Investible Funds: Variables to Consider
In evaluating investible funds, adequate analytics need to
be deployed correctly to ensure optimum ROI (Return on Investment) in
considering various investment options. This can include the following
investible security holdings; Funds of funds; hedge funds and private equity
Variables to Consider:
Track Record/Past Performance
In reviewing a funds past performance, you can discern a
funds capability in two forms: risk controls against difficult market
conditions and returns over a period of time (considering longer term growth
rates from private equity and high frequency trading from hedge funds).
A funds track record is the equivalent to its credentials. They
can also outline the firm’s investment strategy and their fund performance
success rate with particular types of investments depending drastically on
their mode of investing whether that may be long-term or short-term.
Gauging funds future success is much about analytics as it
is about strategy. Adaptability is whole story when writing your perfect novel.
Accounting for variable change can allow a flat-footed strategy be more
flexible in times of needed change.
The effectiveness of the fund’s corporate policies and
practices to ensure that a focus on objectives is maintained by the fund
manager and its investment team. This is to keep the investment team
goal-orientated and always striving for optimum fund performance.
Having financial growth checkpoints within each fund can
allow for a steady growth rate when aiming for certain objectives. Fund managers
and their investment teams can track how far they are and how long it will take
to get to certain checkpoints. This adds to an ever-striving investment
strategy which allows fund managers to know their end-goal.
The funds ability to effectively manage risks in uncertain
investment plays with appropriate controls and mitigation strategies to protect
all assets under management whether their investment moves are active or passive.
Risk strategies and tools tailored to fund managers can act
as a framework which can be easily adjusted to fit their overall strategy and
investment mandate. These tools are included:
This involves hedging which means strategically using
instruments in financial market to offset the risk of any adverse price
movements in other words a diverse set of investment plays to control your risk
Risk Sharing strategies
If an equity bid is too high many parties can have joint
commitments in one investment to lower the risk on each given investment. A
term commonly referred to as ‘joint ventures’ is an investment strategy often
used in large investment projects. It allows firms to bring together resources
in the form of capital or expertise in the efforts of a mutual end goal. This
is a very effective way of managing risk in large equity deals.
Putting forth a lower equity stake with borrowed capital as
leverage to increase potential returns allows you to put minimum skin in the
deal while still retaining the upside benefit. This strategy is useful when
investment firms want to expand their portfolio size with a low AUM (Assets
Under Management) base.
Risk mitigation tools need to be integrated within each fund
to attract investment. Funds which incorporate these risk averting strategies
will be look on more favorably when investors do their due diligence.
Effective portfolio management must categorize a systematic
approach tailored to a strategy which has an adequate rate of return. The
following points encompass this theory:
Investment Management Process
Investment policy mandate
Your investment policy mandate should include the following:
Risk tolerance (Per Investor)
Your investment policy can be tailored to fit each investor
separately, depending on their needs and preferences. These preferences can
include any liquidity needs for the investor, projected investment horizon (a
period of time for investments), as well as other unique needs preferences.
Your strategy should integrate with your investment policy.
Once fund managers find congruence with their investment policy they can bring
together a solid strategy which encompasses facets of an effective investment
In assessing investible funds, the concepts mentioned above
give you a foundation to work with when weighting up your investment options.