Exotic Alternative Investments: A Family Office Investor Mandate
Alternative Investment, Hedge Fund, & Exotic Investment Private Investor Mandate Interview
Family office staff, fund allocators and managers of niche strategies who want to see how one allocator sets return and drawdown limits.
Said on the call
"Unless you have a competitive advantage like Renaissance Medallion, you were pretty much not going to stand out. In fact, you may struggle."
"We want the net annual returns to be at least five times the maximum monthly drawdown."
"I believe in diversification, and I believe that if you can make, you know, a reasonable amount of money and compound it, you're doing great."
What this talk covers
Mark runs a family office that aims to earn about 1% a month in any market and hopes to avoid a down month. His rule is that net annual returns should be at least five times the maximum monthly drawdown. For a manager who does not put up first loss and takes 50% of profits, he sets a monthly stop loss of 2.5%.
Rather than stocks, bonds, currencies and commodities, the family office looks at liquid special situation strategies with monthly liquidity. Examples include crypto arbitrage, electricity arbitrage, weather derivatives, private debt, litigation finance and life settlements. Richard C. Wilson interviews Mark on why these niches face little competition and how he oversees the managers he funds.
Facts and figures
- The family office targets 1% a month and wants net annual returns at least five times the maximum monthly drawdown.
- A monthly stop loss of 2.5% on a manager equals 12.5% when multiplied by five.
- Mark described one crypto market making platform in Chicago as targeting roughly one and a quarter percent a month with little tie to the market's direction.
Sources
From Richard C. Wilson's Centimillionaire Strategies YouTube channel: Alternative Investment, Hedge Fund, & Exotic Investment Private Investor Mandate Interview. Quotes come from the video captions, lightly edited for readability. Figures are the speakers' own estimates and experience.
General education only. Not legal, tax or investment advice.
Do not use AI to write your own legal agreements.
What to take from this talk
- Target steady monthly returns. Mark's family mandate is to make 1% a month whether markets are up, flat or down. The goal is to avoid monthly drawdowns.
- Tie returns to drawdown. The family office wants net annual returns of at least five times the maximum monthly drawdown. A 2.5% monthly stop loss multiplied by five gives 12.5%.
- Look beyond the four asset classes. Mark says that without a clear competitive advantage, traditional stocks, bonds, currencies and commodities are hard places to stand out. He gravitates to exotic special situation strategies that are not tied to market direction.
- Hard to source means less competition. Mark says only one or two percent of investors know what litigation finance and life settlements are. In weather arbitrage he knows of no other firm with the same connections.
- Safety matters more than the strategy. Mark says some investors care most that their money is safe. They tend to favor strategies that can be explained in layman's terms and let them sleep at night.
Related questions
- How do I close a funding round?I close a funding round by focusing on investors who fit the opportunity and moving each interested prospect through clear, consistent follow-up.
- What documents do investors request during due diligence?Prepare a clear, organized package covering your operations, investments, compensation, team, and track record.
- How do I raise capital for my business?I raise capital by building a repeatable system for attracting the right investors, establishing credibility, and developing relationships before asking for money.
Questions about this video
What return does Mark's family office aim for?
The mandate is to make 1% a month, whether markets are up, flat or down. The aim is to avoid monthly drawdowns.
How does Mark limit manager losses?
For a manager who does not put up first loss and takes 50% of profits, Mark sets a monthly stop loss of 2.5%. Five times 2.5% gives the 12.5% annual return he wants.
Which exotic strategies does Mark mention?
He mentions crypto arbitrage, electricity arbitrage, carbon and water managers, weather derivatives, litigation finance, life settlements, equipment leasing and trade finance.
Put this into practice with the how much to raise calculator. See all investor mandates resources.
