Tuesday, September 18, 2007

Insitutions or High Net Worth Clients?

Unfortunately we have never really been an institutional business as far as the acquisition of clients is concerned, primarily because we don't offer any institutional products at this stage. It is in the business plan to develop those kind of products later down the line but at the moment the concentration is on private high net worth clients. Is this a bad thing or have we, by slowly building our business, stumbled upon the best area to market to?

The initial investments for hedge funds were traditionally high net worth clients and family offices which has been overtaken in recent years by the institutions. With this influx of money from pension funds, savings and loans and mom and pop mutual funds has come the eagle eyes of the regulators and the evil eye of the press and politicians. Private wealth, however, is now growing at such a rate that marketing into this sector alone doesn't seem such a bad idea.

According to Scorpio Partnership Ltd a private banking consultancy, total high net worth assets available to private wealth managers stood at $24.4 trillion in 2006 and they estimate it will increase to $35.3 trillion by 2011. I don't know about you but a small portion of the '.3' would be enough to keep me happy over the coming years. This figure also doesn't include real estate, private equity or art so we are probably talking double the figure.

There is a saying that an old boss of mine used to say which was 'this business would be great if it wasn't for the clients'. Personally I have never felt that way. I believe that having clients to speak with and relate to on a regular basis makes the business much more interesting it is, after all, a relationship business even if you are dealing with institutions.

Dealing with institutions such as pension funds can, however, prove to be a pain for the privacy of hedge funds. Losses in pension funds are a matter for public record so the losses reflected in hedge funds are there for all to see which, when you are trying to be secretive, can't be fun.

There are, of course, downsides with private clients. Losses are never a good conversation to have with anyone, but with a family office or private individual the call to come to a 'meeting' can be a daunting experience for even the best relationships. It is always said, 'never invest money for friends or family' but with private clients this can be difficult.

Many of the clients that we deal with have become good friends so that saying is turned on its head and the conversation about any losses or, perhaps, timing issues of an investment become strained. All in all, however, I would prefer to be friendly with the people whose money I invest because, I believe, it gives you a different edge. Investing money for a faceless pension scheme may make some a little less careful than investing the money of a clients whose wedding you have been invited to. I could be wrong, but it seems that way to me.

We don't manage a huge amount of money, by the end of this quarter it will be somewhere in the region of $15mn somewhere less than a weeks wages for some of the 'Wunderkinds' of the industry, but it is not a bad start.

As long as the markets don't completely blow up private wealth will keep on growing and our focus, after all, may stay on the private client where your performance may not be touted in the newspapers but is measurable by the amount of times you get invited to weddings, Bar mitzvah's and golf trips. So far, however, no one has invited me to the VIP section of the Monaco Grand Prix, I think we need to up our game..

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