Ask a computer software programmer, a politician, a shoe fashionista or an asset manager like me what “platform” means and you will get four very different answers. In the financial services industry, a “platform” usually refers to a set of money managers assembled and offered by a bank, brokerage firm or investment management company. Platforms can benefit both investors and managers. Investors benefit by finding a menu of managers who have been vetted by the professional creator of the platform. Managers benefit by getting access to a source of potential investors.
It’s not a perfect metaphor, but if you’ve ever shopped at London’s Burlington Arcade, the architectural jewel that houses that city’s top luxury stores, you get the idea. It’s one-stop shopping for top-of-the line products. The arcade saves you the trouble of trying to find the best stores yourself. Platforms offer convenient access to a range of funds, consolidated administration and reporting, and other services that result from economies. They also tend to be on the cutting edge of the industry. If a new asset class -emerges, for instance, platforms are more likely to learn about it before registered investment advisors.
Platforms come in many guises. There are platforms for trading mutual funds and exchange-traded funds. There are platforms for investing in unified managed accounts and separately managed accounts. There are platforms for alternative investments, including liquid alternative mutual funds, hedge funds and managed futures funds.
Platforms may look alike, but that doesn’t mean they are all equal. This is especially true of an alternative investment platform. That’s simply because alternative investments funds are more complex than traditional ones. That’s why, if you are considering an alternative investment platform for your clients, I recommend that you test the planks first.
Alternative investment fund platforms all strive toward the same goal of finding the best managers. The search begins with a familiar checklist: Is the manager’s track record verifiable? Is it repeatable? How much risk was involved? Are there any signs of style drift? Who audits the returns? How secure are the proprietary trading systems? What’s the back-up plan if another Hurricane Sandy hits?