Just as there are different subset areas in the private credit market, the same thing exists in private equity, all the way from startup to late stage and everything in between from series A, B, C and so forth. In real estate, you have multiple classes and areas like multifamily, industrial, retail, medical, senior living, student housing, and storage. With hedge funds you could be in different management styles like long-short, event-driven, and macro.
Investing in all these different areas depends on factors such as the macro business environment, the manager you are dealing with, the geographic areas, and where the investment cycles are in the different areas of asset classes. So, it is having the investment tools and research resources to be able to do due diligence and analysis that is necessary to be able to choose from these different options based on the conditions that are out there and the criteria of the client.
Hortz: Are there any trends in the alternative markets that concern you right now?
Schultz: I think private credit is a bit concerning as it has become a very crowded space out there right now. It seems like everybody has gotten into private credit and some of these people do not have the background, have not gone through enough cycles, or do not come from a banking background, which I feel is critical to success in this space. This is an area that is going to have a flushing out at some point in time when there is a significant downturn.
Private equity has been a problem for a while only because of the valuation issues and you have to be very sensitive to that. I think those are coming back in line right now and the vintages going forward will look better in the private equity area if you have the right managers who have the ability to execute and are looking out for the client's best interest.
Same thing with hedge funds. You have to be very selective in this area and understand who you are investing with, what the strategy is, what the risks are, and what the leverage is. It is the normal due diligence process that you need to go through and it is important to understand where the hedge fund fits in the macro environment.
Hortz: As an advisor to high-net-worth investors, what process do you follow to arrive at the best strategies for each individual client? How do you help a client through this process?
Schultz: I think that question is an integrated question between investment management and wealth management. But we realized that true wealth, from most of our high-net-worth clients’ perspectives, is not only about money. In working with our clients, we have uncovered that there are many other fundamental elements they may consider. This is what we call the “Four Capitals of Wealth” – Financial Matters, Psychological Space, Intellectual Engagement, and Physical Well-Being. So, in developing a personalized strategy for each client, we work with them, take them through a process of deeper discussions, to uncover and incorporate the Four Capitals that may be most important to them. Some clients are already there and know where they want to go. Others have not taken the time to think about that.
And then the other part is in exploring what they are dealing with by way of any family dynamics that also may need to be addressed. This process becomes a way of coaching them on how to deal with large sums of money and be able to enhance their own lives and lifestyle, as well as perpetuating wealth for family generations. Being this holistic financial coach is a key role we play.
When we are incorporating the Four Capitals into strategy for the investment portfolio, it is again going back to the fundamentals of what is the client's specific situation, what are their true goals across their Four Capitals, what is the economic macro environment today, and what are the different scenarios for the macro environment in the future. And then you allocate what is necessary out of that $10 million, looking at the types of investments that would best fit the client situation in the macro environment over the next three to five years to help them reach their specific goals. Then the next piece comes in managing the money in order to meet those goals over time - not only for their own personal, physical, intellectual, and mental health, but also for their family legacy and things they may want to do for society.
Hortz: What further thoughts can you share with someone on how to invest $10 Million?
Schultz: I feel your mindset, your approach, is critical to this question. I would say the most important thing you can do before starting to look at the vast amount of investment choices and vehicles you have access to as a Qualified Purchaser with $10 million to invest, is to really think about what wealth holistically means to you and recognize the richness of options and opportunities you have to deploy this money meaningfully.
We walk our clients through this question to understand how to look at wealth and their choices more expansively. Not just how am I going to invest this money, but how am I going to make this decision and manage these choices to truly impact your whole life across your different capitals as we discussed above. So, managing $10 million is not just an investment question, it is more of a quality-of-life question.
Seeking professional assistance from financial advisors who take a holistic wealth management approach, have the experience and knowledge in high-net-worth investment options, and who are fiduciaries who must work in the best interest of the clients, is a prudent way to proceed.
The Institute for Innovation Development is an educational and business development catalyst for growth-oriented financial advisors and financial services firms determined to lead their businesses in an operating environment of accelerating business and cultural change. We operate as a business innovation platform and educational resource with FinTech and financial services firm members to openly share their unique perspectives and activities. The goal is to build awareness and stimulate open thought leadership discussions on new or evolving industry approaches and thinking to facilitate next-generation growth, differentiation and unique community engagement strategies. The institute was launched with the support and foresight of our founding sponsors — Ultimus Fund Solutions, NASDAQ, FLX Networks, TIFIN, Advisorpedia, Pershing, Fidelity, Voya Financial and Charter Financial Publishing (publisher of Financial Advisor and Private Wealth magazines).