Heller invests in multi-strategy hedge funds and ones that focus on long-short equity, managed futures, private equity and distressed debt. For liquidity, he also uses registered mutual funds that apply hedge fund strategies. Sometimes he uses feeder funds, which allow lower minimums. He also wraps hedge funds in insurance to eliminate taxation.
While longer-term track records have helped him become more comfortable, he continues to approach the hedge fund space cautiously. He uses credible, trustworthy platforms and his firm has a research analyst dedicated to alternative investments.
Jack Sullivan, CEO of Heritage Wealth Counselors LLC, a Boonton Township, N.J.-based registered investment advisory firm focusing on high-net-worth families, has been investing in hedge funds for clients for seven years. The family office he runs has 40% of its assets in them.
His strategies include distressed debt, debt arbitrage, U.S. long-short equity, futures, event-driven investments, merger arbitrage and mortgage-backed securities. "We like to pick areas that we want to complement our portfolio of investments," he says. Because he was once the victim of a Ponzi scheme, he stresses due diligence and getting to know fund managers. "Having a bad experience preps you," he says.
Manager's Choice
Killion, who founded the Eagle Rock Diversified Fund 11 years ago, makes sure he understands a fund's strategy and how it manages risk before investing in it. He also asks who audits it, how much leverage it has and if he'll have access to its top decision-makers if he has a problem. He's gotten out of some funds. "You have to like, trust and be a real partner with the managers you invest in," he says.
He also wants to see three years' performance before investing in a hedge fund. "Most of the blowups occur in the first three years," says Killion, who formerly was a consultant for Fortune 500 CEOs and has started and headed businesses in various industries.
Eagle Rock's eight holdings include small cap, mid- and large cap, long-short equity, event-driven investments, emerging growth, emerging markets debt, high-yield debt and Western European debt funds. "I go to sleep at night feeling pretty good with eight sets of minds working for us," says Killion.