By John W. Moore, CFA®, CAIA®, CMT®, Stratview Wealth Management
The past few years have seen a surge in alternative investment structures tailored for the wealth management channel. What began as a push for broader access has evolved into a rush of innovation as institutional strategies are repackaged into “investor-friendly” formats.
Amid this race between investment firms to meet and spark demand, investors should pause and ask: “Do these structures properly support the underlying strategy, or is the strategy retrofitted for the structure?” The answer often determines whether a fund can deliver on its promises as advertised and across full market cycles.
Imagine ordering delivery from an upscale restaurant. The dish itself is world-class, but by the time it reaches your door, its temperature and presentation may have shifted. While technically you might have access to the same dish, in this case the experience is just not the same. Some alternative strategies suffer a similar circumstance when placed in investor-friendly wrappers that dilute what made them special. The flavor of the alpha remains, but the form no longer does it the same justice.
For allocators and advisors, the challenge today isn’t just selecting managers and strategies. It’s evaluating the fit between what a fund says it does and how it is actually built to do it. The questions that follow are designed to help make this distinction – across structural integrity, operational realism, and endurance – and help identify when structure reinforces strategy versus quietly undermining it.
1. Does the vehicle’s liquidity align with the economic reality of the underlying assets?
This is an unsurprising starting point for gauging fit between strategy and structure. A vehicle that lacks liquidity alignment risks dampening investment opportunity and damaging investor confidence. A disciplined design accepts the illiquidity the strategy inherently carries with both inflows and outflows. It aligns commitments and redemptions with how the portfolio genuinely produces and realizes value. Liquidity, when treated symmetrically, enables the strategy to operate at its highest level rather than under structural strain.
When redemption terms are uncalibrated with the true liquidity of the assets, the structure may become dependent on gating provisions and other measures that may not behave as preferred when under stress. When investors perceive flexibility that doesn’t exist in practice, it fosters a false sense of control that should really be a “nice to know” rather than a “need to have.”
Liquidity discipline is not only about the ability to exit. The entry of capital must also align with how underlying opportunities are sourced and deployed. When inflows arrive faster than assets can be prudently invested, excess cash, forced pacing, or style drift can dilute the very advantage the strategy is meant to capture.
A well-aligned structure protects against both forms of mismatch – financial and behavioral – ensuring that liquidity reflects reality.
2. Does a fund’s structure preserve the strategy’s management flexibility or constrain its edge?
A clear gauge of alignment is whether the packaging truly preserves the investment edge that made the strategy worth accessing. Otherwise, proven strategies may lose some of their character when adapted into retail or semi-liquid wrappers. Leverage limits, concentration caps, or flow management can all narrow the manager’s ability to express the strategy as originally conceived.
Over time, what investors believe they are accessing and what they actually own can quietly diverge. For example, a legacy private strategy may look familiar in branding but behave differently in practice. Advisors should explore whether the fund’s current structure allows the investment team to execute the full playbook that defines its competitive advantage, or whether the guardrails creating convenience have separated the strategy from its institutional counterpart.
3. Does the strategy reflect the investment firm’s core expertise or a stretch beyond its proven edge?
Another telling signal of alignment arises when a firm’s new products venture well beyond its own foundation. As investor demand for access grows, investment firms may extend their brand to less familiar terrain. An operationally sound structure can still be strategically misplaced if it houses a capability the firm hasn’t fully developed.
Advisors should consider whether the new offering builds directly on the research depth, data, and relationships that underpin the manager’s existing expertise. Is the strategy a genuine extension of core competency, or a convenient adjacency that broadens a product line? These questions matter because a strategy that naturally fits within a firm’s established knowledge base benefits from execution consistency and investor trust.
4. Is the fund’s size consistent with the scale of its underlying opportunity set?
Most strategies have a natural point where incremental capital begins to dilute its advantage. Yet, in an era of heightened distribution reach, funds without a clear sizing mandate may continue raising assets well after their opportunity set has become saturated. When structural capacity is treated as elastic, investors may unknowingly exchange potential alpha for watered-down beta.
A disciplined manager defines capacity based on aspects like depth, liquidity, and turnover of the underlying opportunity set. Once a reasonable asset limit is reached, fund managers may throttle inflows to preserve execution quality. Few decisions signal greater alignment between structure and strategy than the willingness to pause asset gathering.
Advisors should consider how the manager determines their capacity, what assumptions support that estimate, and how it will be revisited over time as the industry and markets evolve.
5. Do the fund’s return and risk metrics fully reflect how the strategy actually operates?
Familiar statistics describing returns and volatility often tell an incomplete story when applied to investments whose cashflows, valuation frequency, or opportunity cycles don’t conform to public-market conventions. There’s a bit more discerning involved in gauging true risk and the quality of total return over time.
Is investment growth based on realized outcomes or periodic valuations? Is volatility impacted by appraisals? Are comparisons being made to benchmarks that share similar asset breakdowns and time horizons? When the math of representation drifts from the mechanics of performance, the picture may become distorted.
Fund management teams prioritizing alignment communicate risk and reward as they actually occur. They recognize how fund statistics shape investor perceptions and strive to provide an objectively useful lens into the portfolio.
6. To what extent does the fund’s fee structure reinforce value creation as advertised?
Fee architecture can be one of the most revealing aspects of a strategy’s incentives. The structure of compensation indicates what the manager is truly optimizing for: investment excellence, asset growth, or something in between. Even when headline fees appear competitive, layering, hurdle design, or incentive timing can reshape alignment in subtle but significant ways under the hood.
Advisors should examine the size of fees as well as their congruence with the investment process. Are management fees scaled to encourage capacity discipline? How much of the total expense reflects true investment management versus distribution economics? What are you paying for in good times and in bad? Each of these design choices signals what kind of partnership the manager intends to build.
A thoughtful fee design supports long-term partnership. It compensates managers for skill and stewardship - not scale for the sake of scale. Sustainable fee alignment is not just about the cost investors pay, but even more so what the design of those costs motivates.
7. Have the firm’s attention and expertise scaled with an expanding range of offerings?
As investment firms broaden their reach into new channels and structures, their focus and execution must scale as well. Launching wealth-segment versions of institutional strategies can create meaningful access, but also demands additional depth in oversight, portfolio management, and operational infrastructure. When investment leadership stretches across too many vehicles or mandates, even strong processes can lose precision.
How are new product initiatives staffed and governed? Are senior investment professionals materially engaged in the ongoing management of these strategies? How has the distribution of responsibilities evolved as solutions have expanded? The answers help reveal the ongoing quality of attention at each step.
A key to sustained alignment is each strategy receiving the full intellectual discipline that built the firm’s reputation. Scalable alignment is not defined by how many products a platform can launch, but by how consistently its best ideas are expressed.
8. Has the structure been built to endure a full market cycle?
Many of the structures gaining traction in recent years have yet to face a test of time. They were conceived amid favorable markets, accommodative liquidity, and rising demand for access. Structural integrity is not fully proven in launch environments, but through full cycles – when liquidity tightens, valuations shift, and the true cadence of the underlying assets asserts itself.
Advisors can adopt a checklist approach to gauge whether a fund’s design may function as effectively through stress and scarcity as it does in growth and inflows. The aim is to look beyond yesterday and envision how each mechanism of the fund behaves when markets stop cooperating. Investors would be well served to anticipate not just shifts in performance across cycles, but how a fund’s structure endures when the market environment changes its mind.
The expansion of alternative investment access represents one of the most defining inflection points in the wealth management industry. Yet with opportunity comes responsibility. The ease of entry that defines this new era also commands a higher standard of scrutiny – one that looks beyond availability and convenience
Addressing the particular aspects above may help establish the core of a more tailored due diligence process - one that carefully considers allocator, client, and strategy-specific nuances.
Proper alignment between a strategy and its structure is what separates the vehicles that merely open doors from those built to carry investors the full distance. Advisors who take the time to study the architecture behind each offering are helping the broader industry put the right tools in the right places so that this innovation and its value endure.
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