Alternatives are such an integral part of Matrix Wealth Advisors Inc.’s philosophy that the fee-only firm has a pooled fund devoted to the category.
The three-year-old fund, the Matrix Private Opportunities Fund I LLC, comprises 18 underlying managers and has $9.9 million in assets under management, according to Kim Wilhelm, chief investment officer at Matrix Wealth Advisors.
Pooling some $10 million in client funds opened up a wealth of alternative investments that Ms. Wilhelm’s clients — who typically have about $1.1 million in assets — would not be able to access. She oversees the fund and allows clients to participate with as little as $25,000.
Lack of variety for investors who didn’t have the big bucks to get into certain alternatives fueled the creation of the Matrix Private Opportunities Fund.
TIMBER!
“We found that we wanted access to timberlands,” said Ms. Wilhelm, whose firm manages $181 million in assets. Timber presents an opportunity, as China has been purchasing logs from the United States, she added. “There are benefits of diversification into that class, but we couldn’t find any good, institutional-quality managers with minimums under $1 million,” the adviser said.
Investments of the pooled fund include ORM Timber Fund II Inc. and the SQN Alternative Investment Fund, which invests in medical equipment and then leases it out. The lease payments pay back SQN’s invested capital, plus an additional return.
Ms. Wilhelm ensures that no single manager makes up more than 10% of the overall pooled fund.
Clients who have the $1 million in net worth necessary to be an accredited investor can access private funds through Matrix’s custodian, National Advisors Trust Co.
Alternatives are a regular part of most client portfolios at Matrix, which uses the investments to diversify from the stock and bond markets, and to protect against the downside risk of equities.
The firm caters to physicians and other high-net-worth individuals, including retirees. The most aggressive portfolios could have as much as 40% in alternative investments, Ms. Wilhelm said.
For retirees who are about 65 or 70 and could have a time horizon beyond 10 years, Ms. Wilhelm works with equipment-leasing funds and raw-land investments. While the principal invested in the leasing funds is illiquid, the funds themselves give off an annual income distribution of about 6%, which comes in handy for retirees.
How well clients understand alternatives can vary, and some will have an easier time grasping how their investments work than others.
“If it’s a private-equity manager or an equipment-leasing manager, we use examples of the companies or equipment [the funds] bought,” Ms. Wilhelm said. “When it’s tangible, they can relate to what the fund is doing overall.”
DILIGENT PURSUIT
Though Matrix is well-steeped in alternative investing, the firm performs painstaking levels of due diligence before considering funds for its investors, researching auditors and the funds’ clients. The scouring of funds’ records, performed by the firm’s in-house research analysts, can take three to four months.
Sometimes the research yields surprises, Ms. Wilhelm said.
“In one example, after digging through audit reports, we found out that a fund had redemption problems,” she said. We just weren’t comfortable.”
Email Darla Mercado at [email protected]
