Firm Description Granite was founded in 1983 as E. R. Taylor Investments. In 2001, the firm was acquired by the publicly
traded firm Boston Private Financial Holdings, Inc. It was a wholly owned subsidiary. In April 2009,
Granite Investment Advisors Holdings, Inc. purchased the firm from Boston Private Financial Holdings,
Inc. and changed the name to Granite Investment Advisors, Inc. On February 1, 2017 we changed our
corporate structure to become Granite Investment Advisors, LLC. The firm has one office in Concord.
Principal Owners
Granite is owned by its four partners including Scott Schermerhorn, CEO and Timothy Lesko who own
25% or more.
Types of Advisory Services Investment Management Services – Separate Accounts
Granite is an investment advisor that manages client portfolios on a discretionary basis. Discretionary
means that upon signing a contract with Granite, clients give us the authority to execute trades (buys and
sells) of securities on their behalf. Granite will take instruction to restrict certain securities from being
traded on the client’s behalf. Our assets under management were $620,031,231 with $25,565,964 being
non-discretionary as of 12/31/18.
Granite builds and manages customized investment portfolios for affluent individuals, corporations and
non-profit institutions. Clients may impose restrictions on our ability to implement particular types of
investments.
Sub-advisory Services
Granite provides sub-advisory services to Union Bank (the bank) clients.
Research Services
Granite provides research to certain institutions for use and implementation by the internal investment
management department.
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Granite fees are included in the fees paid to the bank. No additional charges will be made to the clients
account. Granite receives an annual fee of 0.20% (20 basis points) on the managed assets. The bank will
pay the fees monthly.
Granite’s fees do not include brokerage commission or other fees or charges associated with securities
transactions implemented with or through a brokerage firm, markups or mark-downs in principal
transactions, deferred sales charges, stock exchange fees, wire transfer or related processing fees, transfer
taxes or other charges mandated by law or regulation, all of which will be charged to the Client in addition to
our fee. Granite does not receive any portion of these fees but may receive research services (see
Brokerage Practices).
Granite may also manage accounts beneficially owned by employees or family members and may reduce or
waive its normal fee in these circumstances. Granite may modify its standard fee arrangement causing
certain clients to pay lower or no management fees.
ADV Part 2A 5
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Our clients include private individuals, couples, and families, foundations, endowments, corporations,
investment companies, pension plans, profit sharing plans, and public employee retirement funds.
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Methods of Analysis
Granite uses fundamental and quantitative analysis of individual equity (stock) and fixed income (bond)
holdings to create investment portfolios for clients.
Large Cap Value Process
Individual Stocks Step 1: Screening – We start with companies with market capitalization greater than $2.5 billion. We
screen for companies with above average or improving profitability selling at below average valuations.
We analyze the resulting companies looking for the most profitable (or anticipation of profitability), change
dynamics, and most undervalued using valuation and return on capital (ROC) measurements.
Step 2: Fundamental Analysis - We assess a company’s competitive position, analyze financial
statements, and interview company management, customers, and competitors.
Step 3: Valuation Analysis – We determine the fair value of a company using a discounted free cash
flow model. We purchase stock in companies that we believe to be at least 25% undervalued.
Step 4: Portfolio Construction - We build portfolios with concentrated holdings to capture excess
returns. A typical portfolio will hold 30 to 35 positions with an average position size of 3 to 5%. We
diversify exposure across economic sectors.
Fixed Income Investments Step 1: Determine a Client Specific Strategy - We review each client’s annual income needs, tax
status, and risk tolerance. We choose among US Treasury, US Government Agencies, investment grade
corporate bonds, tax-free municipal bonds and Exchange Traded Funds (ETF’s).
Step 2: Portfolio Positioning - We position our portfolios along the yield curve based on our assessment
of where we are in the economic cycle, the level of nominal and real rates compared to historical data, the
shape of the yield curve, the outlook for inflation, and the direction of monetary policy.
Step 3: Portfolio Construction - We examine the actual terms of the securities themselves including call
protection, sinking fund provisions, and collateral (if any). For municipals we also examine the relative
strength of the taxing authority behind the bonds, i.e. are the bonds general obligations of the state of
issuance backed by its full taxing authority, or is the bond backed by a specific revenue stream based on
consumer usage of a public facility.
Dividend Growth Process Step 1: Idea Generation - The primary emphasis is placed on the identification and selection of
companies that offer unique and distinctive products or services that give them a strong market franchise.
ADV Part 2A 6 Step 2: Fundamental Analysis - We assess a company’s competitive position within its industry and the
market, analyze financial data, dividend history, and general economic factors.
Step 3: Portfolio Construction - Over the years, we have found that at any particular point in time,
opportunities in the investment world are usually concentrated within a limited number of industries and
companies. We seek to maximize these opportunities by investing only in what we consider attractively
valued companies and situations. Therefore, our portfolios tend to be more concentrated by nature.
Core Growth Process
Step 1:
Screening Fundamental Factors - We employ multifactor models.
Step 2: Qualitative Review - We analyze companies.
Step 3: Portfolio Construction - We diversify by sector.
Step 4: Review and monitor positions - We use a sell discipline.
ETF Process
Step 1: Determine the instrument that represents the sector or asset class needed.
Step 2: Ensure the security is liquid, meaning that it can be traded on a daily basis.
Step 3: Review the underlying costs.
Outside Analysis
Granite may also use outside analytical tools such as Morningstar, Empirical or FactSet for additional
research.
Investment Strategies
Granite offers the following investment strategies:
intrinsic value. Holdings are diversified by sector and longer term.
The Dividend Growth is focused on businesses that are paying a healthy dividend, and over time
have demonstrated consistent dividend increases.
The Core Growth Strategy is focused on businesses that are growing faster than the economy.
Holdings are diversified by sector and actively managed for optimal exposure to secular growth
themes.
The ETF Strategy seeks to provide capital appreciation by tactically allocating among the S&P 500
sectors. Allocation weightings are based on each sector’s valuation metrics, growth rates, and long
term momentum characteristics. Global ETF strategies also include a mix of International or
Emerging Market ETF’s.
The Multi-Asset and Global Strategy are diversified by asset class to capture returns and income. It
contains a mix of Domestic and International securities, including large and small cap, fixed income,
and real estate, among others. It is tailored to clients’ investment policy statements.
The Fixed Income strategy is designed to preserve capital. The portfolio may contain a mix of
Treasury securities, corporate bonds or fixed income ETF’s with varying time horizons according to a
client’s investment policy statement.
ADV Part 2A 7 Any of the above strategies may be combined with Fixed Income to meet a client’s risk parameters.
The bank will work with each client to evaluate which strategy is best for them based on their
investment
objectives (what they intend to use the money for),
time horizons (when they need the money), and
risk tolerance (how do they feel about the possibility of losing money, can they handle market volatility).
They will then communicate that to Granite.
Regardless of strategy the possibility of loss is inherent in any investment.
Risk of Loss Investing in securities such as the types of securities used by Granite in managing client assets or
providing investment advice involves the potential risk of loss in value from the original purchase date of
the security. We typically invest in widely traded large capitalization companies which we believe are
selling at a discount to the market. We invest for the long-term; our average holding period for the
securities in our portfolios is four years which means that we do not incur unusual trading costs. Below
are several potential risks:
Systematic risks (Economic risk, Market risk): These are the risks associated with actual or
anticipated changes in interest rates, domestic and global inflation, foreign currency and exchange
rates, sociopolitical events such as war, terror attacks, pandemics or the like, and lastly liquidity, which
is simply the availability of a willing buyer for the asset or security you are wishing to sell.
Nonsystematic risks (Company or investment specific risk): Risk(s) that poor management
decision making, internal personnel or financial scandal, or that new or unexpected competition will
negatively affect the company’s revenues, profits or image. In many instances it is impossible for an
investor to know all things about a company or stay fully abreast of the frequent changes that occur.
These unknowns can also lead us to form an incorrect investment thesis on a company or security.
Idiosyncratic risk: The continual adjustment of the price of a debt or equity security to fresh
information entering the market.
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Granite employees are governed by a Code of Ethics. The Code of Ethics covers the following areas:
restrictions on personal securities transactions, reporting requirements, use of inside information, other
conflicts of interest, other transactions, background information and review of reports and oversight of the
Code of Ethics. A copy of the entire Code is available upon request.
The intent of the Code of Ethics is to ensure that the interests of the client always come before the interests
of our employees. Pre-approval of trades in excess of $100,000 per security, in combined value across all
accounts, where an employee has beneficial ownership is required. Granite may impose a blackout period
on certain stocks to ensure that clients’ interests are met.
Our employees may buy and sell the same securities that we purchase or sell on our Clients’ behalf. This
presents a conflict of interest between our employees’ own financial interest and the best interest of our
Clients. We have addressed this conflict of interest by imposing trading restrictions under the Code of
Ethics as described above.
ADV Part 2A 8
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Research and Other Soft Dollar Benefits We define soft dollars as a means of paying brokerage firms for services through commission revenue, as
opposed to through direct payments. Most of the soft dollar benefits received by Granite are in the form of
equity research which helps our investment team make decisions. We earn soft-dollars when we trade with
particular custodians. Our soft-dollar ratio is 2.0 to 1.0; meaning for every $1 we want to spend, we must
pay them $2.00 in soft dollars. The services we are using soft-dollars for are used by our research staff for
the benefit of all clients in the selection of securities to be purchased or sold.
Some broker/dealers may be selected who provide additional research services to Granite. These research
services may include advice concerning the value and availability of securities, the advisability of investing
in, purchasing or selling securities, and the analysis of reports concerning issuers, industries, securities,
economic factors and trends. Some of these services may be of value to Granite in advising its clients. The
advisory fees paid to Granite by its clients are not reduced because it receives the services mentioned
above.
The broker/dealers who provide these research services to Granite may receive commissions which are
slightly higher than the amount of commissions which other broker/dealers may have charged for effecting
the same transactions. However, this will only occur if Granite has determined that this additional
compensation is reasonable in relation to the value of the firms' brokerage and research services, and when
viewed in terms of the particular transactions and Granite’s overall advisory responsibilities with respect to
its clients. Certain services provided to Granite may include administrative support services or products, and
in this case, Granite makes a reasonable, good faith allocation of expenses between research services to
be paid in soft dollars and administrative services or products for which it pays directly; however clients
should be aware that this procedure may pose a conflict of interest between Granite's obligation to achieve
best execution on the Clients behalf and its desire to obtain certain administrative services or products.
All brokerage commissions will be borne by the client and are not included as part of the advisory fees paid
to Granite.
Directed Brokerage
When the account is held by the Client at the bank, generally all trades will be executed at the prevailing
institutional rate for the size of the account.
Trade Allocations
Although investment decisions for each of our clients will be made by us independently from the
investment recommendations or determinations made on behalf of other clients, when investments are
deemed appropriate for more than one client, so that the same security will be purchased or sold at or
about the same time for more than one client we may aggregate or “bunch” the orders. We will not
aggregate orders unless we believe that aggregation is in the best interests of all clients involved, is
consistent with our duty to seek best execution for its clients and is consistent with the terms of our
investment advisory agreement with each client for whom orders are being aggregated.
Nevertheless, there is no assurance that aggregation of orders will benefit all clients equally, and in some
instances combined orders could adversely affect the price or volume of a security. When orders are
aggregated, the actual prices and transaction costs applicable to the trades will be averaged, and the
accounts will be deemed to have purchased or sold their proportionate share of the securities involved at
the average price so obtained. For certain transactions involving fixed income securities, it may not be
beneficial to the clients involved in the transaction to allocate the securities pro rata based on the original
order(s), as in some cases this could result in fractional bonds. In these instances, we will re-evaluate the
suitability of the investment for the accounts involved in the order(s) and allocate accordingly. For all
ADV Part 2A 9 aggregated orders, a pre-execution aggregation statement, indicating the participating client accounts
and the method of allocation among accounts if other than pro rata, will be used. If an order must be
allocated in a manner different from that on the aggregation statement, all participating clients will receive
fair and equitable treatment.
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Individual security holdings are reviewed on a continual basis in light of earnings and dividend reports,
merger/takeover announcements, current business and economic reports, credit market developments
and other relevant developments that may affect the current and prospective value of specific securities
and their suitability for individual clients.
Accounts are reviewed quarterly for objective and discretion. The accounts are reviewed by compliance
and the primary portfolio manager.
Accounts are reviewed when the investment committee decides to purchase a stock. This review is to
ensure that the security is appropriate for that account and its objective.
All reporting will be handled by the bank. On a quarterly basis, we provide the bank with a letter that
contains comments on current economic and market conditions. When a new security is purchased, an
Investment Thesis is sent to the bank.
We maintain a website and blog that can be accessed by going to either www.graniteinv.com or
www.graniteinvestmentadvisors.com.
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Solicitor Arrangements - External
Granite has a contractual agreement with Strategic Pension Planning, LLC for which it compensates
Strategic 33% of the quarterly fee billed to the client for providing the client referrals to Granite. Strategic
Pension Planning agrees to hold in confidence and not to disclose or use for its own benefit any confidential
information of Granite.
Solicitor Arrangements - Internal Granite may compensate certain employees who refer client advisory business to the Company. Therefore,
the employee will have a financial interest in the Client’s choosing to retain Granite for services. Any
commission/referral payments made to such employees are paid directly by Granite and will not result in
any increased fees or charges to the client.
Other Compensation
We receive an economic benefit from Schwab in the form of the support products and services it makes
available to us and other independent investment advisors whose clients maintain their accounts at
Schwab. In addition, Schwab has also agreed to pay for certain products and services for which we would
otherwise have to pay once the value of our clients' assets in accounts at Schwab reaches a certain
amount.
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All client accounts are held in custody by a qualified custodian retained by the client. Clients receive
reports of assets and transactions directly from the custodian not less than quarterly. In addition to the
reports clients receive from their qualified custodian, as part of the communication plan structured for
each client, Granite may provide clients with account statements and reports that are generated by our
ADV Part 2A 10 internal accounting system, which tracks account activity based on an electronic download from the
custodian. These internal reports are used for periodic written communications such as quarterly letters,
in-person client meetings, and other periodic communications. Clients are urged to review the statements
provided by the qualified custodian and compare them to statements and reports provided by Granite.
The statements from the qualified custodian are the official record of client accounts.
Granite is deemed to have custody of client assets where Granite is authorized to debit its management
fees directly from the client’s custodial account even though the assets in those accounts are maintained
separately with a qualified custodian. Granite may also be deemed to have custody of client assets where
one of its employees has been requested by a client to serve as trustee. Other special arrangements,
letters of authorization for example, may also create a custody relationship.
If a Partner or employee of Granite is a trustee of client assets, we must note in our ADV Part I filing with
the SEC that we have custody of these client assets, and these accounts may be subject to a surprise
audit by an independent accounting firm retained by Granite. Granite may also have additional potential
liability regarding these trust accounts, due to the trustee’s exercise of discretion and other
responsibilities that are beyond the scope of the normal investment advisory role.
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The bank will communicate to Granite if an account is discretionary or not. For accounts where Granite
has full discretion they will be reviewed and traded with the rest of Granite’s discretionary accounts. For
accounts where Granite does not have full discretion they will send recommendations to the investment
staff for review and approval before trading.
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Proxy Voting Policy
The bank will vote proxies for all of their clients.
Class Action Filing The bank will file class actions for all of their clients.
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Granite does not have any financial impairment that will preclude the firm from meeting its contractual
commitments to its clients and we have never filed for bankruptcy.
Granite Investment Advisors, LLC ADV Part 2A 11
Privacy Notice
WHAT DOES GRANITE INVESTMENT ADVISORS, LLC DO WITH YOUR PERSONAL INFORMATION? Rev. 11/11/19
Why? Financial companies choose how they share your personal information. Federal law gives consumers the right to limit
some, but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your personal
information. Please read this notice carefully to understand what we do.
What? The types of personal information that we collect and share depend on the product or service that you have with us.
This information can include:
Social Security number and income
Account balances and investment activity
Name and Address
How? All financial companies need to share customers’ personal information to run their everyday business. In the section
below, we list the reasons financial companies can share their customers’ personal information, the reasons Granite
Investment Advisors, LLC chooses to share, and whether you can limit this sharing.
Who we are Who is providing this notice? Granite Investment Advisors, LLC What we do How does Granite Investment Advisors, LLC protect my personal information? To protect your personal information from unauthorized access and use, we use
security measures that comply with Federal law. These measures include
computer safeguards and secured files and buildings.
We restrict employee access to customers’ information to those who have a business
reason to know such information, and we educate our employees about the importance of
confidentiality and client privacy.
How does Granite Investment Advisors, LLC collect my personal information? We collect your personal information, for example, when you
Fill out an application or other forms
Complete a transaction with us
Do transactions with others
Reasons we can share your personal information: Does Granite Investment Advisors, LLC share? Can you limit this sharing? For our everyday business purposes— such as to process your transactions, maintain your account(s),
and providing other services to you.
YES NO
For our marketing purposes— to offer our products and services to you
YES NO
For joint marketing with other financial companies N/A N/A For our affiliates’ everyday business purposes— information about your transactions and experiences
N/A N/A
For non-affiliates to market to you YES YES FACTS ADV Part 2A 12 What we do - continued Why can’t I limit all sharing? Federal law gives you the right to limit only:
Sharing for affiliates’ everyday business purposes—information about your
creditworthiness.
Affiliates from using your information to market to you.
Sharing for purpose of non-affiliates marketing to you.
State laws and individual companies may give you additional rights to limit sharing.
What happens when I limit sharing for an account I hold jointly with someone else? Your choices will apply to everyone on your account.
OR Your choices will apply to everyone on your account—unless you tell us otherwise.
To limit our sharing: Call (603) 226-6600—ask for Debra Wentworth
Mail the form below
Please note: If you are a
new customer, we can begin sharing your information immediately from the date we sent this notice. When
you are
no longer our customer, we continue to share your information as described in this notice.
However, you can contact us at any time to limit our sharing.
Questions? Call (603) 226-6600
Mail-in Form Optional If you have a joint account,
your choice(s) will apply to
everyone on your account
unless you mark below.
Apply my choices only
to me
Mark any/all you want to limit:
Do not share information about my creditworthiness with your affiliates for their everyday business
purposes.
Do not share my personal information with non-affiliates to market their products and services to
me.
Name Mail to: Granite Investment Advisors, LLC
Attn: Compliance
6 Eagle Square Fl. 3
Concord, NH 03301
Address City, State, Zip Account # Definitions Affiliates Companies related by common ownership or control. They can be financial and nonfinancial
companies.
Granite Investment Advisors, LLC does not have any Affiliates. Non-affiliates Companies not related by common ownership or control. They can be financial and nonfinancial
companies.
Advent, Blaze, Broadridge, Concenter Services, Custodians, E-money, Factset, Global Relay/App
River, Jitterbit, Morningstar, Salesforce, Sungaurd, Trumpet Inc., Worldox. Joint marketing A formal agreement between nonaffiliated financial companies that together market financial products
or services to you.
Granite Investment Advisors, LLC does not partake in any joint marketing.
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Open Brochure from SEC website