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Transcription of interview with Richard Wilson on April 22, 2013.
Douglas Goldstein, CFP�, Financial Planner & Investment Advisor
Richard Wilson founded the Family Offices Group and is the president of the Richard
Wilson Capital partners. He is the author of the bestselling book The Hedge fund Book:
A Training Manual for Professionals and Capital-Raising Executives.
Douglas Goldstein, financial planner & investment advisor, interviewed Wilson on Arutz Sheva
Radio.
Douglas Goldstein: What is family office and hedge fund?
Richard Wilson: Family office is just a holistic wealth management firm that manages kinds
of the full balance sheet financial picture for the ultra wealthy. In other words, it
is a wealth management firm for people that have $20 million or more typically because
those people have different needs and challenges financially.
A hedge fund, there�s over 15,000 of them in the world so they are all different types
but the best way to understand one is that if you know what a mutual fund is, a hedge
fund is typically a more private investment fund that is able to use more investment tools
and strategies to pursue their strategy and what a makes a hedge fund unique is that they
almost always charge a management fee and also a performance fee so in the hedge fund
as well, their fees go up and when they don�t then they have less fees. There are some of
the unique characteristics about both these types of industries.
Douglas Goldstein: In terms of regulatory oversight, is there still a difference between
mutual funds and hedge funds?
Richard Wilson: It is different in Singapore, Russia, United States and in almost every
country around the world, mutual funds are regulated more heavily, but at the same time
because of that heavy regulation and rules, they are able to accept money from more types
of investors where hedge funds are typically restrictive sometimes and in some countries,
you can�t run a hedge fund at all or even invest into a hedge fund and in other countries,
it�s a little bit more lax that we have to meet certain wealth minimums because government
see it as more risky.
Douglas Goldstein: Are hedge funds available or even appropriate for people not at that
level?
Richard Wilson: I know a lot of investors who are under $20 million and that worth and
they have invested in hedge funds but the appropriateness of the hedge fund that depends
on several different things, the risk factors and preferences and the situation the individual
is in. For example, is the person that�s worth $5 million retired, in retirement home
but they have high monthly expenses because they live in Monaco or do they have $18 million
and a 24-year-old that was working at Facebook as a programmer that went public and they
live in San Francisco and they rented an apartment just outside of the city which is completely
different. The other side of that which makes that answer more complex is that there are
hedge funds that are very conservative and they felt it�s just on capital preservation.
There are hedge funds that focus on just lending to real estate developers and then there are
very aggressive hedge funds that the other extreme that are taking big risk and trying
to get big 20 or 30% returns every year for their investors. It depends on the person
first and foremost and then also on the hedge fund that you are referring to, to make sure
it�s appropriate.
Douglas Goldstein: The term hedge fund doesn�t necessarily really
mean that is a hedge at all anymore. It just means that some sort of non-standard investment
pool.
Richard Wilson: The term came up because in the 1960s. There�s a fund which basically
with short some securities in the marketplace as well as go along. In other words, bet against
a few companies but also bet for typically a majority of groups in the portfolio and
they would see this as kind of hedging their risk. For example, if you�d invest in cosmetics,
there are 20 major cosmetic companies and we�re going to bet on 10 of them. These
10 are strong and these 3 are quite poor, poor cash management, looks like they�re
struggling to meet their estimates each quarter so some of those funds might short bet against
those 4 of those 10. If the market goes down, you would bet that those 3 weak ones would
really nose dive while the others would hopefully be okay long term. That�s where the name
hedge first came from is doing those innovative type investments. It might have not been allowed
within a regulated standard pool of investments sold to the general public but since then,
it�s just grown. Usually there�s a performance fee and typically there�s extra requirements
to be able to invest in that hedge fund
I think the most important point when it comes to decide whether to invest on hedge funds
or not, is to usually work with someone whose licensed, regulated, trained and they have
done this dozens of times before and something I tell ultra wealthy families as well like
don�t be the training wheels for some attorney or can solve it once they grow their business
into lucrative sounding area. You want to find someone who everybody knows has a great
reputation, has many references, you can verify that they�re licensed and regulated and
anyone who is serious about providing value. Within hedge funds or family offices should
be all those things and one general business for all that I always live by is that you
should always ask the person if they have three references, people they have worked
with once and then have come back to work with them again because if they don�t have
those first three people that have done that, you don�t want to attempt to be the first.
You should always make sure that there�s people that have done this once and then came
back again to work with these experts that you�re consulting with.
Douglas Goldstein: When people invest in hedge funds as part of a long term portfolio. Are
there certain types of hedge funds that are more appropriate for someone who is in his
30s, 40s or 50s who sees this portfolio going out for 10 or 20 years or more?
Richard Wilson: I would say that I�d be hesitant to recommend any because everybody�s
situation is different, but one thing I can say is that a recent trend with the ultra
wealthy families I�m working with what I�ve seen since 2008-2009 is that a lot of these
families� hedge fund investors want to invest in strategies that they can understand and
they can see where the value is being traded and understand the link between the team expertise
and the value being created or the strategy of the investment fund and a lot them prefer
a hedge fund that has some component which is physical, tangible, sometimes real collateral
or real asset value so it�s not all an algorithm. That said a lot in big hedge fund investors
and pension funds, endowments, foundations etcetera are investing in hedge funds that
don�t have tangible assets, but I just think that there�s an extra interest in strategies
which just feel more concrete and real nowadays than there was 5 or 6years ago.
Douglas Goldstein: There�s something called a certified hedge fund. Could you explain
what that is?
Richard Wilson: We started in 2006-2007 the certified hedge fund professional and it�s
a designation or certificate platform. Another way to look at it is really just a training
platform and when you enroll, you get to listen 9 or 10 hours of audio interviews with hedge
fund experts and hedge fund managers. You also get over 150 video modules. You can study
and learn the fundamentals of hedge funds, learn the lingo of the industry, learn about
the different hedge fund investment strategies and then when you�re ready, you can take
an online examination. If you pass the exam, we send you a hard copy of your certificate
in a leather diploma holder. No matter where you are in the world, we mail it to you so
you can display it in your office to show people that you�ve taken time to study the
industry and you�re a student of the space and you�re dedicated to move up your knowledge
so you can be more effective in the industry in serving clients or working
for a hedge fund.
The number one value that we�re adding that people can take the program and learn the
fundamentals relatively quickly and we don�t claim you�ll be an expert when you get out
of the program, but it�s a good entry level, get familiar with the industry type programs
that people aren�t kind of blindsided I think as often.
Douglas Goldstein: When someone is looking for a hedge fund, what are the questions as
an investor should ask?
Richard Wilson: The most important question and you hear this when you talk to venture
capitalists, when you talk to angel investors, all types of investors but the most important
question is who is on the team and exactly how can you connect the dots of their experience
and expertise with an investment strategy that provides them with a competitive edge.
So the team�s knowledge and ability to get things done together with that strategy which
hopefully is very repeatable and consistent and can produce consistent returns. There�s
a lot of due diligence related questions and references and reputation and looking at their
office and looking at their back office operations and past audits and many different things
that you should [crosstalk].
Douglas Goldstein: How about custodianship? You know that your money is held in an account
for you and doesn�t end up being in someone else who is going to run away with.
Richard Wilson: There are literally over a hundred questions you should be asking when
you invest in a hedge fund. Some are routine and you�re just making sure that the basics
are in place and some are very critical and they�re going to pertain to your unique
preferences and what type of people you�re going to work with.
Douglas Goldstein: How can people follow your work?
Richard Wilson: The two easiest ways and we built our whole brand off of this is just
providing free thought leaderships, people can get to know us as a company. Our hedge
fund book, we have e-book version that can be downloaded for free so you can get a taste
of the real book and that�s at www.hedgefundsbook.com and then for our family office book, you can
get two or three chapters for free by going to www.familyofficereport.com.
Douglas Goldstein, CFP�, is the director of Profile Investment Services and the host
of the Goldstein on Gelt radio show (Monday nights at 7:00 PM on www.israelnationalradio.com.
He is a licensed financial professional both in the U.S. and Israel. Securities offered
through Portfolio Resources Group, Inc., Member FINRA, SIPC, MSRB, NFA, SIFMA. Accounts carried
by National Financial Services LLC. Member NYSE/SIPC, a Fidelity Investments company.
His book Building Wealth in Israel is available in bookstores, on the web, or can be ordered
at: www.profile-financial.com (02) 624-2788 or (03) 524-0942.
Disclaimer: This document is a transcription and/or an educational article. While it is
believed to be current and accurate, divergence from the original is to be expected. The original
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information and should not be used as the sole basis for making financial decisions.
The opinions rendered herein are those of the guests, and not necessarily those of Douglas
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