When it comes to investing, you want to make sure that you’re partnering with the best of the best. That’s why investors need to ask their asset managers a few critical questions before handing over any capital. By doing your due diligence, you’ll be able to understand exactly what your investment manager is offering and whether or not it aligns with your goals and risk tolerance.
In this blog post, we will discuss six important questions every investor should ask their asset manager before signing on the dotted line. Keep reading to learn more!
Why You Need To Ask The Right Kinds Of Questions
As an investor, it’s important to remember that you’re ultimately responsible for your own capital. This means that you need to do your due diligence and fully understand what you’re investing in before committing any money.
One of the best ways to get a handle on what you’re investing is to speak directly with your asset manager. By asking the right questions, you’ll gain valuable insights into their investment strategy, risk tolerance, and more.
Not sure what kinds of questions you should be asking? We’ve got you covered. Here are five important questions to ask your asset manager before investing:
Question #1 – Tell me about your track record.
Investors need to understand an asset manager’s investment strategy and how they’ve performed in the past. This is because you want to partner with someone with a proven success track record.
When evaluating an asset manager’s performance, it’s also essential to look closely at how they’ve been performing in recent years. After all, the market is constantly changing and evolving, so you want to ensure that your asset manager can adapt with it.
Question #2 – What’s your investment strategy, and what makes it better than other firms?
Understanding an asset manager’s investment strategy is vital before investing with them. This will help you know if their strategy aligns with your own goals and risk tolerance.
When evaluating an asset manager’s investment strategy, it’s also important to ask how it stacks up against the competition. After all, you want to partner with someone competitive who will provide you with the value you’re looking for.
Question #3 – What’s your fee structure?
Investors should always be aware of the fees associated with any investments they’re considering. Fees can eat into your returns – so you want to make sure that you’re not overpaying.
When it comes to asset management fees, there are a few different structures that firms typically use. The most common fee structures are:
AUM-based fees: Asset managers typically charge a percentage of the assets under management (AUM).
Performance-based fees: Some asset managers also charge performance-based fees, which are typically a percentage of the profits earned.
Flat fees: Finally, some asset managers charge flat fees for their services. This fee structure is less common, but it’s typically used for more passive investments like index funds.
Question #4 – What’s your preferred return and terms of profit participation?
It’s also essential for investors to understand an asset manager’s return expectations. This is because you’ll want to partner with someone with realistic return expectations that align with your goals. You also need to understand how profits will be calculated and distributed in the event of a sale or exit.
Your asset manager should be clear and upfront about their fee structure with you. They should also include their manager’s terms of profit participation, called “promote.”
The profit participation, or “promote,” is the portion of the profits that an asset manager keeps as a performance incentive. You’ll want to ask how this is calculated. This will help you know whether it’s before or after your split and if there’s any minimum return hurdle.
Question #5 – How are you handling changes in the market?
The market is constantly changing, especially right now, so it’s crucial that you partner with an asset manager who can adapt as conditions change. You’ll want to ask how they’re approaching the current market environment and what changes they’re making to their strategy.
It’s also important to ask how they’ve handled changes in the past. This will give you a better sense of how they operate under pressure and navigate challenging market conditions.
Question #6 – Will a market crash scenario still net out to a positive?
No one knows what the future holds, but it’s important to partner with an asset manager who has a plan for when (not if) the market crashes. You’ll want to ask about their strategy for weathering a market crash and how they would protect your investment.
Question #7 – How does inflation risk play into your investment strategy?
Inflation is a significant risk that all investors face, so it’s essential to partner with an asset manager who has a plan for dealing with it. You’ll want to ask about their strategy for dealing with inflation and how they would protect your investment.
It’s also important to ask how they’ve performed in past periods of high inflation, as this will give you a better idea of what you can expect from them in this scenario.
Don’t Be Afraid To Ask Questions!
These are just a few questions you should ask your asset manager before investing. However, it’s important to remember that there are no stupid questions when it comes to your money. So, if you have any doubts or concerns, don’t hesitate to ask more questions.
The more you know about your asset manager and their investment strategy, the better equipped you’ll be to decide whether or not to invest with them. So, don’t be afraid to ask as many questions as you need to feel comfortable and confident in your decision.
Real Estate investing is a long-term commitment, so you need to partner with an asset manager you trust and who has a solid investment strategy. By asking the right questions, you can better understand whether an asset manager is a right fit for you.
And if you want to learn more about this topic, we discussed the current market and the questions you should be asking your asset manager in our recent Deal Hunters Podcast. You can watch it on YouTube here.
What other questions do you think are important to ask your asset manager before investing? Share your thoughts in the comments below.
