With the development of financial markets, alternative investments such as private equity, venture capital, hedge funds, managed futures, and real estate have become increasingly popular. To help institutions and high-net-worth individuals make appropriate alternative investment allocation decisions, more and more alternative investment consultants have emerged. Alternative investment consultants provide a range of value-added services, including conducting due diligence on alternative investment managers, providing customized alternative investment portfolio construction advice, monitoring investment performance, and reporting alternative investment portfolio risks. By leveraging alternative investment consultants’ professional capabilities, investors can enhance returns, diversify risks, and fulfill their investment goals. This article will elaborate on the key services and value provided by alternative investment consultants.
Background on the rise of alternative investment consulting
The rapid development of alternative investment markets and increasing investor demand are the main driving forces behind the rise of alternative investment consulting services. With abundant capital and pursuit of excess returns, institutional investors such as pension funds, endowments, foundations, insurance companies allocate more capital to alternative investments. However, alternatives possess distinct characteristics like complexity, illiquidity, limited transparency. To conduct proper due diligence, gain access to quality alternative managers, construct optimal alternative investment portfolios, and manage risks, more and more investors choose to leverage consultants’ expertise and resources.
Main services provided by alternative investment consultants
Alternative investment consultants provide a full spectrum of services to help investors successfully navigate the complex alternative investment terrain. The main services include: (1) Due diligence and selection of alternative managers across private equity, hedge funds, real estate, infrastructure, and other alternative asset classes; (2) Customized alternative investment portfolio construction and optimization advice based on specific investor return, risk targets, and constraints; (3) Ongoing investment performance monitoring and risk management of clients’ alternative investment portfolios; (4) Total alternative investment program management solutions including portfolio administration, accounting, audit, and reporting.
Key benefits of hiring alternative investment consultants
The value-added from partnering with professional alternative investment consultants are multifaceted: (1) Gain access to more alternative investment opportunities. Top consultants maintain manager databases covering thousands of alternative managers and funds, which investors typically cannot access directly. (2) Make more informed selection decisions. Consultants have the expertise to conduct in-depth operational, investment, risk due diligence into managers’ personnel, investment processes, risk management, fund terms, etc. (3) Achieve diversification benefits. Experienced consultants can construct customized alternative investment portfolios balancing risk exposures across different managers, strategies, geographies, industries, and vintage years. (4) Strengthen risk monitoring. Ongoing oversight by consultants provides investors transparency into portfolio risks and helps investors identify risks early.
Criteria for selecting the right alternative investment consultants
Not all alternative investment consultants are created equal, investors need to be thoughtful when selecting consultant partners. Criteria to evaluate consultants include: (1) Experience, expertise and track record in specific alternative asset classes of interest; (2) Manager network and demonstrated ability to gain access to top-performing managers; (3) Resources and infrastructure dedicated to manager due diligence; (4) Customization ability versus one-size-fits-all approaches; (5) Cultural fit and alignment of interests; (6) Stability, expertise, and commitment level of consulting staff.
In a nutshell, partnering with professional alternative investment consultants allows investors to enhance portfolio returns, diversify risks, gain access to desired managers, make informed decisions, and fulfill investment objectives. Investors should select consultants diligently based on criteria like expertise, track record, resources, and cultural fit.