Searching for the 'Top-Tier' Funds

Jonathan Ng
August 2, 2022

At Reach Alternative Investments, we only partner with the world’s largest asset managers, typically among the top 20 in the world. These asset managers have become the largest in the world by demonstrating their ability to deploy money responsibly, effectively and consistently on behalf of their institutional clients over multiple market cycles.  However, simultaneously, these managers have been notoriously difficult to access by non-institutional investors here in Australia.  Through our relationships, we are able to connect our investor community with some of the highest quality funds in the world.

However, just because a fund is run by a world-leading asset manager, does not mean it is ‘top-tier’. Before we create an Australian-compliant feeder into a fund, we undertake strict due diligence on a fund to ensure it meets our criteria for listing on our portal.

My role as Head of Investments for Reach Alts is to execute our stringent ‘fund-selection process’ to ensure we are only offering the top-tier funds in a strategy. 

In this article, I help you understand a little more about what we look for and how we identify appropriate funds.

Partnering with the right fund manager

When you only work with the world’s leading private asset managers, this brings with it many advantages in screening for quality and performance. However holding this accolade does not necessarily mean that the asset manager is a good fit. 

The most important quality is finding alignment with the asset manager to understand that they are committed to scaling access to such funds responsibly. Typically, private asset managers deal with large, institutional clients who have different risk profiles and investment horizons. We ensure that the right partner shares our mission of democratising the world of private markets and is willing to cater to non-institutional investors. To ensure the manager is the right fit, we conduct a ‘due diligence process’ to analyse:

  • The financial strength and sustainability of the fund manager’s business through different business cycles, as we only want to partner with managers who will continue to stand the test of time.
  • The relevancy of the funds that a manager has available in the market to make sure they are aligned with our investors’ wants and needs. 
  • The proven expertise of the fund manager through their track record in the relevant private markets asset classes. Although historical performance is not an indication of future performance, we believe that consistency is key and you can’t argue with consistent results.

Finding the right fund

Once the fund manager has passed our ‘asset manager due diligence process’, this provides us access to their series of funds to put under the microscope. Again, being a fund in one of the world’s leading fund managers does not automatically warrant our tick of approval, the fund must also pass our ‘fund due diligence process’. 

Our fund due diligence process has a quantitative element and a qualitative element: 

Quantitative element

This is focused on data analysis. For example, while past performance is not a guarantee of future performance, a robust analysis can provide insights into the return drivers of a fund’s strategy and can also help to confirm whether the manager’s historical investment decisions and risk management matches their sales pitch. 

Qualitative element

We know that a numerical analysis and responses to a standardised questionnaire do not tell the full story. So we dedicate time to sit down with managers to understand the way they think and how they execute the fund’s investment strategy in practice. The qualitative assessment relies on our extensive experience with spending many hours with different managers, allowing us to have a deep understanding of the dynamics within the private markets universe and what we consider to be ‘top-tier’’ features. Then, when we come across an unusual feature of a fund we are able to assess whether it is a potential benefit or risk. 

The considerations we factor into our qualitative assessment include:

  • The quality of the investment staff 
  • The financial strength and stability of the manager
  • How the manager incorporates environmental, social and governance considerations into their investment selection and research processes
  • Portfolio construction (e.g. sector/industry exposures, risk limitations, diversification, use of leverage etc.); and 
  • The repeatability of the fund’s investment strategy.

We want to ensure we provide our community with a good range of quality strategies and risk/reward profiles. This range allows our investors to consider for themselves how they wish to build their private market exposure, consistent with their aims and appetite.

We recognise that the suitability of a fund for an investor to invest in is dependent on that investor’s individual circumstances. As such, we do not provide recommendations or advice on whether a fund is appropriate for them or not. Rather we provide information that we believe may assist investors when deciding whether a fund is appropriate for them. In addition to the investment memorandum which outlines the opportunity and terms, we provide a fund factsheet and a fund assessment document, which reflects a summary of our analysis of why we selected the fund to be listed on our portal and includes characteristics of the fund that we like, what we think are the watch points for the fund and the historical performance of the fund. 

All potential investors within our community should consider the level of due diligence they need to conduct to be satisfied if a fund is right for them. If you need assistance, we recommend you speak to a financial adviser. We provide as much information as we can to assist you and your adviser to understand how it might fit within your own portfolio, consistent with your investment aims.

In good company

Our selective process means that we only bring to market a handful of managers and funds that we review.

In essence, we want to bring to market funds that have been run by managers who have been tested and proved themselves. They have been through multiple market cycles, have typically tested the strategy before, and have seen success. 

While there are many great boutique asset managers out there, it can be hard sometimes with only a short track record to distinguish the lucky from the skilled. Therefore, we take a conservative approach. We believe the responsible way to open access to our emerging class of non-institutional investors is to start with the most-proven, the managers that institutional investors repeatedly turn to across time to manage their money.  

As the saying goes, “money goes where it wants, but stays where it is treated well’. The ability of these fund managers to attract huge amounts of capital over a long period of time from institutional investors means you are in good company.

Invest with the most-proven

For the first time, these ‘top-tier’ funds are being opened up to non-institutional, qualified sophisticated investors. We’re here to connect these investors with what was previously a highly exclusive investment opportunity. If you would like to join our Reach Alts community, click here.

For more information about our available private equity funds, please visit our private equity funds page.

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