From the June 2009 issue of Investment Advisor • Subscribe!

Venture Populist: Private Practice

You could improve your value proposition and your clients' portfolios by developing private venture investing competency.

The cover story for April's The Atlantic was a timely article called "Why I Fired My Broker" in which Jeffrey Goldberg recounts the misgivings of middle- and upper-income Americans contemplating the consequences of their investment advisor relationships. Like so much of the new populist propaganda, it wasn't pretty. In a video interview about the column, Goldberg describes garden-variety vendors of investment advice as "...these Jiffy Lube kind of places. They'll take your money. They'll invest it in the same things that everybody else is being invested in."

Is that a cruel but fair commentary? It is if advisors keep doing what they have been doing yet (insanely) hope for different results, and good luck securing new clients amidst the new prevailing wisdom.

Last month in this space we posited the problem:

o Stocks are not worth their risk premiums and bonds look downright scary.

o Modern portfolio theory, buy and hold, and traditional asset allocation models have been completely discredited

o Diversification is not easily achieved because in a time of crisis all correlations go to one.

But we also spoke to a solution:

o The vast majority of private wealth in America is the result of participation or investment in private ventures, such as business startups, venture capital, and private equity.

o The high-net-worth investor understands and appreciates the wealth-creating potential of private venture investing (PVI). In fact, in many cases that is how they became wealthy themselves.

Advisors could materially improve their value proposition, their competitiveness, and their clients' portfolios by developing PVI competency and integrating the asset class into their practices.

Why I Hired My Advisor

I know too well that this message will be lost on 80% of advisors who view private investment in startups or existing businesses, private equity, or venture capital more as a new problem than as a solution. That's probably the way it should be, since it is likely that only 20% of investment advisors possess the competitiveness, the capacity, and the client base that could support and embrace this asset class.

But every advisor benefits from a discussion that introspectively considers their true value proposition as advisors. On Wednesday, June 17th, I will be the guest speaker on an Investment Advisor Webinar, "Why I Hired My Advisor: Integrating Private Venture Investing into Your Practice." (More information on the Webinar can be found at investmentadvisor.com.)

The performance of the category is indisputably compelling and speaks for itself. Thomson Reuters US Private Equity Performance Index data released through 2008 show the "All Venture" category (which includes data from early/seed, and later-stage venture capital funds) returned 17% over the last 20 years against the 6.1% return of the S&P.

During the call we will define the universe of private venture investment, demonstrate the benchmark-trouncing historical returns of these investments, and introduce a truly new, unique, and dare I say it, revolutionary (black swan-inspired) paradigm for asset allocation that confronts the new realities about stocks, bonds, bills, and inflation (a hat tip to you old Ibbotson fans).

We will try to make the case that the integration of private venture investing into client portfolios, in turn, benefits progressive investment advisory practices by:

o Increasing the probability for more stable and compelling portfolio performance via a core-satellite allocation methodology that simultaneously mandates safety, liquidity, and yield, as well as "optionality" and asymmetrical returns.

o Radically invigorating and underscoring the advisors' value proposition to clients and materially differentiating the advisor among peers pursuing HNW clients.

o Strengthening the advisor-client relationship, incentivizing the client to refer new clients, increasing client dialogue with the advisor, increasing client retention rates, and creating a client "community" within the practice.

We will also address the specifics regarding the implementation of this asset class into portfolios and your practice by identifying third-party information, due diligence, investment management, and deal flow resources that are critical to successful integration.

I hope that you can join us for an educational and provocative discussion.


Jeff Joseph is a financier, entrepreneur, CEO of Prescient Advisors, and the author of the blog at www.venturepopulist.com. Send comments, questions, and column suggestions at joseph@4prescient.com.
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