Parker Roy, Chief Revenue Officer, Head of Global Distribution at Axxes Capital Inc., joined Julie Cooling, Founder and CEO of RIA Channel, to discuss the importance of due diligence in private markets.
As passive strategies become a more significant part of the market, Roy notes that creating alpha through active management should be focused on alternative investments. Because alternatives have a large dispersion of returns across managers, a strong due diligence process is imperative. While active equity managers are likely to earn annual returns within 2% of their benchmark, private market managers might vary from their benchmark by as much as 10% to 20% per year. Due to this dispersion, advisors can benefit from professional due diligence services that assist in manager selection.
Roy states that an allocation of 10-20% to private markets combined with a portfolio of ETFs diversified by style box will increase portfolio returns while reducing volatility when compared to investing exclusively in liquid and passive investments.
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