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Attracting HNW Clients with Direct Investment

“Show me the deals!”

This general refrain has been echoed for decades from institutional investors promising co-investments. As private equity becomes more democratic, retail investors are joining the chorus. Wealth management firms with an emphasis on standing out from the pack will need to offer their ultra-high-net-worth (UHNW) clients a suite of private investment opportunities that will provide advisors with individualized advice and unique solutions in their context. enables us to provide. Full money offer. In an industry dominated by service, sometimes a powerful product is still king.

Direct investments offer UHNW clients a remarkable opportunity to take advantage of private equity-like returns, while avoiding the traditional fund fee structure and, at the same time, exercising greater control over how their money is made.

With the unprecedented rise in public equities since the financial crisis, private equity returns in strategies have outperformed not only all major equity indices, but all major asset classes in general. Coininvest Opportunities has outperformed its peer funds as well. More value private is on the rise over the long term, and firms can look to tap this vein by providing a state-of-the-art direct investment platform to specialized and well-qualified clients.

However, firms will need to ensure that these deals are visible to select customers only. While Reg D limits the types of clients that can invest in certain private deals, firms may wish to impose stricter net worth requirements due to the potentially large price tag and liquidity concerns associated with these investments.

Determining how to qualify customers in this regard can prove difficult. Many UHNW clients will have holdings spread out across different custodians, and money managers will need to analyze how those holdings are valued and whether those valuations can be verified through aggregation software. Additionally, ownership of private companies, real estate and crypto assets can cause even greater valuation difficulties.

Simple net worth verification by the wealth manager comes with its own risks as well, as some deals may well be an incentive for advisors to round up qualified clients to consider. Supplementary controls need to be implemented to further confirm or deny such attestation.

A tier system for different levels of client deal eligibility would need to be integrated into any direct investment platform, and consideration should be given to the requests and compliance concerns of Reg D compliance.

Any direct investment platform should provide wealth managers with the ability to apply screening criteria for investment opportunities. While this may not be a paramount concern for firms that offer few deals, large wirehouses offering potentially dozens of opportunities each year need to provide different levels of filters to money managers offering fair deals. will be required.

Performance data will generally not be available for direct investing, and any projections should be viewed through a skeptical lens, but even in private investments such as ESG, management structure, institutional coin investing and other high impact There should be screenable features around the details.

The questions that need to be answered are how direct investments fall into the broader firm allocation model and where large non-equity investments are factored into the rebalancing calculation. The capabilities of risk analytical and performance reporting software will also need to be reviewed to ensure that those metrics are being accurately and accurately accounted for in an easily digestible manner.

Finally, firms should consider the type of liquidity they are prepared to offer for such investments. Creating a market in these private securities may prove to be too much of a hindrance, but may already be an opening for matching clients integrated on the platform on a second-style basis. Flexible loan solutions around direct investment can offer another way for wealth managers to deepen relationships, increase revenue, and accelerate competitive advantage.

When creating a roadmap for winning the bulk of the big wallet, money managers and their firms should find direct investing a powerful fit. And the next customer will demand, “Show me the deals!” The requirement should be met with just “Sure, right here”.

Simon Zass is a consultant with Capco specializing in wealth management. He has experience in both front and back office, using his vast experience to execute meaningful change in organizations. Simon holds a degree with Honors from Baruch College and is a CAIA charter holder. He lives in Connecticut with his wife, son and two dogs.

Grant Clampitt is an Associate Consultant at Capco’s Wealth and Asset Management. A recent graduate of the University of Iowa, Grant holds a degree in Enterprise Leadership. He currently resides in Chicago where he was born and raised and is an avid golfer.

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