How do wealth firms vet their alternative investments?

Industry leaders discuss their different approaches to due diligence and evaluating managers

How do wealth firms vet their alternative investments?

While more and more wealth firms are looking for ways to provide access to alternative investments, they’re balancing the need for diversification against the importance of caution and risk management.

That was one of the key takeaways from Equiton’s recent round table session on alternative investments moderated by Lavelle Lindo, the firm’s VP of national & strategic connections.

No matter their investment mindset, the panelists concurred that the most important thing is to conduct thorough due diligence to guarantee quality and minimize counterparty risk.

For instance, Harbourfront Wealth Management strives for extensive diversification within the constraints of performance goals.

“We’ll start with due diligence around talent, tenure, track records, and other KPIs,” said Travis Forman, Harbourfront Wealth Management portfolio manager and director of private investment strategy.

“But then we’ve also hired a third-party due diligence team that takes a deep dive into everything we do. If we get the green light, then it’s up to the investment fund services team to make sure it matches mandates on liquidity and other factors before going to an investment committee. If the product passes all of that, we begin to allocate,” he explained.

Frank Laferriere, senior vice president and chief operating officer at Mandeville Private Client, Inc., said the institutional investor's alignment with the product is the main factor at Mandeville.

“We look at who we are entrusting our clients’ money to. Do these people have skin in the game? Would this be the type of investment the most erudite, successful investor would invest in? If not, it doesn’t make it to the platform.”

“We want to see a good track record,” said Cynthia Lombardi, senior advisor, IA support and client offering, wealth management, National Bank Financial.

“Our retail clients run the gamut – a variety of big and small. We rely a lot on the infrastructure being provided by the IFM, the underlying manager or the subadvisor, and the risk reputation if something doesn’t go well. We’re not interested in a new feeder into a fund that has no institutional ownership or has not been adopted by the likes of a pension fund.”

To get more of the insights from Equiton’s roundtable on alternative investments, click here.