Private investments for sophisticated investors

Posted by Frank Parker on 4/12/19 8:45 AM
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A few weeks ago, my partner, Phil Kessler, authored a blog detailing how SWS Partners is different from other investment managers. For a firm with a bit of a renegade streak, this piece was foundational in articulating not only how SWS Partners is not only different but, more importantly, how this can translate to better outcomes for our clients.

To recap, we offer highly sophisticated solutions, employ a team of specialists, innovate continuously, and leverage technology whenever possible. In aggregate, we think this can position affluent investors for better outcomes. 

Phil’s piece was justifiably well-received, even for those clients of ours that are very familiar with our business model. Still, the question we received most in response was related to the first part, our offering of sophisticated investments. On the surface, this statement should be met with a healthy and reasonable level of cynicism. After all, the financial services industry has long been guilty of creating an opaque illusion of sophistication to warrant excessive fees or job justification.

That’s not what we do here.

Private investments

Before we proceed, it is worth specifying that when we talk about sophisticated investments, it's often related to private investments, or those not accessible via public markets. We believe these types of investments can offer attractive risk and return profiles as well as diversification benefits for accredited investors. This outlook, in and of itself, is not particularly unique, but our due diligence and portfolio implementation process is.

Our approach towards private investments is really a microcosm of the firm itself. Because we employ a team of specialists, we can source and evaluate private deals that are direct investments rather than the brokerage model of providing funds or products that institutions didn’t want and could be pushed on to individual investors.

This is worth examining closer. The idea of recommending direct placements is a radical departure for most registered investment advisors, or RIAs.  Most look at private investments as a threat to their assets under management, resulting in firms seeking to keep the assets ‘in-house' with pre-packaged hedge fund-of-funds or REITs, as an example. Thus, even high net worth investors often end up with repackaged products that institutional investors have previously passed over. 

Our client base has made it easy for us to take a different approach. With a primary focus on ultra-high net worth families, family offices, endowments, and other institutions, there is a client-curation aspect in our approach towards private investments. In other words, many of our affluent clients are initiating deals just as often as we bring deals to them. This self-perpetuating loop has created what we think of as a network effect.

Finally, we are often asked, how can you do all of this?

The answer surprisingly lies more in what we don’t have to do.  Our reliance on technology and the automation of our client portals, operations, and marketing has allowed us to focus more on performing due diligence for private deals. This was deliberate on our part because rebalancing portfolios and asset allocation, for example, are commodities. Sophisticated investors acutely understand this. However, these same investors understand that there is value in us being able to answer the question “what am I missing?

To echo Phil’s aforementioned blog, SWS Partners is different. The firm is different because he and I built this thing around the mantra of seeking to help sophisticated investors achieve better outcomes. Many firms pay lip service to these things.

We are doing it, however.

Topics: Asset Management, Financial Planning

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