Creating an Ecosystem for Sophisticated Investors to Gain an Edge

Posted by Philip Kessler, JD on 6/14/19 8:45 AM
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If you have been following our briefings, you know that we have a blunt view of the financial services industry and how sophisticated investors can gain an edge in mitigating financial complexity and planning for their financial destinations. We have stated ad nauseam that there’s no longer a secret sauce when it comes to asset allocation or portfolio rebalancing. Computers do this stuff now and the services themselves are a commodity, so we don’t think that investors should pay for it.

So how can investors gain an edge?Investor ecosystem

In recent weeks we have explicitly defined for our clients how SWS Partners is different. This was a good exercise for our audience but also was a reminder internally as to how we can provide the most value for ultra-high net worth investors, endowments, foundations, et al. Since we published the previously linked piece, we have had very candid conversations about not only seeking to provide superior solutions, but also creating a network of savvy clients that bring their expertise, access, and connections to other clients. In other words, we have sought to create an ecosystem that creates a “density of talented thinkers and makers”, which increases the potential for all of our clients to gain an edge.

The idea of savvy clients bringing their expertise, access, and connections to the table is an important one that merits further detail. In our experience, facilitating a network of specialists allows for faster, more specialized due diligence and best in class subject matter experts. Said differently, we continually find that when a subject matter expert brings a private deal to the table, the vetting process is more thorough than if a general analyst were to study the deal from scratch.

While this approach has gained traction with large family offices, for example, our inspiration also stems from Silicon Valley’s startup ecosystem. The inherent ingredients, according to a recent Forbes article, are access to great ideas, access to talent, access to capital, and access to customers. We have spent a lot of time thinking about these elements, but we read this article and found ourselves realizing that we were replicating these very ideas, admittedly without realizing it at first. The difference for us, however, is less about startup density, as the article advocates for, and more about the density of entrepreneurs, trusted advisors, and institutional investors that compose our client base. 

The idea of a client ecosystem means that private deal flow is never a concern. You can either bring an opportunity, vet an opportunity, or be an opportunity. However, and more broadly, the advantages of this approach extend to our entire client base who can then participate in attractive opportunities. Ultimately, we believe this type of access to private deals offers attractive risk and return benefits and diversification from traditional public markets. In addition to the ubiquitous financial services one has come to expect from their investment manager, access to private deal flow is one way that we believe is a way for sophisticated investors to gain an edge.

Topics: Asset Management, Financial Planning

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