A more competitive firm

This is perhaps a case of managing success. Having more clients as well as more investments can be like trying to be in 2 places at once. More people are needed!

Clients are often tempted by speculation and that needs to be reined in. Or afraid to take even moderate risk, which perversely can leave them in the wrong investments. A wealth management firm with just products is no use in either case. Those who counsel investors to rational choices are well positioned regardless of market conditions, so experience and ability to communicate opens the playing field up completely.

But imagine adding superb investment choices to just such a firm. A hybrid approach that combines traditional and alternative investments, in a similar way to large endowments, will need a carefully selected list of alternative funds to provide sufficient client choice. The challenge is to achieve this coverage at a reasonable cost.

Balancing costs versus capabilities

CASE STUDYA 40 hedge fund manager approved list with 15 core and 25 specialist or satellite managers gives 300 combinations of 2 satellite managers to address particular preferences. This is why large private banks usually offer 50 or more. But to provide this level of choice requires 2-3 dedicated analysts plus infrastructure costs and management time.

One rule of thumb is one analyst can cover 20 managers – if that’s all they do. We estimate it takes 206 days/year to cover 20 alternative funds and adding 20 more takes 288 days/year (chart). Each analyst has just 235 work days/year available. With other duties this may only be 160 days. So proper coverage requires a dedicated team of 2 or 3 analysts for 40 managers.

Expanding alternatives research is essential to remain competitive and attract new clients. This means either hiring new analysts or finding a way to do more with an existing team. 1

A capable partner

Importantly, the firm is able to grow by focusing on great client service and portfolio management, while our in-depth yet concise “white label” reports help busy investment professionals make good decisions. As a result, we also boost coverage from 20 to 40 alternative funds.

We call our service OCIOconnect. We help wealth managers to offer a wide selection of carefully selected investments while at the same time increasing profit margins. Our team offers an instant boost in research quality and capability for the cost of a single senior analyst.

The wealth manager retains complete control of the investment process. They simply delegate the task of due diligence. We increase the number of available managers as new clients join the firm. Client portfolios are refreshed in regular quarterly investment meetings to include new opportunities while excessive risks are quickly flagged and eliminated.

  1. Person days/year for 5 key research tasks per fund: On-going due diligence 4 days; travel 8; new manager search 20; and initial due diligence 5. Portfolio management is 4 days/year/client. We assume 20 clients and 40 funds.


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