Directly investing in deals requires the advisor to acquire great skills, commit lots of time to build the experience and ability at finding the best of class managers in many different verticals and across many classes. The advisor’s fiduciary responsibility is greatest when making direct investments for their clients. Direct investing makes available to the advisor’s clients one of the least costly ways to invest in alternatives but is certainly the highest cost to the advisor in time, talent and money.
Managed Funds requires stringent due diligence by the advisor on each individual manager. The costs of the fund can typically be 2% / year + 20% profit sharing, so this ends up being more expensive than direct investing led by the advisor, but is still quite practical for most situations.
Fund of Funds
Fund of Funds, like a mutual fund, maximizes diversification benefits which makes it the easiest way to get into many different deals for both the advisor and the client. For the investor, it has higher costs than the previous two methods. See The Family Wealth Consulting Group Opportunity Fund, LP. Also see The Family Wealth Consulting Group Diversified Alternative Income Fund, LP (DAIF).
Co-partnering with High Net Worth Family Offices/h3>
Co-partnering with High Net Worth Family Offices can be negotiated as the lowest cost for the investor so has the potential for the highest expected returns net of costs, including high priorities for fee sharing as well as individual ownership rights. The advisor needs to have many contacts with many HNW Family Offices to be able to negotiate reasonable or pari passu deals, that are available mostly on an ad hoc basis with individual and willing families.