Private investors and family offices are among the most experienced investors in the alternative investments industry. For some managers, their exposure to this segment of the investor market is limited to investments from their personal connections: wealthy families, friends, and colleagues. In order for these managers to build new relationships with this elite clientele, it is important for them to understand that family offices operate in a manner that is unlike most other investors.
Family offices take a long-term view. They are investing for their families’ future generations and investment officers need to invest in a way that will ensure that the money will still be there years from today. For this reason, performance alone is not enough to catch the interest of these investors, and the due diligence process is often more lengthy than many managers expect.
When evaluating a fund, many family office investors are most concerned with the operations of the fund’s managing firm. Family offices want to see the risk management controls that the manager has in place. They want to see how the back-office operations are structured. They want to understand the investment process. Last week, a multifamily office based in Switzerland expressed that these criteria are much more meaningful to the firm and its clients than a stellar year of returns.
Family offices are also unique investors with regard to the way they source managers. Some family offices maintain complete privacy and ignore cold calls and e-mails from fund managers with whom they have no prior relationship. These investors may rely on referrals made by friends, family, and other personal connections. Other family offices find capital introduction groups to be the most helpful because over time these groups come to understand what they want and can call them with qualified opportunities.
BHA has been successful in speaking with many family offices whose challenge lies in finding the right manager at the right time, or in maintaining a good pipeline of qualified managers for potential allocations. Through its network of investors, the research team at BHA identifies these opportunities for its manager clients, which puts them in a great position to present their funds.
