How You Can Access Hedge Funds to Pick Up Affluent Clients

So the question is…how do you get in front of more affluent clients? The answer is simple; offer them something unique that other advisors do not have access to. Most advisors do NOT have access to Hedge Funds (HFs). Attend this webinar and learn how you can get access to HFs for your clients.

Using Hedge Funds with Affluent Clients–Webinar – On Recording

To attend this educational webinar on HFs, click on the following link:

The speaker for this webinar is a manager in two HFs.

1) A NEW HF focused on taking advantage of unique opportunities in the energy space.
2) One that runs a Warren Buffet type model that has been around since 2017 and generated a 30% average gross rate of return (2020 year end numbers).

What is a Hedge Fund (HF)?

A HF is a private pool of capital whose managers can buy or sell basically any asset. The fund is operated by professional managers to maximize returns and minimize risk.

Most HFs try to make money in both up and down markets. In fact, the term hedge fund comes from an early strategy of investing in both long and short stocks (hedging) to enable the fund to profit regardless of market direction.

The HF’s investment approach is set out in its operating agreement, which often gives the managers freer rein to invest aggressively and in a wider variety of financial products than most mutual funds. HFs are typically only open to qualified (high net worth) investors. The problem is that most advisors do NOT have access to HFs which is why those who want access should attend this webinar.

Why should advisors use Hedge Funds with clients?

There are three main reasons investment advisors use HFs in their clients’ portfolios.

First: HFs allow advisors to increase the quality of their offering so they can cater to more affluent clients. Offering them makes advisors stand out in the crowd from their local competition.

A recent study conducted by iCapital Networks shows that nearly 70% of RIAs indicated that wealthy clients ARE interested in private equity investments, while ONLY 1/3 of advisors offer them.

Second: A key reason for including HFs in a portfolio is to provide a source of diversification and low correlation with mostly “passive” portfolios.

Adding a HF to a portfolio can potentially reduce risk and still provide the benefits of higher average returns, a critical concern of high net worth investors. Because HFs seek market direction neutrality, their returns typically have limited correlation with the market’s direction.

Third: In the pursuit of higher returns, HFs have some major advantages. The industry has attracted some of the brightest, most innovative portfolio managers. They have at their command considerable flexibility in pursuing their performance goals, including the ability to invest in a wide range of vehicles including real assets. In 2019, the top performing hedge fund returned more than 44% to its investors. The best returns are rarely found with the largest funds, however. Smaller firms with fresh approaches to the financial markets and the nimbleness to adjust their positions quickly tend to dominate the top returns.

When to use a hedge fund?

There are times in the market when great opportunities present themselves that require custom vehicles in order to take advantage of them. Smart money managers will build these custom vehicles to take advantage of these opportunities. Private funds are nimble and operate much like the Navy Seals, going in and extracting value in specific situations and opportunities where the standing army could not. Mutual funds act much like that larger army, in that they are limited in their flexibility to adapt to changing opportunities.

Opportunities in the energy space?

As I alluded to earlier, the speaker for this webinar is opening up a new HF in the energy space. Recent months have seen the energy sector experience an unprecedented collapse. Balance sheets are unraveling at many oil companies. Equity valuations are at record lows and for the first time in history, oil prices entered negative territory. By all accounts, the market was a bloodbath. It is times like these that Warren Buffett’s words ring true, “…be greedy when others are fearful.” The energy sector is complex, and its marketplace is inefficient. This combination creates an ideal operating environment for a private fund. A hedge fund in today’s energy market is ideally suited to help investors navigate the complex private equity deals that would be otherwise inaccessible to the individual investor.

The bottom line

Having access to HFs is the first challenge an advisor faces. When you know the right people and have the right connections, you can have access to high quality HFs which will then give you the opportunity to present yourself as unique and aggressively go after the affluent client market.

Finally, if you CURRENTLY have affluent clients, using HFs is a great way to show your value by transitioning some of their money into one. And once the money goes into a HF, the chances of it coming out and going to a competitor is very low!

Roccy DeFrancesco, JD, CAPP, CMP
Founder, The Wealth Preservation Institute
Co-Founder, The Asset Protection Society