How a Family Office Investor Evaluates Fund Managers
A family office investor and fund marketer draws on experience with fund marketing and due diligence. Richard C. Wilson gives a closing introduction.
In her investigation of Bernard Madoff's separately managed account, she says AI could have helped her review trade tickets faster, but it could not have found the accountant's New Jersey office in a strip mall or supplied context from personal interactions. She has worked on both the manager and investor sides of due diligence.
In this video: Family office investor (Investor and fund marketer), Richard C. Wilson (Host of Family Office Club)
What they said
- The investor on trade tickets. Manual review of trade tickets in a separately managed account showed most buys at the day's low and most sells at the day's high. She also found trading volume too low for the assets being managed. (at 0:55)
- The investor on human diligence. Personal interactions and background checks added context that AI could not provide. She points to the accountant's New Jersey office being in a strip mall. (at 1:23)
- The investor on measuring skill. She asks how many decisions a manager makes when judging whether results show skill or luck. In her view, being right 20 times out of 100 can be more relevant than being right twice out of 10. (at 3:42)
- The investor on portfolio fit. A portfolio with 100 holdings may still lack meaningful diversification if its positions move together in a downturn. (at 4:10)
- The investor on portfolio goals. She says to understand the investor's goals and risk tolerance before assessing individual managers. (at 6:27)
- The investor on fund operations. A manager needs a team or a workable plan to run the business as well as manage money. She says people who have managed money on a proprietary trading desk can run into trouble when they have not run a business. (at 9:40)
In their words
"If a manager's willing to take money from you without meeting you, be suspicious."
"No matter how successful they are, they're continually laser-focused on being successful for their investors."
Why it matters if you are building or preserving great wealth
The investor's question about a manager's "tolerance for pain" gives a reference point when results weaken. Investors can compare a drawdown with the exit point the manager said they would honor.
From Richard's exclusive Billionaires.com interviews
Lessons from Richard C. Wilson's one-on-one interviews, as published on each interview page.
- Anu Aga: Focus on one main cause. Her family found its giving more satisfying and impactful once it chose primary education for the underprivileged in India.
- Binod K. Chaudhary: Never chase a deal out of desperation. Stay cool and look at every part of the deal. Have your advisers and your finance team review it critically. Your counsel should review it too.
- Larry Connor: Learn from every mistake. Larry's team owns its failures and makes no excuses. They learn, change quickly, and keep getting better.
See the data
Frequently asked questions
What did the speaker want fund presentations to explain?
She said a deck should work as a leave-behind, with each slide clear on its own. She wanted the manager to explain how the investment process could repeat and hold up over cycles.
What example did she give of staying with a manager after a weak period?
She said a long-short equity manager's assets fell from $6 billion to $1 billion after mediocre results over a couple of years. She stayed invested because she understood his approach and believed he would keep working to perform well for investors.
Sources
Quotes are copied from the video captions and checked against the transcript. Timestamps link to the moment in the video. General information only, not legal, tax or investment advice.