Wealth Advisors Taking Control of Investment Decisions
Many wealth advisors have full discretion of their clients’ investment portfolios and can choose investment opportunities free of the many requirements that larger institutional investors must abide by. To select investments, these wealth advisors have often used a third party to help with the due diligence and selection processes.
That seems to be changing. Since the financial crisis, many advisors have commented to BHA analysts that they are taking full control of the investment process rather than relying on outsourced teams. By hiring one or two people, wealth advisors believe they will be able to add more hedge fund investments to their clients’ portfolios.
Some wealth advisors are also building in-house investment teams so they can start internal funds of funds. They plan to give clients access to certain opportunities at lower investment minimums. One such example is a wealth advisor based in Florida that has Dutch, South American, and U.S. clients. The firm runs an internal fund of managed accounts, and it is in the process of launching an emerging manager fund.
In Europe wealth advisors have been adding internal teams to manage their portfolios rather than using larger private banks to handle their hedge funds investments. A midsized firm based in Geneva explained to BHA analysts that it has recently started to invest directly in hedge funds.
Many managers target larger institutional investors because the size of their investments are larger and the time they’re willing to invest is longer. However, it seems smaller managers would do well to consider wealth advisors. As they increasingly handle investments directly, it is likely that they will need to build relationships with new managers.