Crystal Capital Partners’ Steven Brod Explains How Financial Advisors Can Win and Grow Client Relationships with Alternative Investment Platform Providers
Did you own an ice cream machine before anyone ever heard of artisanal ice cream? Were you a Tolkien fan before Peter Jackson’s “Lord of the Rings” movies? And were you on Facebook before your mother heard of it?
Sometimes you can be so far ahead of the trend that people don’t understand what you do or why. Until, of course, the day that everyone understands and rushes into the space where you steadily built expertise over a period of decades.
A similar trend is unfolding in the alternative investment platforms space, where the severe market volatility and rising economic uncertainty of the past two years has attracted a rush of new entrants.
But sometimes lost in the new “alts are cool again” headlines is the fact that there are a handful of well-established players that have been refining platforms geared towards wealth management firms and their financial advisors for many years now.
And unlike the new entrants, these platforms successfully built alternatives businesses under challenging circumstances, when a decade-long bull market for plain vanilla equities obscured the advantages of alternatives.
Known Among the Cognoscenti
One such firm is Crystal Capital Partners, which has experienced 15% growth in the past two years. The firm’s platform, used by 200 financial services firms and thousands of advisors, hosts 40 hedge funds across 12 strategies and 14 private funds across five strategies.
Founded in 1994, the firm employs a strictly merit-based model of manager selection, receiving no fees for distribution. Partner capital comprises 7% of the firm’s assets under management, to ensure that its interests are aligned with investors.
The firm works primarily with Qualified Purchaser clients of advisors from a wide array of entities including independent RIAs, broker-dealers, family offices, endowments, foundations, regional banks and pension plans.
We spent time with Steven Brod, the firm’s Senior Partner, CEO and CIO, to hear his perspectives on alts in the wealth management industry.
WSR: You’ve been in the alts space for two and a half decades, while many alts platforms for wealth management firms have been launched only in recent years. What advantages does a firm such as Crystal Capital Partners have versus platforms that are relatively new to the industry?
Brod: Without question, market volatility and economic uncertainty has helped drive a recent proliferation of digitally-enabled alts platform providers for wealth management firms and their financial advisors.
Newcomers to this space are seeking to capitalize on the growing desire in this current environment for low correlated returns through diversified assets, including private market and hedge fund investing. These new platforms provide access to various managers and technologies, but their offerings and outcomes can be highly variable.
By contrast, because Crystal Capital Partners has been operating in the alternative investment space since the start of the 1990s, we’ve aligned early on with alts funds that have grown into some of the largest institutional managers in the industry today.
Our extensive and successful manager relationships underscore our investment committee’s demonstrated ability to identify effective institutional managers at each stage of the investing life cycle. Decade over decade, we’ve discovered alts managers who have demonstrated their ability to navigate multiple market cycles, and we’ve navigated these cycles with them.
Additionally, being an established alts platform has also given us the runway to more comprehensively understand and embrace the tools that firms and financial advisors need that go far beyond access to managers.
The reality is that financial advisors engaging with alts for their clients need an exhaustive set of tools to do so effectively, including intelligent portfolio optimization, manager research, comparative analytics, consolidated reporting and client-facing deliverables.
Moreover, there is a tremendous amount of work required to successfully manage subscriptions, redemptions, rebalancing, liquidity, capital calls, distributions, statements, K-1s and other key on-going operational requirements.
We’re able to address all of these needs from a position of unparalleled experience.
WSR: Why is demand for alts on the rise, and what are the top attributes of alts platforms that wealth management firm gatekeepers and their affiliated financial advisors should be seeking?
Brod: The current market dynamics have forced advisors to look for ways to enhance their traditional portfolios. This quest for diversification and uncorrelated returns is significantly increasing demand for alternatives. While the future is uncertain, there’s ample data out there that validates how institutional portfolios with a strong allocation to alts tend to outperform some more traditional strategies.
But while demand is escalating, there are high operational barriers to entry: Significant investment minimums, consolidation, sub docs, access to top managers, technology and regulatory filings, to name just a few. This means it’s imperative to have a streamlined platform that supports the infrastructure needed to accommodate these areas, while allowing advisors to diversify business and strategy risk.
Whether it be independent RIAs, family offices, endowments or pension plans, we believe our all-encompassing platform can work with firms of any size. We’re also big believers in automated processes. In fact, we’ve simplified the process of subscribing to multiple funds by offering a single one-time electronic subscription document, while offering some of the lowest per-fund minimums in the industry.
Operationally our solution includes quantitative analytics, qualitative research, portfolio optimization technology, consolidated reporting, independent audits for each investor’s portfolio, as well as business development resources to engage with current and prospective clients.
WSR: What types of alternatives are performing best during 2022, and are these different from the historical best performers? If so, why?
Brod: If we’re to look at this brief snapshot in time, of the many alternative investment options out there, Global Macro, Multi-Strategy and Relative Value hedge fund strategies have performed extremely well in 2022, building off the many macroeconomic variables at play. These are the types of strategies that tend to thrive in chaos, especially for managers that have been here before, and have deep teams capable of capitalizing on market dislocations.
With respect to private markets, as far as we’ve seen, the managers on our platform have continued with capital raising efforts. Deal activity, while down relative to last year, remains resilient.
Though we know past performance isn’t entirely indicative of the future, deals completed coming out of recessionary periods tend to deliver strong performance.
With that said, we also are very focused on helping firms and advisors in capturing strategy and vintage diversification with an institutional manager at the helm to mitigate idiosyncratic risks.
WSR: Many predict the current wave of market volatility and economic uncertainty to last for a while, creating more demand for the yield and inverse correlation that alts can offer. What are the risks for independent wealth management firms that fail to fully embrace alts in terms of advisor recruiting and retention…and how can firms best strengthen their value proposition to FAs in their alts offerings?
Brod: We believe advisors who do not embrace some degree of allocation to alternatives such as private equity, private credit, venture capital and hedge funds, are at risk of losing wallet share to those that do.
With alternatives becoming more mainstream, the HNW and UHNW client segments are demanding the same investment opportunities offered to institutional investors.
Portfolios participating in alternatives have continued to outperform, and advisors who fail to at least have the options available to their clients may be doing a disservice not to just their investors’ portfolios, but also to their firms’ bottom line.
Put more simply, the demand for yield is evergreen, and in this new market cycle, alts are not just an alternative solution – They are a must have for financial advisors seeking to add value for their clients.
Julius Buchanan, Managing Editor at Wealth Solutions Report, can be reached at email@example.com