High Net Worth Clients
Hedge Funds + High Net Worth Clients
Here is in article published by
Advisor Perspectives which tells the story of two
Boston-based wealth management firms which emphasize the importance of
due diligence. The two firms, RINET and Colony, use a strategy for placing its
high net worth clients in riskier investments based on their level of wealth. The policy addresses the investors personally, by requiring its investors to have at least $5 million in investable assets to qualify for investing in
hedge funds. Those
HNW clients who do not qualify for hedge funds are placed in sometimes less risky, more traditional investments, such as
separate managed accounts or mutual funds. This simple
strategy reduces risk for those clients not financially ready to invest in less liquid or secure
investments.
Another lesson in reducing risk is that RINET favors placing its
high net worth investors in fund of funds over single
hedge funds. This diversifies the investor's portfolio and the investor is less vulnerable. When considering hedge funds, the firms look at the historic performance and the fund's level of risk. They measure this by examining standard deviation, comparing the fund with the S&P 500, and looking at the
hedge fund manager's Alpha. Also, the firms go beyond the hedge fund's strategy and process to back office operation concerns and factors that have effected historical performance. Finally, RINET and Colony see
hedge fund due diligence as an ongoing process that doesn't stop at the investment. The firms practice due diligence throughout to secure steady
returns to its
investors and protect against fraud and other hedge funds hazards.
- Richard
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