As an investor it’s important to make wise decisions when it comes to your money and financial goals. So naturally it makes sense that you’ll want to have a good understanding of any potential firm that you may work with or invest in. The easiest way to do this is to have a conversation with the private equity firm or investment firm about how they operate to ensure your interests are aligned and that you are comfortable investing with their firm.

We put together a list of the top 5 questions you should ask an investment firm, private equity firm or hedge fund prior to investing with them.

What is the size of your Assets Under Management?

By understanding how much a firm has under management you can gather vital information that will help you decide is a good fit for you as an investor.

Assets under management (AUM) refers to the total value of assets that a financial institution or investment manager is responsible for managing on behalf of its clients and investors.

AUM is an important metric for several reasons:

1. Scale: AUM is often used as a measure of the size and scale of an investment manager. Generally, larger AUM means that the investment manager has more resources and can take advantage of economies of scale to reduce costs and improve returns.
2. Revenue: Investment managers typically earn fees based on a percentage of AUM, so higher AUM can translate to higher revenue for the manager.
3. Performance: AUM can also affect the performance of an investment strategy. As AUM grows, it may become more difficult for the manager to find attractive investment opportunities that can move the needle on returns without taking on excessive risk.
4. Liquidity: AUM can also impact the liquidity of a portfolio. Large positions in illiquid assets can be difficult to sell if too many investors want to redeem their shares at once, which can lead to losses and a decline in AUM.
5. Reputation: Finally, AUM can also affect the reputation and perceived success of an investment manager. High AUM can signal to potential clients that the manager is trusted and successful, which can help attract new business.

But with all of that being said, all of these are considerations to find the best fit for you as an investor. You may not want to work with a firm that only works with mature investors that have massive amounts of capital to work with, because small investments may not be treated equally by larger firms as an example.

What Type of Assets Do You Invest In?

When searching for an investment firm it is wise to find out what type of assets they invest in. While some feel it doesn’t really matter what a firm invests in as long as they are successful, we’ve found that many investors like to feel comfortable with what their money is being invested into.

Common Investment Assets & Classes

• Stocks
• Bonds
• Equities
• Real Estate
• Cash
• Mutual Funds
• Index Funds
• Commodities
• Exchange Traded Funds (ETFs)
• Annuities
• Derivatives
• Crypto

While no specific asset or class is better than another in theory, there are definitely pros and cons to what you invest in based on your current portfolio, mid term and long term goals.

What is Your Target Return?

This is a great question for both the investment firm and yourself as an investor. A target return is the expected rate of return on an investment that a firm or investor aims to achieve within a specific time frame. It is usually shared as a percentage and represents the minimum or desired level of return that the firm or investor expects to generate from an investment or series of investments. The target return is based on the investor’s risk tolerance, investment objectives, and time horizon.

Firms often use target returns as a benchmark to evaluate the performance of their investments overall. If an investment does not meet the target return, the firm could adjust their investment strategy, such as by diversifying their portfolio or choosing different investment vehicles. It is important to note that the target return is not a guarantee of performance, and actual returns may vary due to market fluctuations and other factors.

But this question will give you a good understanding of how much you could potentially earn based on the amount of risk involved with the investments.

What is the Experience of the Managing Partners?

To be honest we don’t think we need to go very deep on this question. You’ll want to know how experienced the managing partners, general partners and/or managing directors have at the firm as investors and what their track records are. You want to be able to trust the management of the firm you are investing with and by asking them this question you will have the necessary information to make a decision on if they are the right fit for you and your investment needs.

What is the Investment Horizon?

An investment horizon, also known as a time horizon, refers to the length of time that an investor plans to hold an investment before selling it. It is a crucial factor in determining an investor’s investment strategy, risk tolerance, and potential returns.

Investment horizons can vary widely depending on the type of investment and the investor’s goals. For example, an investor who is saving for retirement may have a long-term investment horizon of several decades, while an investor who is saving for a down payment on a house may have a shorter investment horizon of a few years.

The investment horizon can also impact the types of investments that an investment firm chooses. Long-term strategy can include assets that are subject to greater short-term volatility, such as stocks, with the expectation of higher long-term returns. In contrast, short-term investments may be focused on less volatile investments, such as bonds or money market funds, to minimize the risk of losing money in the short term.

While with some funds there is no horizon at all but rather the investments are perpetual and not subject to a specific holding period at all.

Regardless of your situation as an investor it is a good idea that you ask potential investment firms these questions to better understand if they are a good fit for your needs and goals.

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