each proxy voting item and the related descriptions of each attendant
proposal from the company or from its shareholders. We generally vote with
management on business-related issues, but we also vote for proposals that bolster
shareholder rights, link compensation to actual performance targets, and prevent
management from solidifying its position through voting restrictions and open-ended
terms.
Typically, clients have not instructed us as to how to vote on a particular issue. Should a
client wish us to cast a proxy ballot in a particular way, we would require written
instructions regarding the vote.
We address conflicts of interest by placing the interests of our clients first as is
consistent with our fiduciary obligations. Our proxy-voting policy is intended to protect
the interests of our clients and not the objectives of management.
Our clients may request from us information about how we have voted the proxies for
their accounts via email at
[email protected].
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There is no financial condition that is likely to impair our ability to meet our contractual
commitments to our clients. We have not been the subject any bankruptcy petition at
any time.
SOUTH STREET ADVISORS, LLC
369 Lexington Avenue
23rd Floor
New York, New York 10017
Thomas Carhart, Principal
212-292-780
3
[email protected]
www.southstreetadv.com BROCHURE SUPPLEMENT
March 2019
Item 1 – Cover Page
This Brochure Supplement (“Supplement”) provides information about Thomas Carhart
and supplements the South Street Advisors, LLC Disclosure Brochure (“Brochure”). A
copy of the Brochure is furnished within this same document. Please contact South Street
Advisors’ Chief Compliance Officer at
[email protected] if you did not receive South
Street Advisors’ Brochure or if you have any questions about the contents of this
Supplement.
Additional information about Mr. Carhart is available on the SEC’s website at
www.adviserinfo.sec.gov.
Item 2—Education Background and Business Experience
Thomas Carhart
Born 1952
B.A., Antioch College
M.B.A., Columbia University
Mr. Carhart founded South Street Advisors in 1998 and has served as a principal and its
chief executive officer since its inception. Prior to founding the firm, he was a principal
in Carver Cross & Carhart, a predecessor firm founded in 1996. Prior to his association
there, Mr. Carhart was associated with Brown Brothers Harriman & Co. beginning in
1986. There he supervised a department that provided U.S. and global investment-
management services to overseas investors. Under his direction, assets under
management in his department increased from $200 million to $1.2 billion. Before
earning his M.B.A., Mr. Carhart spent two years at Carlisle Decoppet & Co. as a trader
on the floor of the New York Stock Exchange. He has long experience in managing
equity and fixed-income portfolios, especially for not-for-profit organizations, wealthy
family groups, Japanese insurance companies, and European mutual funds.
Item 3—Disciplinary Information
Mr. Carhart has not been involved in legal or disciplinary matters.
Item 4—Other Business Activities
Mr. Carhart is vice president of Baronne Services, a management company for oil and
gas partnerships owned by his family. Additionally, Mr. Carhart is a director of Arts for
Art, a New York based not-for-profit.
Item 5—Additional Compensation
No one who is not a client provides any economic benefit to Mr. Carhart for providing
advisory services.
Item 6—Supervision
As chief executive officer of South Street Advisors, Mr. Carhart communicates frequently
with South Street Advisors’ other principal, Steve Owen, regarding firm operations,
including, the management of client portfolios (including the monitoring of cash levels),
the solicitation of new clients, and the computation and presentation of performance
information. Mr. Carhart may be reached at 212-292-7803. South Street Advisor’s Chief
Compliance Officer (CCO) administer the Firm’s compliance program and, in doing so,
regularly provides compliance oversight of the Firm’s advisory services. Our CCO may be
contacted via email a
t [email protected]. SOUTH STREET ADVISORS, LLC
369 Lexington Avenue
23rd Floor
New York, New York 10017
Stephen Owen, Principal
212-292-780
3
[email protected]
www.southstreetadv.com BROCHURE SUPPLEMENT
March 2019
Item 1 – Cover Page
This Brochure Supplement (“Supplement”) provides information about Stephen Owen
and supplements the South Street Advisors, LLC Disclosure Brochure (“Brochure”). A
copy of the Brochure is furnished within this same document. Please contact South Street
Advisors’ Chief Compliance Officer at
[email protected] if you did not receive South
Street Advisors’ Brochure or if you have any questions about the contents of this
Supplement.
Additional information about Mr. Owen is available on the SEC’s website at
www.adviserinfo.sec.gov.
BROCHURE SUPPLEMENT
Item 2—Education Background and Business Experience
Stephen Owen
Born 1963
B.A., Duke University
Mr. Owen has over 30 years of experience managing the investments of private clients
and institutions, based both in the U.S. and abroad. Prior to joining South Street
Advisors in 2009, he served as Managing Director at Brown Brothers Harriman & Co.,
overseeing the firm’s non-U.S. investment management activities. Mr. Owen supervised
the International Department and served as a Director of the bank's Cayman Trust
Company. His responsibilities included the management of U.S. equities, and the
oversight of alternative investments including private equity and hedge funds.
Mr. Owen earned a Bachelor’s Degree in Economics from Duke University, where he
remains directly involved in the establishment and administration of a private
endowment for research benefitting children. Mr. Owen is fluent in several languages,
including French and Spanish. He is an avid backgammon enthusiast and has competed
in European tournaments.
Item 3—Disciplinary Information
Mr. Owen has not been involved in legal or disciplinary matters.
Item 4—Other Business Activities
Mr. Owen is the Commodore of the Cedarhurst Yacht Club in Lawrence, NY.
Item 5—Additional Compensation
No one who is not a client provides any economic benefit to Mr. Owen for providing
advisory services.
Item 6—Supervision
As a principal of South Street Advisors, Mr. Owen communicates frequently with South
Street Advisors’ other principal, Tom Carhart, regarding firm operations, including, the
management of client portfolios (including the monitoring of cash levels), the
solicitation of new clients, and the computation and presentation of performance
information. Mr. Owen may be reached at 212-292-7803. South Street Advisor’s Chief
Compliance Officer (CCO) administer the Adviser’s compliance program and, in doing
so, regularly provides compliance oversight of the SSA’s advisory services. Our CCO may
be contacted via email a
t [email protected].
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Open Brochure from SEC website