Veteran investor and Hedgeye Director of Capital Allocation David Salem shared some thoughtful advice for investment managers when structuring client portfolios.
Salem encourages asking clients two threshold questions:
- What kind of real return would you settle for?
- What’s your ultimate tolerance for a drawdown?
“A lot of people in this business say it’s a ridiculous question you can’t pose to clients because they can’t know what their ultimate tolerance is for a drawdown,” Salem explains. “I get that. I’ve been doing this for a very long time.”
“But I still think you need to pose the question because it can catalyze a broader conversation on investing policies. Once they’re put into practice, they really do help asset owners stay the course.”