Darnel Bentz on Educating Clients and Managing Risk in Alternative Investments

Alternative investments are no longer a niche conversation. Private equity, real estate, hedge funds, and private credit are drawing more attention than ever, especially in times of volatility in public markets.

As a senior wealth advisor, I see both the promise and the pitfalls of this growing interest. My goal is to help clients capture the benefits of alternative investments while mitigating the risks, and to do that, I rely on a few core principles: rigorous due diligence, client education, and discipline in portfolio construction.

Multi-Layered Vetting Process

One of the first questions clients often ask is how I evaluate alternatives.

At Kayne Anderson Rudnick, we take a multi-pronged approach with a dedicated team of specialists who vet managers and strategies, conducting deep due diligence and background checks.

Once that research is complete, our investment committee must also approve a strategy before it makes its way into client portfolios. Even then, we continuously monitor managers to determine whether they remain appropriate.

This structure ensures I’m not left to evaluate every new opportunity alone, and it also protects clients from the risks of unsubstantiated managers or strategies chasing quick dollars.

Managing Illiquidity and Risk

Not every client is suited to alternatives, so before I even consider them, I work closely with clients to understand their full financial picture including cash flow, liquidity needs, and long-term goals.

This planning helps me set appropriate allocation limits and prevent overexposure to illiquid investments. It’s tempting for some clients to want to dive headfirst into private markets, especially when public markets are rocky. But my responsibility is to build portfolios that support long-term wealth, not portfolios that gamble on the latest trend.

The biggest challenge I encounter is managing client expectations.

Some clients get excited about the “splashiest” new opportunities, often without appreciating the risks. That’s where education comes in. I explain why we seek out managers that have strong track records over decades, rather than chasing new entrants without established processes.

Transparency and Valuations

Alternatives don’t have the same daily transparency as public markets, so the strategies I look at for clients employ independent auditors who provide valuations on a monthly or quarterly basis.

Alternatives also come with compliance complexities such as paperwork, reporting, custodial coordination, and ongoing updates.

To manage these, I partner with providers who have experience in this space. Having strong operational support not only ensures compliance but also frees me to focus on the client relationship.

Looking Ahead

I believe alternatives will only become more common, especially as legislation opens the door to including them in retirement plans.

That means both clients and advisors will need to get more educated. As advisors, we must deepen our own understanding to guide clients responsibly. In my view, alternatives are not about chasing the next big thing but about finding the right opportunities that align with a client’s goals, risk tolerance, and life stage.

Used wisely, I believe alternatives can add real value, but only if advisors commit to the hard work of due diligence, education, and discipline.

_{Disclaimer: This information is being provided by KAR for illustrative purposes only. Information contained in this article is not intended by KAR to be interpreted as investment advice, a recommendation or solicitation to purchase securities, or a recommendation of a particular course of action and has not been updated since the date of the material, and KAR does not undertake to update the information presented should it change. This information is based on KAR’s opinions at the time of the publication of this material and are subject to change based on market activity. There is no guarantee that any forecasts made will come to pass. KAR makes no warranty as to the accuracy or reliability of the information contained herein.  The information provided here should not be considered to be insurance, legal, or tax advice and all investors should consult their insurance, legal, and tax professionals about the specifics of their own insurance, estate, and tax situations to determine any proper course of action for them. KAR does not provide insurance, legal, or tax advice, and information presented here may not be true or applicable for all investor situations. Investments commonly known as “alternative investments” are not suitable for all investors, and “alternative investments” often have minimum eligibility requirements that must be met. Whether an investment in an “alternative investment” is suitable or appropriate for a particular investor will depend on several factors, including the investor’s risk tolerance, investment time horizon, and liquidity needs. Please consult with your advisor to better understand the risks of “alternative investments” before making such investments. Additional information about KAR’s services and fees may be found in KAR’s Part 2A of Form ADV, which is available upon request or can be found at https://kayne.com/wp-content/uploads/ADV-Part-2A.pdf.}