3 Biggest Risks of Investing in Funds

What’s up guys!? Hope your weekend is off to a great start!

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These tips today could help you as an investor or manager…

1. Concentration Risk

For example, let’s say you have shares in Amazon stock, the S&P 500, and a Technology ETF…

You will have exposure to Amazon not only through its stock, but also “look through exposure” in the S&P and your ETF, therefore, raising your concentration risk.

Let’s take real estate, for example, it’s all about location!

The geographic risk in real estate means that you don’t put all your investments into Texas, or any one location; you diversify. Also, look to invest in different types of real estate.

Additionally, don’t forget to diversify your private equity and venture funds. That also means looking for multiple, non-related investors instead of banking on one or two individuals.

2. Management Risk

Pick a good manager! But what makes a good manager?

  • Good experience
  • Having a team of managers, not just one individual

Diversify your team

  • How long have the partners been together?
  • Do they know each other?
  • Are there any conflicts of interest?
  • Are they operating other businesses?

“I’ve probably said this in every video, but make sure you understand your investor!”

Lincoln Archibald

3. Operational Risk

Merging managers, do you know how to run a business?

Like Lincoln said in his video…

“People forget that all the time; managing a fund is like running a business.”

Lincoln Archibald

There are plenty of other risks (like political, asset, strategy risks to name a few).

But don’t forget the big 3!

Resources like SEC and ILPA can help you find good questions to ask your managers!

Hopefully, this was helpful, have a wonderful day!

Bridger Pennington

Want to get direct guidance for your fund? Schedule a time with my Fund Advisors!

DISCLAIMER: This content is for educational and informational purposes only. It is not to be taken as tax, financial, or legal advice. You should always consult a legal professional before taking action. Furthermore, this is not a recommendation to buy or sell any security. The content is solely just the opinion of the authors.

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