1
00:00:02,520 --> 00:00:23,760
Speaker 1: Bloomberg Audio Studios, podcasts, radio news Outside Hello, hedge funds,

2
00:00:24,120 --> 00:00:30,000
Speaker 1: Venture Kappa, private equity, private credit. Allocating capital to alternatives

3
00:00:30,040 --> 00:00:34,120
Speaker 1: has never been more popular or more challenging. How should

4
00:00:34,159 --> 00:00:38,199
Speaker 1: investors approach these asset classes? I'm Barry Ridholts, and on

5
00:00:38,240 --> 00:00:41,599
Speaker 1: today's edition of At the Money, we're going to discuss

6
00:00:41,640 --> 00:00:46,239
Speaker 1: how investors should think about alternative investments. To help us

7
00:00:46,280 --> 00:00:48,880
Speaker 1: unpack all of this and what it means for your portfolio,

8
00:00:49,159 --> 00:00:52,040
Speaker 1: Let's bring in Ted Sidies, who began his career at

9
00:00:52,040 --> 00:00:56,920
Speaker 1: the Yale University Investments Office under the legendary David Swinson.

10
00:00:57,400 --> 00:01:00,880
Speaker 1: He's founder and CIO of Capital Allocator, and since twenty

11
00:01:00,920 --> 00:01:04,640
Speaker 1: seventeen has hosted a podcast by that same name. His

12
00:01:04,760 --> 00:01:08,479
Speaker 1: latest book is Private Equity Deals Lessons in Investing, deal

13
00:01:08,520 --> 00:01:12,200
Speaker 1: Making and Operations from Private Equity Professionals, is out now.

14
00:01:12,800 --> 00:01:15,600
Speaker 1: So Ted, let's start with the basics. What is the

15
00:01:15,640 --> 00:01:17,360
Speaker 1: appeal of alternatives?

16
00:01:18,520 --> 00:01:22,640
Speaker 2: If you start with let's call it a traditional portfolio

17
00:01:22,680 --> 00:01:27,080
Speaker 2: of stocks and bonds, the idea of adding alternatives is

18
00:01:27,120 --> 00:01:31,600
Speaker 2: to improve the quality of your portfolio, meaning you're trying

19
00:01:31,640 --> 00:01:34,160
Speaker 2: to get the highest turns you can with the similar

20
00:01:34,240 --> 00:01:37,959
Speaker 2: level of risk or sometimes the same kind of returns

21
00:01:37,959 --> 00:01:40,000
Speaker 2: with a reduced level of risk, and bringing in these

22
00:01:40,040 --> 00:01:41,399
Speaker 2: other alternatives help you do that.

23
00:01:41,680 --> 00:01:45,400
Speaker 1: All right, So there I mentioned a run of different alternatives.

24
00:01:45,400 --> 00:01:49,880
Speaker 1: How do you distinguish between private equity, private credit, hedge funds,

25
00:01:50,000 --> 00:01:53,560
Speaker 1: venture capital? Lots of different types of alts. How do

26
00:01:53,600 --> 00:01:54,520
Speaker 1: you think about these?

27
00:01:54,960 --> 00:02:00,000
Speaker 2: Each of them have their own different risk and reward characteristics.

28
00:01:59,800 --> 00:02:02,040
Speaker 2: That's probably the easiest way to think about it. If

29
00:02:02,040 --> 00:02:05,600
Speaker 2: you go from a spectrum private credit, think about it.

30
00:02:05,600 --> 00:02:08,600
Speaker 2: It's the same as bonds, a little bit different. Hedge

31
00:02:08,600 --> 00:02:11,880
Speaker 2: funds can be like bonds or stocks a little bit different.

32
00:02:12,000 --> 00:02:13,960
Speaker 2: Then you get into private equity, which is kind of

33
00:02:14,000 --> 00:02:17,560
Speaker 2: a little bit of juiced stock portfolio, and venture capital

34
00:02:17,600 --> 00:02:19,040
Speaker 2: is the riskiest of them all.

35
00:02:19,120 --> 00:02:23,280
Speaker 1: So you're discussing risk there. Let's talk about reward. What

36
00:02:23,520 --> 00:02:26,960
Speaker 1: sort of return expectations should investors have for these different

37
00:02:27,280 --> 00:02:28,200
Speaker 1: asset classes?

38
00:02:28,400 --> 00:02:32,560
Speaker 2: Well, similarly, private credit, think about a bond portfolio with

39
00:02:32,680 --> 00:02:35,399
Speaker 2: credit risk and a little bit of illiquidity. So that's

40
00:02:35,480 --> 00:02:38,560
Speaker 2: bonds plus is it bonds plus two hundred basis points?

41
00:02:38,560 --> 00:02:42,440
Speaker 2: Maybe something like that. Hedge funds generally have either bond

42
00:02:42,560 --> 00:02:46,359
Speaker 2: like or stock like characteristics with less risk. Private equity

43
00:02:46,400 --> 00:02:50,000
Speaker 2: you should expect a premium over stocks and venture capital

44
00:02:50,040 --> 00:02:52,680
Speaker 2: a premium over that because of the early stage risk.

45
00:02:53,040 --> 00:02:56,959
Speaker 1: Huh, those are really kind of interesting. You mentioned illiquidity.

46
00:02:57,040 --> 00:03:00,840
Speaker 1: Let's talk a little bit about the illiquidity pre What

47
00:03:00,880 --> 00:03:03,280
Speaker 1: does that mean for investors? What's involved with that?

48
00:03:04,000 --> 00:03:06,960
Speaker 2: When you start with just traded stocks and bonds, you

49
00:03:07,000 --> 00:03:10,440
Speaker 2: can get out instantaneously. So if you're going to commit

50
00:03:10,480 --> 00:03:13,919
Speaker 2: your capital to any of these other categories, you have

51
00:03:14,040 --> 00:03:17,919
Speaker 2: to embrace some illiquidity. Meaning if you want to get

52
00:03:17,919 --> 00:03:20,520
Speaker 2: out in that moment, it's going to cost you. So

53
00:03:21,120 --> 00:03:25,040
Speaker 2: to take on that risk, you need some type of

54
00:03:25,160 --> 00:03:28,400
Speaker 2: extra return, otherwise it wouldn't make sense to do it.

55
00:03:28,639 --> 00:03:31,920
Speaker 2: So the concept of an illiquidity premium is that in

56
00:03:32,040 --> 00:03:36,760
Speaker 2: order to pursue these strategies that prevent you from accessing

57
00:03:36,760 --> 00:03:39,160
Speaker 2: your money instantaneously, you need to get paid for that.

58
00:03:39,640 --> 00:03:43,360
Speaker 1: So where does the illiquidity premium come from? My assumption

59
00:03:43,680 --> 00:03:48,200
Speaker 1: was because this is so much smaller than public markets,

60
00:03:48,240 --> 00:03:52,520
Speaker 1: with so many fewer investors, perhaps there are some inefficiencies

61
00:03:52,560 --> 00:03:56,120
Speaker 1: that these managers can identify. Any truth of that.

62
00:03:56,040 --> 00:03:59,160
Speaker 2: It depends on the strategy. That would be the story

63
00:03:59,160 --> 00:04:01,840
Speaker 2: with hedge funds. Sure, when you get into private equity

64
00:04:01,920 --> 00:04:06,320
Speaker 2: venture capital, it's always in price. So if you're getting

65
00:04:06,360 --> 00:04:08,840
Speaker 2: the same asset that's in the public markets or the

66
00:04:08,880 --> 00:04:11,760
Speaker 2: private markets, in theory, you should want to buy it

67
00:04:11,800 --> 00:04:14,960
Speaker 2: at a discount in the private markets because you can't

68
00:04:14,960 --> 00:04:17,600
Speaker 2: get your money out quickly, and that's where you would

69
00:04:17,600 --> 00:04:18,560
Speaker 2: see that premium.

70
00:04:19,279 --> 00:04:22,799
Speaker 1: And so, since we're talking about lockups and not being

71
00:04:22,839 --> 00:04:26,800
Speaker 1: able to get liquid except at very specific times, how

72
00:04:26,839 --> 00:04:29,719
Speaker 1: long should investors expect to lock up their capital in

73
00:04:29,760 --> 00:04:31,120
Speaker 1: each of these alternatives.

74
00:04:31,360 --> 00:04:34,480
Speaker 2: It depends on the strategy and whether you're investing directly

75
00:04:34,520 --> 00:04:36,960
Speaker 2: in these securities or let's just say you're in funds.

76
00:04:37,040 --> 00:04:40,279
Speaker 2: So private credit can vary, but oftentimes you may not

77
00:04:40,320 --> 00:04:43,320
Speaker 2: get the liquidity until the assets are liquidated.

78
00:04:42,880 --> 00:04:44,719
Speaker 1: So that could be anywhere from five to ten years.

79
00:04:44,760 --> 00:04:49,120
Speaker 2: It can be Hedge funds often are quarterly liquidity, depending

80
00:04:49,120 --> 00:04:51,720
Speaker 2: on the underlying you get into a private equity or

81
00:04:51,800 --> 00:04:55,040
Speaker 2: venture capital fund, now you're generally talking about ten to

82
00:04:55,080 --> 00:04:56,159
Speaker 2: fifteen years.

83
00:04:56,040 --> 00:04:58,760
Speaker 1: Because you have to wait for that private company to

84
00:04:58,880 --> 00:05:01,360
Speaker 1: have some liquidity of to free up the cash.

85
00:05:01,760 --> 00:05:03,599
Speaker 2: And on top of that, if you're investing in a fund,

86
00:05:03,640 --> 00:05:05,560
Speaker 2: you have to wait for the fund manager to find

87
00:05:05,560 --> 00:05:08,880
Speaker 2: the company. So you're committing your capital, they find the company,

88
00:05:08,920 --> 00:05:12,480
Speaker 2: they might own it for say three to eight years,

89
00:05:12,600 --> 00:05:14,279
Speaker 2: and then you're waiting to get the cash back.

90
00:05:14,440 --> 00:05:17,479
Speaker 1: Huh. That's really that's really kind of intriguing, all right.

91
00:05:17,520 --> 00:05:21,600
Speaker 1: So when investors interested in alts, how much capital do

92
00:05:21,680 --> 00:05:25,560
Speaker 1: they need before they can start seriously looking at the space?

93
00:05:26,080 --> 00:05:29,080
Speaker 1: Is this for five million dollar portfolios or fifty million

94
00:05:29,120 --> 00:05:30,080
Speaker 1: dollar portfolios?

95
00:05:30,520 --> 00:05:33,560
Speaker 2: It's changing a lot to move to smaller numbers. So

96
00:05:33,600 --> 00:05:35,320
Speaker 2: if I go back to when I started in this,

97
00:05:36,400 --> 00:05:39,359
Speaker 2: you didn't have kind of pooled alternatives. I think about

98
00:05:39,400 --> 00:05:42,160
Speaker 2: fund of funds or all this movement of the democratization

99
00:05:42,200 --> 00:05:44,960
Speaker 2: of alts, and a minimum might be a million dollars

100
00:05:45,000 --> 00:05:47,800
Speaker 2: for a single fund. If you want a diversification, and

101
00:05:47,880 --> 00:05:50,400
Speaker 2: you wanted to say ten different funds, Now you're talking

102
00:05:50,400 --> 00:05:52,520
Speaker 2: about ten million, and if that's only ten percent of

103
00:05:52,520 --> 00:05:54,919
Speaker 2: your portfolio, you're looking at one hundred million dollars just

104
00:05:54,960 --> 00:05:55,520
Speaker 2: to make it.

105
00:05:55,520 --> 00:05:56,320
Speaker 1: Those are big numbers.

106
00:05:56,360 --> 00:06:00,120
Speaker 2: Those are big numbers. That has changed a lot, and

107
00:06:00,160 --> 00:06:03,640
Speaker 2: now you're starting to see more and more products available

108
00:06:03,960 --> 00:06:06,440
Speaker 2: at you know, rather than a million dollar minimum, maybe

109
00:06:06,480 --> 00:06:09,719
Speaker 2: it's fifty thousand dollars or even less. So it's a

110
00:06:09,720 --> 00:06:13,120
Speaker 2: little bit less. What size I mean you do need

111
00:06:13,160 --> 00:06:15,800
Speaker 2: to have, you know, is it five million, is a

112
00:06:15,880 --> 00:06:17,359
Speaker 2: ten million? I don't really know.

113
00:06:18,120 --> 00:06:20,240
Speaker 1: The goal, but it's not five hundred thousand dollars.

114
00:06:20,279 --> 00:06:22,039
Speaker 2: It's not five hundred thousand dollars.

115
00:06:22,320 --> 00:06:25,000
Speaker 1: Right, So, and you were saying the goal is, well,

116
00:06:25,040 --> 00:06:25,840
Speaker 1: the goal is.

117
00:06:25,760 --> 00:06:28,039
Speaker 2: To get access to some of these areas, hopefully in

118
00:06:28,080 --> 00:06:32,000
Speaker 2: a very high quality way, and have some diversification within

119
00:06:32,120 --> 00:06:35,000
Speaker 2: the strategy that you're pursuing, and that does take some capital.

120
00:06:35,279 --> 00:06:39,200
Speaker 1: So you just set something really interesting before ten different

121
00:06:39,240 --> 00:06:42,239
Speaker 1: funds and a million dollars each out of one hundred

122
00:06:42,279 --> 00:06:48,520
Speaker 1: million dollars. You're implying that investors should allocate a certain percentage.

123
00:06:48,560 --> 00:06:51,919
Speaker 1: So let me rather than use that example, let me

124
00:06:52,000 --> 00:06:54,960
Speaker 1: just ask that directly, how much in the alt and

125
00:06:55,080 --> 00:06:59,960
Speaker 1: private space should investors think about allocating in order to

126
00:07:00,240 --> 00:07:04,599
Speaker 1: generate potentially better returns and increase their diversification.

127
00:07:05,400 --> 00:07:10,280
Speaker 2: It's entirely a function of let's say, a liquidity budget. So,

128
00:07:10,960 --> 00:07:14,600
Speaker 2: as you mentioned it, you need to lock up your capital,

129
00:07:14,680 --> 00:07:17,800
Speaker 2: particularly when you're getting into private equity and venture capital,

130
00:07:19,000 --> 00:07:22,640
Speaker 2: and that means you can't access it. So if someone

131
00:07:22,720 --> 00:07:25,560
Speaker 2: has enough money that they don't really need to access.

132
00:07:25,600 --> 00:07:27,480
Speaker 2: You know, if you have one hundred million dollars, you're

133
00:07:27,560 --> 00:07:31,080
Speaker 2: probably not accessing most of that year to year. And

134
00:07:31,120 --> 00:07:33,720
Speaker 2: you've seen in some of the most sophisticated institutions all

135
00:07:33,720 --> 00:07:36,440
Speaker 2: these alts get up to fifty percent of their portfolio.

136
00:07:37,560 --> 00:07:41,080
Speaker 2: If you're talking about maybe you have five million to invest,

137
00:07:41,720 --> 00:07:43,560
Speaker 2: it's not clear you want to take half of that

138
00:07:43,680 --> 00:07:45,840
Speaker 2: and put it away so that you can't access it

139
00:07:45,880 --> 00:07:48,200
Speaker 2: in case you need the capital in between now and

140
00:07:48,240 --> 00:07:49,160
Speaker 2: fifteen years from now.

141
00:07:49,280 --> 00:07:51,680
Speaker 1: So a phrase I heard that kind of made me

142
00:07:51,760 --> 00:07:54,239
Speaker 1: a giggle, but I want to share it with you.

143
00:07:54,280 --> 00:07:58,720
Speaker 1: Sixty forty is now fifty thirty, twenty or some variation

144
00:07:59,200 --> 00:08:01,160
Speaker 1: to that effect. What are your thoughts on that.

145
00:08:02,480 --> 00:08:04,720
Speaker 2: I think about it a little bit differently, which is

146
00:08:05,720 --> 00:08:07,720
Speaker 2: most of the time you want to think about the

147
00:08:07,840 --> 00:08:10,600
Speaker 2: risk and return of the overall and you can break

148
00:08:10,600 --> 00:08:14,440
Speaker 2: that down into stockbond risk. So whether that's sixty forty

149
00:08:14,520 --> 00:08:18,160
Speaker 2: or seventy thirty, that's fine. The question with alts is

150
00:08:18,240 --> 00:08:20,960
Speaker 2: how do you want to take that risk? So rather

151
00:08:21,040 --> 00:08:24,840
Speaker 2: than in a seventy thirty having seventy percent in US stocks, yeah,

152
00:08:24,880 --> 00:08:27,040
Speaker 2: you may want to say, hey, maybe twenty percent of

153
00:08:27,040 --> 00:08:30,120
Speaker 2: that should be in private equity. You have similar risk,

154
00:08:30,680 --> 00:08:32,599
Speaker 2: but you have a different type of return stream and

155
00:08:32,640 --> 00:08:33,960
Speaker 2: hopefully a little more octane.

156
00:08:34,480 --> 00:08:38,320
Speaker 1: That's kind of interesting. Let's talk about fees. It used

157
00:08:38,360 --> 00:08:42,959
Speaker 1: to be that two and twenty two percent of the

158
00:08:43,679 --> 00:08:47,160
Speaker 1: underlying investment plus twenty percent of the that gains was

159
00:08:47,240 --> 00:08:50,880
Speaker 1: the standard. What are standard fees in the old space today?

160
00:08:51,480 --> 00:08:53,960
Speaker 2: It is a function a little bit of that return characteristic.

161
00:08:54,000 --> 00:08:56,080
Speaker 2: So if you get to the higher octane private equity,

162
00:08:56,160 --> 00:08:59,440
Speaker 2: venture capital, you generally do still see two and twenty

163
00:09:00,080 --> 00:09:01,760
Speaker 2: hedge funds and private credit it tends to be a

164
00:09:01,800 --> 00:09:04,360
Speaker 2: little bit less than that. But make no mistake about it,

165
00:09:04,360 --> 00:09:06,960
Speaker 2: the fees are higher in the alternatives than they are

166
00:09:06,960 --> 00:09:07,920
Speaker 2: in the traditional world.

167
00:09:08,440 --> 00:09:13,320
Speaker 1: How should investors go about finding alternative managers and evaluating

168
00:09:13,320 --> 00:09:13,920
Speaker 1: their funds?

169
00:09:14,400 --> 00:09:17,880
Speaker 2: So this is incredibly important because unlike in the stock

170
00:09:17,920 --> 00:09:21,760
Speaker 2: and bond markets, the dispersion of returns and alts is

171
00:09:21,880 --> 00:09:25,240
Speaker 2: much much wider, Meaning if you find a good manager

172
00:09:25,600 --> 00:09:27,720
Speaker 2: it matters a lot more than if you find a

173
00:09:27,760 --> 00:09:31,199
Speaker 2: good stock manager a good bond manager Cumbersely, if you

174
00:09:31,280 --> 00:09:33,880
Speaker 2: find a bad one it hurts you much more. Than

175
00:09:33,920 --> 00:09:35,800
Speaker 2: if you're hurt by stock and bond. So how do

176
00:09:35,840 --> 00:09:38,640
Speaker 2: you do it? It does take a fair amount of

177
00:09:38,679 --> 00:09:42,720
Speaker 2: research and either a trusted advisor or someone who knows

178
00:09:42,760 --> 00:09:45,000
Speaker 2: the space. There's a lot of different ways to get

179
00:09:45,040 --> 00:09:48,400
Speaker 2: involved in that. One of the ways you're seeing more

180
00:09:48,440 --> 00:09:51,840
Speaker 2: and more as all to get democratized is the bigger

181
00:09:51,880 --> 00:09:56,440
Speaker 2: brands are creating products. You can go to Blackstone and

182
00:09:56,480 --> 00:09:59,160
Speaker 2: you'll be fine. I don't know if you'll get the

183
00:09:59,200 --> 00:10:01,760
Speaker 2: best returns, but you're not going to get the worst returns.

184
00:10:01,880 --> 00:10:05,320
Speaker 2: And so one way that people think about participating is

185
00:10:05,360 --> 00:10:08,320
Speaker 2: you look at who these larger public alternative managers are.

186
00:10:08,360 --> 00:10:13,240
Speaker 2: It's a Blackstone, Ares, Apollo, KKR, TPG. These are super

187
00:10:13,360 --> 00:10:15,200
Speaker 2: high quality investment organizations.

188
00:10:17,040 --> 00:10:19,520
Speaker 1: How do you gain entry to the best funds? A

189
00:10:19,559 --> 00:10:21,800
Speaker 1: lot of you know, it's a little bit like the

190
00:10:21,880 --> 00:10:24,680
Speaker 1: old Groucho Marx joke. I wouldn't want to be a

191
00:10:24,679 --> 00:10:28,079
Speaker 1: member of any club that would have me. The funds

192
00:10:28,160 --> 00:10:30,880
Speaker 1: you want to get into the most very often require

193
00:10:31,520 --> 00:10:36,400
Speaker 1: giant minimums because they're working with foundations and endowments, and

194
00:10:37,360 --> 00:10:40,760
Speaker 1: very often they're either closed or there's a giant queue

195
00:10:40,800 --> 00:10:44,079
Speaker 1: to get into them. How does one go about establishing

196
00:10:44,160 --> 00:10:47,960
Speaker 1: a relationship ps. All these questions come right from your book.

197
00:10:48,240 --> 00:10:51,000
Speaker 1: But how do you go about establishing a relationship with

198
00:10:51,080 --> 00:10:54,360
Speaker 1: the potential alternative funds that you might want to have

199
00:10:54,480 --> 00:10:55,120
Speaker 1: exposure to?

200
00:10:55,280 --> 00:10:59,640
Speaker 2: Yeah, it's really hard, particularly as an individual. If you think

201
00:10:59,640 --> 00:11:03,920
Speaker 2: about it, you're competing with all of those very well

202
00:11:03,960 --> 00:11:09,480
Speaker 2: resourced institutions and down its foundations, pension funds that have people,

203
00:11:10,360 --> 00:11:13,600
Speaker 2: well compensated people that are out looking for these funds.

204
00:11:14,280 --> 00:11:16,200
Speaker 2: So the question you have to ask is what are

205
00:11:16,240 --> 00:11:19,160
Speaker 2: you trying to accomplish? And that can be different for

206
00:11:20,520 --> 00:11:25,280
Speaker 2: different people, different organizations, but generally speaking, it does require

207
00:11:26,520 --> 00:11:30,080
Speaker 2: working into networks where you start to learn who the

208
00:11:30,080 --> 00:11:33,120
Speaker 2: players are and trying to figure out from that who

209
00:11:33,120 --> 00:11:35,400
Speaker 2: are the better ones. It takes a lot of time

210
00:11:35,480 --> 00:11:37,080
Speaker 2: to do that well.

211
00:11:37,200 --> 00:11:41,920
Speaker 1: So if someone wants some assistance in building out the

212
00:11:42,040 --> 00:11:46,800
Speaker 1: alternative portion of their portfolios, where do they begin looking?

213
00:11:46,840 --> 00:11:50,000
Speaker 1: How do they go find that sort of those sort

214
00:11:50,040 --> 00:11:50,760
Speaker 1: of resources.

215
00:11:51,160 --> 00:11:54,920
Speaker 2: Usually the first step comes from the fund to funds world,

216
00:11:55,240 --> 00:11:58,119
Speaker 2: and you could look at as a great example, Vanguard

217
00:11:58,440 --> 00:12:01,880
Speaker 2: Now as part of their retirement package, did a deal

218
00:12:01,920 --> 00:12:04,240
Speaker 2: with harbor Vest. Harbor Vest is one of the leading

219
00:12:04,320 --> 00:12:09,959
Speaker 2: fund of funds to allow entry to get good quality exposure.

220
00:12:10,040 --> 00:12:13,520
Speaker 2: So a harbor Vest, a Hamilton Lane, Stepstone, some of

221
00:12:13,520 --> 00:12:16,559
Speaker 2: these are some of the bigger established, say private equity

222
00:12:16,600 --> 00:12:19,640
Speaker 2: fund of funds. They do a very good job of

223
00:12:19,880 --> 00:12:22,400
Speaker 2: getting people access to high quality exposure.

224
00:12:22,920 --> 00:12:27,199
Speaker 1: Huh So if you're a four to one k at Vanguard,

225
00:12:27,280 --> 00:12:29,040
Speaker 1: do you have access to that or is that just

226
00:12:29,320 --> 00:12:31,040
Speaker 1: broad portfolios?

227
00:12:31,160 --> 00:12:33,680
Speaker 2: I know it exists within their suite. I'm not sure

228
00:12:33,920 --> 00:12:37,320
Speaker 2: if it's part of their target funds or you can

229
00:12:37,360 --> 00:12:38,199
Speaker 2: directly access.

230
00:12:38,600 --> 00:12:42,000
Speaker 1: So what are some of the bigger challenges and misconceptions

231
00:12:42,080 --> 00:12:43,760
Speaker 1: about investing in alternatives?

232
00:12:44,960 --> 00:12:48,000
Speaker 2: Well, the biggest misconceptions come from the public perception of

233
00:12:48,040 --> 00:12:51,880
Speaker 2: it because most of the time in the news you

234
00:12:52,000 --> 00:12:56,720
Speaker 2: only read about sensationalization. You read about huge returns and

235
00:12:56,760 --> 00:13:00,560
Speaker 2: big failures in almost all the cases. Set a side

236
00:13:00,600 --> 00:13:03,160
Speaker 2: venture capital, because venture capital is designed to have huge

237
00:13:03,200 --> 00:13:07,280
Speaker 2: successes and failures. All the action happens in the middle.

238
00:13:07,800 --> 00:13:11,920
Speaker 2: Like hedge funds generally speaking, are very boring, they're not newsworthy.

239
00:13:12,040 --> 00:13:14,679
Speaker 2: They shouldn't make the news. Private credits the same way.

240
00:13:15,160 --> 00:13:17,400
Speaker 2: There will be a time in private credit where there

241
00:13:17,400 --> 00:13:20,760
Speaker 2: are defaults, and you'll read about defaults but you probably

242
00:13:20,800 --> 00:13:23,360
Speaker 2: won't read that the returns are just fine even with

243
00:13:23,440 --> 00:13:24,119
Speaker 2: the defaults.

244
00:13:24,320 --> 00:13:28,600
Speaker 1: So how do investors go about doing some due diligence

245
00:13:28,760 --> 00:13:31,040
Speaker 1: on the funds they're interested in? How do they make

246
00:13:31,080 --> 00:13:34,119
Speaker 1: sure they're getting what they expect to get.

247
00:13:34,720 --> 00:13:37,240
Speaker 2: A lot of it starts with meeting the people and

248
00:13:37,320 --> 00:13:40,840
Speaker 2: trying to understand what is their philosophy, what is their strategy,

249
00:13:40,880 --> 00:13:43,800
Speaker 2: and how do they go about deal making. You then

250
00:13:44,240 --> 00:13:47,640
Speaker 2: can get into the data. So any of these firms

251
00:13:47,720 --> 00:13:49,880
Speaker 2: that's been around, they've done deals in the past, and

252
00:13:49,920 --> 00:13:52,680
Speaker 2: you could try to figure out how do they add value?

253
00:13:52,800 --> 00:13:55,360
Speaker 2: Do they buy well, do they run the companies well,

254
00:13:55,480 --> 00:13:59,040
Speaker 2: do they sell well? Is it financial leverage? And then

255
00:13:59,080 --> 00:14:01,920
Speaker 2: trying to figure out what do you think works and

256
00:14:02,040 --> 00:14:04,960
Speaker 2: is that a fit with how that firm pursues investing

257
00:14:05,640 --> 00:14:06,440
Speaker 2: really interesting.

258
00:14:06,840 --> 00:14:10,480
Speaker 1: So to wrap up, investors who have a long time horizon,

259
00:14:10,800 --> 00:14:16,280
Speaker 1: a substantial portfolio, the time effort and interest in exploring

260
00:14:16,800 --> 00:14:20,880
Speaker 1: the alternative space may want to pull some modest percentage

261
00:14:21,280 --> 00:14:24,360
Speaker 1: of their holdings aside and locking these up for an

262
00:14:24,360 --> 00:14:28,360
Speaker 1: extended period with the hope of getting a better than

263
00:14:28,480 --> 00:14:33,600
Speaker 1: average return on a diversified basis or an average return

264
00:14:33,760 --> 00:14:37,200
Speaker 1: on a lower risk basis. Start out by looking at

265
00:14:37,200 --> 00:14:40,240
Speaker 1: some of the bigger names in the space that Ted

266
00:14:40,280 --> 00:14:43,880
Speaker 1: had mentioned. Do your homework and your due diligence. Go

267
00:14:43,960 --> 00:14:48,120
Speaker 1: into this with open eyes and make sure that you

268
00:14:48,480 --> 00:14:52,520
Speaker 1: are not allocating too much capital to a space that

269
00:14:52,640 --> 00:14:56,160
Speaker 1: might be locked up for five or ten years or more.

270
00:14:56,600 --> 00:15:03,280
Speaker 1: Successful alternative investors have been rewarded with outstanding returns. Unsuccessful

271
00:15:03,280 --> 00:15:08,160
Speaker 1: ones have underperformed the public markets. I'm Barry Ritholtz and

272
00:15:08,200 --> 00:15:10,600
Speaker 1: this is Bloomberg's at the Money.

273
00:15:12,080 --> 00:15:28,960
Speaker 2: Arm outside of Girl Grown Russ