Alternative Investments for Investment Advisors

Hosted by CAIA Seattle, Adam Ponder, Co-Founder and CEO of Alta Trust discusses the alternative investments for investment advisors with Chris Carsley - CFA, CAIA, Chief Investment Officer & Managing Partner at Kirkland Capital Group.

Markets are dynamic and investors’ needs are becoming more sophisticated. Only 14% of investment advisors in North America offer an alternative/private investment platform for their clients. Learn how to expand investment opportunities for your clients in alternative investments through creating your own product platform, partnering with others, or discovering off-the-shelf options.

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Transcript

Hello, and thank you for joining CAIA Seattle's webcast alternative investments for investment advisors. This event is being recorded and a copy will be sent to registers via email. We encourage audience participation throughout the event. So please use the Q and A or chat features to ask questions to our speakers. Here to host a webcast is CAIA Seattle's chapter head, Chris Carsley

Chris: Welcome everybody. Thanks for joining us today. We're going to be talking about investment advisors expanding their offer into alternative investments and how they might be able to do that given their platform, there's lots of different options to think about. And here today, we have Adam Ponder from Alta Trust to walk us through a lot of that information and then be able to hopefully give some pointers on some actual deployment and some guidelines for people to think about before we dive in.

 I want to make sure for the people who are not aware of what the CAIA is the Charted Alternate Investment Association, it's a global organization focused on research, education and networking around everything in the alternative investments space. So, if you're looking for research papers, white papers, you're diving in looking for data.

It's a great resource. Go to caia.org. You can also identify and find the local chapter for yourself on that website. So please reach out to your local chapter. If you happen to be in the Pacific Northwest. I'd love to hear from you if any other questions, or hopefully find a method to answer your questions. So reach out directly to me. With that, I want to introduce Adam Ponder, Adam, if you could introduce yourself a little bit and let's dive in

let's, dive in.

Adam: Yeah. Well, thank you, Chris. And I'm excited to be here and join all of you. I have been in the industry for a little over 20 years now, started out, as an RIA.

You know, back and I actually in the Seattle area, we were actually based in federal way. So little south of Seattle, and as there I'm in Denver, Colorado now, but yeah, when we did retirement and did we did wealth and we found that a number of our clients on the wealth side wanted something unique and different.

And this is back in 2001, 2002. So, it's been a little while but we created back then a couple of different private offerings for our clients because they want something non-correlated to the markets and so forth. And we kinda did it the hard way we had of the two, one. Not very successful and one was very successful.

So we kind of learned as we went, but my dad and I, so we had the RIA together. And during that time we decided to set up a Trust company. I'll go into all the reasons why, but we set up a Trust company, Alta Trust. Primarily because a lot of the Trust companies, we needed their functionality for custody and some of the things that they would do for us, but some of them were just really difficult to work with and not as flexible as we would like.

So now we started out the Trust long story short, we sold RIA. We had another retirement benefits group two, and now we have Alta Trust and our whole goal without it is to help advisors accomplish the things they want to do. So, we are a little bit unique in terms of Trust companies. We do personal Trust and we do some of the traditional Trust services.

We do provide those but we do a lot in funds. And so we did do collective investment funds, which are exempt funds, trade like mutual funds, put them on platforms that sort of thing. But they're only for retirement assets. And a lot of the advisors we've worked with over time, they said, what can you do on the non-qualified side of things?

And so we put together a really great turnkey solution for private funds and over time, I mean, I have a soft spot in my heart for private funds because I am an entrepreneur by nature. And I love doing new things and different things. And private investments really are geared towards that.

So my hope today, like Chris said, is that we can talk about some really practical applications. Like how do we actually do this? I think preaching to the choir here. We'll talk a little bit about why it's important, but I want to get into how would I actually make that happen and make that a reality?

And that's what I'm here to talk about today. So, , let me share my screen here. And

severity talked about me. Here's a. A chart that I like. And like I said, I know I'm preaching to the choir here, but private investments, , have outperformed Public for quite some time and even significantly so we definitely think there's a place in your particularly high net worth client portfolios for private investments, which we'll talk about later as they're probably going to do it without you.

If they're not doing it with you already, frequent did, know, they're you big in research in the private investment space and they're estimating $5.4 trillion or 45% growth moving towards alternative assets just in the next four years alone. So there's a huge opportunity to catch here.

KKR did a survey last year and they found that high net worth investors allocate 26% of their assets to alternative investments and ultra high net worth investors allocate 50%. So definitely, , for that type of an investor, you have to be offering something different than something alternative to just the public markets.

So, by the way, ultra high net worth in this case is defined as $30 million in net worth or above. So I did my own little research, , study. I did it, , two years ago and we did it again just last year when the Forbes 400 wealthiest Americans list came out. And so we went through all 400 names and looked up their source of wealth.

And what we found is really interesting. Maybe not surprising too, but interesting that, of those that didn't inherit their wealth 100% made their investments privately. So no one traded the stock market to get to, to create their wealth. And I'm pretty sure I didn't look into it, but I'm pretty sure the 30% that inherited, if you went back in the generations they were there too.

And in terms of private investments, so it was real estate and private equity. Those are the winners. And about 30% of the list inherited their wealth and the rest, about 20% of the rest, little over 20% was real estate and the rest was private equity. I'm pretty confident that if you were to look at your clients and you just take your top clients top 10, top 20, top 50, however you want to look at it.

My guess is it would look very similar to what we found with the Forbes 400 list. You get about a third of them that inherit their wealth and the rest made it probably from starting their own business or maybe in real estate. So there's a huge wave. You can ride it, you can get crushed by it. But, it's a huge opportunity right now for advisors to differentiate themselves from the competition and do a lot of good for their clients.

And that's maybe even the most exciting part. You've got to do the right thing and everything else will work out. So advisors are used to differentiating themselves by their different models. Maybe they have conservative, moderate, aggressive models, and they have slightly different allocations. Well, that's not enough anymore to stand out.

You've got to do something different and I'm going to show you. How you can do things that are really different and really unique, and hopefully things you've never considered before. And I'm not going to talk about every little thing, but I hope that it will spark some thoughts and spark some interest.

And get you thinking about what works for you and your situation with your clients. because there's an infinite number of possibilities here. So how do you participate in private markets? There's three primary ways you can use off the shelf products. You can create your own product, or you can partner to create a product.

Once it product am typically referring to a fund. So, how do you do that? Well, we're familiar with off the shelf products. You know a lot of these names, they create lots of big funds. , the one you're probably not familiar with their structure in the middle of that's our sister company that does partner with RIAs to create private investments.

So just, you have to be careful of a couple of things before you go creating your own product. It's not a bad thing. You just need to have your eyes wide open, going in super cool to have your own product, but it's going to take you more time, possibly cost you more and leave you with more responsibility and liability than you're maybe thinking about at the outset.

There's a whole list of things you have to do before you can even launch your fund and like I said, nothing wrong with that. You just have to be aware that's kind of what you're getting into now. The cool thing is once you commit to doing that, have your own product, this is essentially a very simplistic version of how it looks.

So you are the sponsor or the general partner as we refer to GP and you own the fund for all intents and purposes. And then you engage a fund administrator and you have an auditor and you engage, your fund council and so forth. So you have all these service providers that are helping you run your fund, but you're the one in charge.

And you create this fund, which is just this pool. You get investors to put their money into it, and then you can do whatever you want in the pool. So maybe you want to do a public strategy with a hedge overlay, maybe, your long, short type strategies. You can do those. You can do half public securities, half private securities, you can do fund to funds.

You can do, private equity, venture capital, there's all sorts of things that you can do in your portfolio. You just make sure that you have that clearly laid out in all your offering documents. And, then you've, you're kind of off to the races. I just, a couple of examples of funds that, that we see from time to time.

Private equity is definitely a hot topic. I would say that we've got a little bit of venture capital to private credit. A couple of years ago with COVID private credit, , became pretty popular and it's actually done fairly well. At least the funds that we're working with. We have a group, this is just from yesterday.

Managed structured products, structured notes. And it's hard to buy those one-off in separate accounts and better to diversify those across many investors and just to have the discretionary authority to trade it. So we put together a fund for structured products, , and it can be any combination of those things too.

Real estate obviously is a big one. If you're not quite ready to maybe manage your own portfolio or you want to maybe manage a portion of it, that's not uncommon, for a manager and say, I'm going to do this when I'm really good at this piece. And then I'm going to hire out the rest, whether that's, through other funds or sub-advisors that invest directly on behalf of the fund.

So lots of different ways to configure this and there's no right or wrong but definitely. Gives you a lot of flexibility. Now, a couple of other things you want to consider, and I'm just going to bring up some of these highlights. And if you have questions, let me know. I'm happy to talk, answer questions along.

You don't have to wait till the end. , but when you're creating a fund, one of the things you want to consider is what type of an investor are you going to have in the fund? So there's three main types of investors. There's a credited, which is 1.1 million in net worth and just changed it. Excluding your principal residence, there's qualified client 2.2 million in net worth excluding, or 2.2 million in net worth, or a million dollars with an advisor.

And third is a qualified purchaser and that is $5 million in investible assets or for an entity like a foundation or an endowment or a pension that's 25 million in investible assets. So that's going to be important because as you're deciding how to structure your fund, you need to know what type of investor you're going after.

So if you're just going to manage a fund, it's going to be just a management fee, fairly simple structure. You can go get accredited investors that 1.1 million in net worth and sign them up all day long. And it's just really a representation by the investor that they do. In fact, meet that requirement. And so, oh yeah

Chris: yeah. Adam, I actually had a question on this, cause, I mean, this is something that has been brought up to me by a lot of different RIAs is what have you seen most people building? is it the fund-to-fund model? cause one of the things that some RIAs have brought to me as well, I don't have the team that has the deep knowledge of alternative investments.

So that's something that is holding back a few people. So in your experience of what you've seen, what have people been building most often? And also I guess on that is what's the general size. You certainly, if you're a large RIA with a large team, you could have, you may have the balance sheet to build out a team and build internal product, or is it something where I'm going to go build my own platform, but it's going to look more like a fund.

where I'm then kind of, I mean, there's two questions there is what are you seeing most of late and two, what's the size of some of these managers that are deciding to build internally?

Adam: Yeah. Good question. So I would say it depends a little bit, if we're working with just a pure asset manager, they obviously have the team and so forth.

And so they're going to manage everything themselves. And typically don't do the fund to funds model, but if it's an advisor who oftentimes we'll come across advisors who maybe manage certain portfolios or have an expertise in a certain area, but they want that rounded out. I would say it's actually fairly common for us to see a little bit of a hybrid.

The manager will manage 25% of the portfolio and then rounded out with other managers in one way or another. So that's actually fairly common. And I think it's smart personally, because you have played at your strengths. If you're not good at something, get someone who is, but it Def the other advantage to that is you can bring them in as partners so they can help distribute the fund.

You can lean on their track record. when you're doing investor communications and so forth, it's nice to have their perspectives. And it just, it looks and feels like you said, more legitimate, like you said, if they don't have the full team to support the fund. I would say it's not uncommon for us to see.

in fact, we just, we've done a couple of just recently just like that. I can't remember your other question sorry, Chris.

Chris: Oh, it was, what's the general size that you see, what's the AUM size that you've seen people decide to.

Adam: I would say, it depends, but I would say 500 million plus is usually where most advisors are. and where it, it makes sense. I think the better way to look at it is you pro, it depends on the strategies, but just generally speaking, you probably want to be able to get about 25 million plus in a fund, in a managed fund, special purpose vehicle. We'll talk about that in a minute. It's a little different, but I would say 25 million fund began becomes like a very viable, structure.

We find that $500 million RIA can usually do that. but you can do that if you're smaller, too, it really just depends on how focused you are on it and what your client base looks like what their appetite is.

So a couple of the things that you just want to be aware of when you're thinking about creating a fund is if you use the accredited investor standard suitability standard for the investor, you're looking at a three C one fund and three C. One is the exemption from the investment company act 1940 that you need to qualify for.

Otherwise, if you don't have that exemption, you end up having to register as a mutual fund and follow all those rules. So three C one is accredited investor. Three C one fund is maxed out at a hundred investors. So you gotta be aware of that. Otherwise they consider that a public solicitation public offering.

So that's one thing. If you want to have a three C1 fund with a hundred investors, but you want to add a performance fee or carry for you as the general partner or for any sub-advisors that you might have, then you have to use the qualified client standard, but 2.2 million in net worth or a million with the advisor.

And that's an advisor's requirement. So ironically enough, if you're not an RIA, you don't have to worry about that until you have 150 million in assets, under management. In which case you do have. Registered with the sec. Those are some things you've got to consider. Now, if you go up to the qualified purchaser standard, which is remember 5 million in investible assets are 25 million for an entity, like a foundation down in investible assets, then all of a sudden higher level, and you can do 1,999 investors before you, you cap out.

And so you got to figure out who's my target. Who am I going after? What am my clientele look like? And does the three threesy one make the most sense or with the qualified purchaser and the 1,999 limits. Now, one other thing to consider and all of this is, do you want it to be a private offering or a public solicitation?

So private offering is what we refer to as a 5 0 6 B offering. And that's where you really only solicit people that you already have an established relationship with. And you keep that fairly close to home. You can engage like someone that's registered with the broker dealer and they can sell for you.

And they can still be a private fund but really you're looking at anyone who you already have existing relationships with. You can register as a 5 0 6 C fund, in which case it's a general solicitation. So then you can market it. Publicize it all you want you can take out TV ads if you want it.

And so whenever you hear about the real estate funds on the radio, they're pitching or promoting, those were 5 0 6 C and there's just a few small requirements that you have to abide by to make sure that it remains properly registered or the 5 0 6 C, but there's a little bit higher bar for the 5 0 6 C.

So you can, you just got to think about what to do, what not to do. Who's my target. What am I, how do I want to get investors in this fund? Do I have enough that I already know, or do I need to take this out to the market more broadly? Now, another point on that, a lot of our funds that we create have two shared classes, because remember, we're mostly working with investment advisors.

We're very advisor centric here. And so you may want to charge a fee in one of two ways. You might want to just charge your regular advisory fee to the fund. We don't want you to double dip. So you charge your regular advisory fee on top of the fund assets and nothing changes, but you have a share class, but it's a zero fee share class.

And that's for all of your existing clients, then you can have a second share class where you do have a fee management fee, maybe a carry or a performance fee. Like I said, if they're qualified clients and then you can use that for all of your non advisory clients, anyone else, friends of friends, friends of clients that might want to come in, maybe they're not ready for you to be their advisor on everything, but they want to participate in the fund and you can get paid on it without turning people away.

So those are all things to be thinking about before you go ahead and create your own product.

Let's talk just really quickly about special purpose vehicles. I think these are incredibly powerful and under utilized, particularly by advisors. So first of all, you can brand it just like the other version, just how you want. And the chart really could look exactly the same as the one before the main distinction with a special purpose vehicle is you're just investing in one thing.

So for instance Company that we work with is JP Morgan. And they have an infrastructure fund and that infrastructure fund has a $10 million minimum. You probably don't have a whole bunch of clients that could allocate $10 million of their portfolio just to invest in that one infrastructure fund.

It's great. Performance has been really great, but that's a high bar. So what advisors can do is they can create their own sunshine advisers, private fund infrastructure fund create their own, and it can take investments. You can make it whatever you want. It could be a hundred thousand dollar minimum or $500,000 minimum to get into your special purpose vehicle or fund.

And then the, that SPV is the investor in the JP Morgan infrastructure fund, for instance. As long as the SPV has over $10 million, you're in good shape. And it's a way to bring some of those really, investments with really high bars to your high net worth clients that maybe aren't that wealthy, but still want the exposure and still give them something really unique.

And man official. And at the SPV level, you can charge a fee. You can not, you can have two share classes. Like I mentioned, we typically try to match the SPV terms to the master fund terms so that there's no breaks or different differences there. And SPV is really generally pretty inexpensive to set up and run.

So, SPVs are really good. I'll talk about a few more potential options in SPV in a little bit, but that's, Kind of the main way we say it, I refer to those as access funds. So the SPV gives you access and it could be to a fond. It could be to an IPO. It could be to a venture deal. It could be anything it's just specific to one investment.

So the kind of the cool thing about an SPV, especially if you don't have a track record or anything, it's very transparent to the investor. So you don't have to go to them and say, Hey, here's my five-year ten-year track record. You can go to them and say, Hey, here's the investment. Here's the due diligence that we've done.

You might want to do your due diligence as well but it's very transparent and it's relatively unmanaged. looks like we got a question here. Are the access funds structured as LPs or LLCs? Does it matter? Typically they're LPs. but you could do it with an LLC as well. I mean, really that the LP structure is nice because the limited partners come in and they really only have financial risk, they don't, if something blew up and you know, the, if they're members of the LLC, you can construct it.

So they're protected, but you just have to be careful, , that they're not taking on any general partner type risks. So, but typically it's LP is the most common way we see it.

All right. So it's not moving along for.

Okay. All right. Another way to do this, like I mentioned earlier is you can partner with somebody, so you can, maybe you're a great on the investments, but you don't have any expertise on running the fund. And, , all of the filing requirements, reporting requirements and doing the subscriber reviews for the know your customer and anti money laundering stuff.

You know, if you need help with that, you can partner with someone who can do that. That's really where structure comes in. And that's where we partner with advisors who want to focus on managing assets and they don't want to focus or have to worry about all of the other stuff. And so, that's where someone, a company like structured can serve as a general partner.

And really run the fund and the investment advisor is engaged as the investment manager and they're running the assets and overseeing the assets and general partner deals with the fund administrator and the audits and all that stuff. So that's, , actually quite a popular approach. I would say about 50% of the folks we work with, want to go down that road. Another approach that has relatively new as a little bit of a hybrid of the two, , where we can just do the B, B the name that outsourced, chief compliance officer, and the advisor can still remain the general partner, but really offload, outsource the compliance responsibility.

Chris: And I'm as on this last, option you were giving, what are some of the questions or the things for due diligence? You know, I'm a RIA and I'm going to go out and I'm going to look at a series of partners because, you know, I need that expertise to help run the fund. What are some of the questions or the key angles that those people should think about when diving in and assessing who they're going to hire as that partner?

Adam: Yep. Well, there's, yeah, there's two ways to do it. The way you're referring to is, you know, looking, there are some groups like structure and others that, that will, that are out there kind of for hire to do that for sure. And if you're dealing with, if you're looking at going down that road, I think you want to know what their, structure is, how are they structured?

What are their fees? What did they do for those fees? What's their experience? Have they done this before? How expert are they? And then a really important part, just in general, whether you're the general partner or you work with someone else, what's the team like, and I, the, both the internal team and the external, you know, what are they using as an audit partner in tax?

And, , how did they do their KYC, anti money laundering checks, and because you really want to be, you really don't want to have that be an issue. There's no reason for that to be an issue. If the sec comes and takes a look at the private fund and how it's being run, it should be very clean. And none of this stuff is actually really hard to do.

It's just, you have to be aware of it, first of all. And then you have to really be disciplined in making sure that staying on top of it. So I'd be looking at what their processes are, who their team is, who are the external partners that they have and so forth because, maybe get a reference or two from folks that they've done it with before.

Now, another way to do this is to just partner up. So if you have someone that is really good at this sort of thing, maybe they don't know all the details, then you can engage, you know, a structure, someone to train you on what you should do or go to your attorney, securities counsel, , and they can, you know, make sure you're hitting all the high points and what you should do and how you should do it.

so that's another way. I personally don't think that being a general partner, it's a big deal, but it's not really hard. If you're a prudent smart person who is on top of things and organized, as long as you have good legal counsel, you're going to be, you're probably going to be fine. It's not rocket science by any means, but the problem we see and the reason why advisors are interested in it is they're so busy with all the other things they have going on.

You just want to make sure those things don't fall through the cracks because the risk is way too high. All right. So let me just take you through a few applications, ways that you can actually use what we've been talking about. So, first of all, I love this approach. If I was an advisor right now, I'd do it in a heartbeat. I would go out of my way. No four or five clients and you know who they are. They're always, you know, they're very wealthy, they're very successful.

And they're always working on multiple deals at any given time. And they're probably, they're talking to you about it to some extent. Well, what if you went to your top clients and you had this conversation, you know, Hey Sally, what kinds of deals are you working on right now? Tell me about them. Let her tell you what they're working on.

What's happening. Maybe it's a new tech company, maybe it's something else and real estate deal, whatever it might be. And then you listen and if you think there might be a good opportunity, what if you had the conversation said, well, Sally, what if would it be helpful if I could bring, $10 million or $5 million a year, whatever it might be to that project.

That would change. Fundamentally change your relationship with that client one, they might not need it and that's okay. But now they're going to look at you differently. And when they find the next deal, they probably will come back to you. And on top of that, you put together an SPV, like we just talked about, and you have this client who has done very well, has a great track record, so to speak.

Then you can bring some of your other clients in on that success potentially and invest in whatever deal that might be. So it's really a potential a win-win for your clients, both your top clients and the clients that get to invest alongside them. The reason why I liked this so much, I was talking to a friend of mine.

She's not a client. Because we're not advisors anymore, but she's a friend and a good family friend and she has been extremely successful setting up staffing agencies and she's done it a number of times. And she and I were talking and I was just asking her what she was working on. She said, well, actually, I'm going to set up another staffing company and there's other state.

And then it's not telling me about it. And she tells me about it. And she already has the team. She already has the clients, bunch of clients lined up. And I said, so how long till you're profitable? And she said, Adam, I'll be profitable immediately. I've done this. I already know how I know all the players.

I know how this works. I don't need to ramp up. It'll be profitable immediately. And that is the kind of investment we all want and leveraging, someone like her and her expertise can be incredibly valuable. To your clients, you probably have a number of clients that are like that.

So you can really, I mean, just imagine what that would do in terms of tapping into their networks and their, you know, deepening that relationship. I think it's huge. I highly recommend considering that another one that I really like is what I refer to as the king or the queen of the community fund.

So there's in your city or town or county or area. There are people that are maybe the top CPAs or former mayors, top attorneys, biggest names in real estate, kind of local, experts and celebrities, so to speak. What a cool idea it looks like for me is to come up with fund create a fund that would invest in primarily local businesses or real estate or whatever that might look like.

And to get a fund advisory board, that's made up of some of these key people in the community and what a great opportunity to meet them and introduce yourself to them, and really become, come in with an opportunity for them, and tap into their networks. So you have an advisory board and, can invest in, like I said, it could be really any strategy, but it, you know, probably a small private equity type fund and it wouldn't even take a lot, you could do a $10 million fund and it can make a huge difference in, depending on the size of the community, even a larger community, lots of press and media and public relations opportunities.

And like I said, tapping into these networks, I was actually talking to the city. I live in to there, to the mayor there. And we were trying to figure out how do we help these, , dentists and restaurants and so forth that are really suffering because of COVID, how do we help them? And we were in the process of putting together a fund that they wanted to make it kind of like a shark tank thing, where you have the advisory board and people in the community come up and pitch them and try to get investments, into their deal and to their companies, from the advisory board for the fund.

Now we didn't end up doing that because the mayor changed, his term ran out. So that didn't happen. But, it w there was a lot of energy behind that. Very cool. really potentially great for the investors, good for the community and good for you to make some money on the fund and then tap into these networks, not to mention all the investors, hopefully from the community that would invest another way to do is a celebrity endorsed, or impact type funds.

So, I am connected. I have connections to the agents for all the shark tanks. You can get, you know, some of these startup sharks to sponsor a fund with you or promote the fund with you. I've talked to their agents and they're open to it. that's one way to do it. the gentleman in the middle of the screen there, Mitch Lowe, we're actually launching a fund with him in structure April 4th, Mitch, if you don't know, is one of the co founding executives of Netflix.

He was actually the guy that, Mark Randolph and Reed Hastings found initially and decided to invest in, in him and what he was already doing. He was mailing DVDs. And so he joined Netflix early. He was, right there with reading and mark and, grew the company and went on to be the president of Redbox and movie pass and has done a lot of really interesting things.

So, we're partnering up with him to do a sports and entertainment venture capital fund, really cool stuff. you can do that with real estate minority owned businesses, women owned businesses, find a cause there's lots of. Ways that you can tackle this. And there are no right or wrong way. Like I said, I'm just trying to get you thinking beyond what you're used to.

So your biggest clients are going to invest in this stuff no matter what they'll do it with, or without you, you might as well make it with you. I personally believe that most advisors aren't, well, one, I know that only 14% are even recommending these types of investments, but they're missing out because at least 26% of their high net worth client assets aren't even with them, unless they're doing something like this.

So the big question is why don't more advisors do this kind of thing. , too expensive. They don't have the resources. They don't have. The expertise seems risky. They can't see beyond what they're already doing. They think that the world is standing still and it's never going to change. And they're blind to that.

Well, the purpose of this webinar and my presentation is to tell you that it is actually not that expensive. It doesn't have to be, it doesn't have to require too much of your resources. There are ways to structure it where it doesn't, you can partner with people who do have the expertise that you're missing and you have the opportunity to make it as risky or not, as you want in terms of the strategy.

but it is not nearly as hard or as difficult as you think. Now I'm saying that because I have already made all the mistakes. So I used to think it was hard and difficult. but having gone through it, having done it many times since our first ones, it is not only not. As difficult as you think, but it's, the benefits are so great.

Even just the conversations with your clients, even if they don't want to invest in, even if they're not interested, they love that you brought that to them. They love the things they can share with their friends. And you want referrals just realize that your clients aren't referring you because you're so great.

They're referring you because they want to look smart. And if you're doing things that are interesting and unique and different, they will naturally want to share that with their friends. So if all of this seems like a little too much and you want to read up on it, I didn't write up. Private funds for investment advisors.

you can email me at a ponder, aponder@trustalta.com. And I will be happy to just include your address and be happy to send you a free copy of the book. And this goes through much more detail than I did, just in this webinar, but talks a lot about the things you should be considering if you want to do it.

but for my part, I think that, you should definitely consider it. I think whether you're just investing in the already existing products, creating your own or partnering to create your own, everyone should be considering this kind of thing. I was asked the email is aponder@trustalta.com.

Chris: Well, one of the questions I had another question, I mean, are you seeing an increase in demand for, from RIA is coming in? Because I mean, let's just be honest. , a lot of people jumped into this, , into these waters of alternatives out of FOMO back in 2008. Lot of people didn't know exactly what they were getting into and, you know, they got, they got bit pretty hard.

And then the last 10 plus years has been relatively easy ride from just having to come in and say, great, I can actually be in traditional investments. I don't actually have to expand into a, as many alternatives because the returns have been fairly good. and now, You're looking at a situation where there has been more occurrences of volatility and uncertainty, especially in this year, are you seeing an increase?

I mean, are you seeing more people come and say, Hey, how do I actually do this? you know, is there more engagement on your side? I mean,

Adam: yeah. Oh yeah. Dramatic increase. There's a lot of interests, tons of interests, you know, the number that are actually doing it, like creating their own funds or partnering to create funds, you know, it's probably in the 20% range of the ones that are interested.

Yes. They're still fairly high, but I would say most advisors are looking for off the shelf products, which is totally fine. There's nothing wrong with that. I we're advocates for alternatives that either way, but I do think. That for those advisors that are interested in branding their own thing, establishing a track record, maybe they sell to other advisors, that kind of thing.

There's a huge opportunity right now.

Chris: And in the, off the shelf products, you finding they're migrating to the known names, but some of the names that you listed on that slide, I mean, other than structure, all of them, pretty much if you're in the industry, you know who they are, is that where, you know, you're finding, Hey, you know, listen, I'm going to, I can't get fired for buying IBM type mentality.

So I'm going to go to the big, off the shelf and use whatever they have. Yeah.

Adam: I think there's a lot of that. And you have like iCapital and case are the kind of the main groups that are platforms that are, making those, types of investments available to advisors. And they're typically using the bigger names too.

And I don't think there's anything wrong with that, but, if you have clients that are putting a million dollars into a $10 billion fund, they're a very small fish. And then once again, there's nothing wrong with that. But what I am seeing is a lot especially these, you think about the psychology of your top clients, they started a business and they sold it and they made a lot of money and they like to know what's happening because if you get too removed from the deals, it's just, it's kinda like a mutual fund portfolio.

Right. You don't really know what's going on underneath the hood. It's fine. And it's a good thing. I'm actually very pro public investments too. I just think that advisors should, also recommend alternatives, but there's something to be said when you can. Bring the investment closer to the client.

They have something to talk about, particularly if it's a meaningful investment, maybe it's doing something good for the environment or good for people or, creating jobs or things like that. They can feel a greater connection to the investment. that's pretty cool. You know, one, one deal that we're in the process of working on right now is a real estate friend of mine.

She has a client and they're wanting to develop a, I think it's 15 homes, I think on like Washington up there in your neck of the woods and the Seattle area. Well, that's as simple, special purpose vehicle, right? You'll put together a fund, maybe it's 10 or $15 million and develop the properties. But those investors will likely be Seattle residents and then go see the properties and they have more of a connection to that.

Like, oh, I know where that is. And they can see, , where their money is being used. One of the examples I give in the book is, one RIA, they created a fund. They funded a four seasons hotel in Arizona. Yeah. Kind of cool. You can go stay at your investment and if you're one of the investors. So I think bringing those investments closer to the investor is a really smart idea for advisors.

Chris: I agree. I mean, a lot of high net worth, they want to feel like they're going direct almost exactly. If they get too separated from it, it becomes too distant. And then they no longer have the story or the understanding or in some I, the feeling of control.

Adam: Right? Yep. Yeah. I agree.

Absolutely.

Chris: Does anyone, I mean, listen, I will open it up. I mean, this is a huge subject. You can go on lots of different ways. if anyone has any questions, jump in me being traditionally, I was an asset manager for years and now heavily in alternatives. So I have naturally tons of different questions of you because there's some nuances in this area that, you know, one of the things that I've seen shops try to go in, and also even family offices, which are just large pools of capital as well, try to go the route of, Build all my own product.

I'm going to have that control. And there's been an, a, I'm just sort of diving in, cause you're on the frontline of this, that was a trend years ago where it was do everything yourself. are you seeing some of those shops realize, I mean, cause I know some of those funds failed, they didn't go anywhere.

They didn't outperform. are they now migrating out and looking at saying great, I can partner up with people who are experts at this. Cause I, I find it's almost like in tech up here in Seattle, everyone was working for the big tech companies, but they have a unique idea and they're going to go out and do something different.

Are you seeing an explosion of people that are coming up with unique ideas and then partnering with these large pools of money? I mean, and I guess if you are, how are they finding each other?

Adam: Yeah. Yeah. we definitely, we are definitely seeing that in fact, that's, that was a big part of the impetus for creating structure.

 In Alta Trust, we don't manage any money and quite frankly, and structure, we don't really either. We always partner up with advisors or experts in the field. Like I mentioned, the Netflix guy, you know, he's an expert in sports entertainment, super well connected. he's got tons of deals going on all the time and the thought was, well, why don't we partner up with him?

We can provide the infrastructure of the fund. we can go gather the assets from our advisor network and do good by hopefully by their clients. but make it kind of really interesting and unique, but we're of the opinion, we don't do anything on our own. I think a we're always partnering up with, an investment manager investment industry expert that knows what they're doing.

We think advisors should do this. No, one's an expert in everything. And so I don't see a lot of people saying I'm going to do it all myself and soup to nuts. I see a lot more willingness to outsource certain parts or partner on certain parts. I think that's the smart way to go, especially in an economy like we have, everything is so specialized.

Chris: No, I would agree. We got to, we got a great question from Brian here that you go in and you set up one of these vehicles, your advisor brings you in and you're, you've invested in this, , alternative investment that's private investment vehicle and I changed advisors. , so how have you seen that work?

Where I, you know, he's got kind of two questions here. One, how do I obtain liquidity? And two, what happens to that investment? Because it is a separate vehicle from the advisor managed by that advisor, but I've now left you with maybe a bulk of my money. Have you seen that play.

Adam: Well, if you're just investing in a third-party fund and you terminate your advisor relationship, I mean the investor would keep their investment.

The advisor has no control over that investment whatsoever. And I think that they just go their separate ways. There's probably not gonna be any advisory fee on top of that asset and so forth. So I think that's with the off the shelf type investments, that's how I would look at it. Now, if you're the GP, or if you partner with someone to be the GP, you're going to have a lot more influence in how that works.

So I w in most of the, in most cases, the general partner has the op option to kick someone out of the fund anytime they want. So you can always, if they want to fire you and then you can kick them out of the fund, if you'd like. if you don't want to kick them out of the fund, you could give them the option of as the GP, you can, you really have a lot of control.

So you could go to them. What I would probably do is go to them and say, Hey, you can stay in the fund if you'd like, but you need to convert to the other share class where I get paid. I'm not going to do this for free for you. Otherwise, I'm going to kick you out of the fund. So you have more options when you're the general partner, or if you have a friendly general partner who is willing to do that for you, depending on the situation or the third option is you just, you know, make sure that's all clear upfront.

Like if they ever terminate your advisory contract, they automatically switch to the other share class and you start getting paid in the fund on there.

Chris: So there is the investor, the key element of what Adam was saying. There was a read your documents, you understand what's going to actually happen and how they've structured it.

 I say that to everybody all the time, read your documents. If you want to know what's going to happen to you in a variety of different scenarios, hopefully it's identified. , so yeah. , I didn't see any other questions coming around. What else is on your horizon? I mean, what's next?

I mean, there's lots of opportunities for RIAs. I see. There's so much money coming out of the big houses. There's so many people starting up their own shops and everyone I talk to is all about, Hey, you know, I couldn't get the investment optionanilty that I wanted for my investors. So I spun out I'm doing my own thing.

which I mean is great to hear, but it's also a little scary sometimes because you know, a lot of these people need due diligence services. They don't have the team, they don't necessarily have the alternative investment experience. you know, there are a bunch of shops out there that have created specifics.

Like, Hey, we can come in and do operational due diligence on funds or something like that. Are there other, you know other than just what are the other services are available. Because I think what a lot of RIA is are gonna need is, they're going to have to team up with these service providers to help them build. And as they grow, maybe they can bring that internally. but what else should they consider? and how they take these first steps.

Adam: Yeah. Well, if you're doing something off the shelf, you definitely, you said you definitely want to read the documents, even if you're going to outsource to someone else, I would still read the documents.

It's not that hard use common sense. We do provide some of those services ourselves because we've had so many advisors that know they need it, but they don't want, they don't have the bandwidth or the desire to, to add that to their team or to take that on themselves. So there are groups like us that can help with that.

But there needs to definitely there definitely needs to be due diligence before you recommend anything to your clients. I would also say if you did your, if you do your own thing and I alluded to this, the more transparent you can be with your clients, the better I would not. I would avoid black box type investments.

And, offering those to your clients. The offering documents need to be really clear, any conflicts of interest, anything like that. It's okay to have them in this world. You just have to disclose them. These are all smart people. They have you, they have accountants and attorneys and so forth. So just be really open, be really transparent.

And I wouldn't be afraid of that. I've actually found that the more transparent you are, you disclose conflicts. I mean, they get it. Most of these guys have conflicts of their own. Yeah, but we all have to be adults about it. And if you're not transparent, good luck. I mean, you're going to be in trouble with that.

So, either you or someone else, you get someone to, to review everything and do it, do a deep dive into it.

Chris: Yeah, I agree. I mean, whether it was done intentionally or not, one of the biggest mistakes I saw in the last big dive into alternatives was not building the proper expectations, for investors and not either, not in, like I said, I don't think it was intentionally done, but not having proper transparency.

So when something did go wrong, it was kind of catastrophic. You know, a lot of people felt like I didn't know what was happening. So I agree that was definitely one of the biggest mistakes. You definitely avoid that mistake, build proper expectations with your investors as you go into this, you

know, really clear.

Adam: Don't double up your fees either. I see some people doing that. I don't think that's wise at all. I think it puts you in a really bad spot. It's not worth the extra money. And, I mentioned the first deal we did as an advisor, didn't go well, but the one thing we, you know, from a performance standpoint, but the one thing we did do right, is we're very transparent.

And so even though it didn't go well, everyone knew exactly what was happening, eyes wide open. And that was unfortunate. Now the second one we learned from it, the second one was awesome. So, yeah. Learn from your mistakes, but definitely be transparent. And I would say too, don't be cheap on, I th these don't have to be super expensive, but make sure you have good legal counsel, make sure you have.

The right partners, administrators, et cetera, that are solid, know what they're doing. Cause, that can at the very least be a big annoyance and at the very worst, create a lot of liability for you.

Chris: Yeah. If you don't know what you're doing, get somebody reputable. They can build it out for sure.

 Get yourself in a lot of trouble. Real quick, a lot of downside. Well with that. I didn't know. I mean, I see, hold on. Oh, well we have, just someone saying, bye Jacob. Thank you for joining us. But, it, do you have any other final closing remarks on it? I mean, you've, you've been fairly thorough, answered a lot of my questions and obviously hit a lot of the questions that people were listening in.

I didn't know if you had any closing remarks.

Adam: Oh, I take a look at it. I mean, there's different ways to do it. There's no right or wrong. It's just what works for your circumstance. But, , I think advisers are foolish if they're not looking at adding alternatives one way or another to what they're offering their clients.

Chris: I would agree, with adam, thank you for joining us. It's been great. if anyone has, follow up questions, please reach directly out to Adam. Or if it's something just broadly alternative investment based, like I said earlier, use the CAIA as a organization that you can hopefully answer your questions, build your network.

 If you do have a local chapter, and you don't want to learn more, they're always eager to have new members show up and hopefully very soon, I know this is a virtual meeting, but I know a lot of groups out there including ourselves are excited to very shortly be back in person. So, we look forward to seeing some of you in person at one of our next meetings later this year.

Thanks, everybody.