When looking at alternative investments, liquidity is one of the key variables used when determining appropriateness for client portfolios. The illiquidity premium is powerful, but advisors must know their clients’ needs and risk tolerances before considering any alternative allocation. As many HNW clients tend to overstate these liquidity needs, advisors still need to work around their client’s illiquidity risk tolerance levels. It’s important to guide them to understand that locked-up capital can help protect them from reacting emotionally and pulling capital at the wrong times. Having a well-developed investment policy statement in place is critical to establishing those liquidity and risk management guidelines.
Platforms: Going To The Source
While more direct offerings from managers can be attractive for investors, finding better, more efficient ways to access these managers’ flagship offerings is even more appealing.
The better mousetrap may not be a liquid alternative investment product, but rather a partnership with an independent investment platform provider. More fund managers are beginning to see the benefits of such partnerships. They want to further diversify their client base, but don’t want to overtax their back offices with servicing hundreds of smaller accounts. At the same time, these fund managers want to avoid providing a poor investment experience for the end investor through excess platform fees and expenses. The solution managers are turning to is a partnership with a platform provider that is focused on keeping costs down and delivering custom-tailored access to premier investment management talent in a high-touch, client-focused manner.
Frank Burke, CFA, CAIA, is the chief investment officer of PPB Capital Partners where he oversees the fund manager platform and portfolio construction process. He has over 20 years of portfolio management experience in alternative investments as both an institutional investor (Hatteras Funds) and for HNW portfolios (Abbot Downing, GenSpring Family Offices).
Brendan Lake is the founder and chief executive officer of PPB Capital Partners, which helps wealth advisors access the private markets in a streamlined, innovative and turnkey manner. Prior to PPB, Lake co-founded Pacer Financial, a start-up that focused on developing alternative investment solutions.