How do you invest in alternatives?

Does anyone actually invest in alternatives such as PE, HF, or VC? If so, how?


Once you meet the accredited investor definition, which many of us do either through licenses or income, what platform, advisors, or services do you use to gain this access? I recently saw Vanguard was partnering with HarbourVest to "democratize" access to PE. However, turns out you need a minimum of $5mm on Vanguard for this access. I'm wondering if some advisors or wealth management services allow accredited investors to write a $10k check, then pool money from many individuals to then offer more institutional access to PE, HF, etc.

 

Private Banks do offer some alternatives to clients, but it depends on the bank, client, and type of alternative. From what Ive seen the most common type of assets that are available to a HNW (>$2MM and <$10MM) are RE Funds, Infraestructure, Private Debt, and Market Neutral HFs. PE, VCs, and top tier HFs are really hard to come by. Also, most assets are offered through feeder funds (look up iCapital), which involve another layer of fees. 

 

If you know any alternative funds/managers you want to invest with/in it may be best to just reach out to them directly. They may have minimum investments even for AIs but sometimes they may waive that depending on the relationship

if you have a more specific wish for what asset class or investment vehicle you want to invest in, I’m happy to try to introduce you to someone I know who may be running that kind of a strategy…

 

Thanks for pointing out those platforms. That's more or less what I was looking for. Ideally, I wish some of the bigger brokerage platforms would adopt this same model without the crazy minimums.

 
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I invest in emerging managers. Mostly VC, REPE, PE (both normal funds and IS) and some HF.

-Smaller cheque sizes that work for me. I've seen anywhere from $50k to $1M as minimums. HF has much larger minimums in general because their strategies require more AUM to execute well in most cases. 

-Easier to outperform due to low fee structure. Usually weighted in favor of carry which is something I am fine with. IMO, you are a little bitch if you need fixed fees and running a small fund.

-I can learn a lot from them and apply it to my own business.

-You get a free education from someone who is amazing at what they do. Usually it's someone who held a senior role at a very reputable firm, who is branching out to do their own thing and is realizing how much harder it is to raise capital when you don't have name tag that says "Blackstone".

-Sweet spot IMO is managers raising a small second or first fund, with laser focus on something they know they can execute very well. 

 

Could you explain why a hedge fund needs a higher AUM in order to execute its investment thesis?

(I have always been under the assumption that it is much easier to make great returns percentage-wise with less capital. 

The most basic example is a lemonade stand. You can turn $20 of lemons and sugar into $80 on a hot day. 400% yield.

There is simply too much big money chasing the big deals making it more difficult to scale.)  

 

I think it’s talent and then the raw costs involved in setting up an HF. Especially when the strategy calls for a very specific toolset. In PE it’s just you and whoever is bidding against you on deals. In HF it’s you against the world, much harder. The only reason I invested was because the fund will provide a level of liquidity if my own companies need it when the economy tanks. 

 

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