← Alt Goes Mainstream: The Latest on Alternative Investments, WealthTech, & Private Markets
Alt Goes Mainstream: The Latest on Alternative Investments, WealthTech, & Private Markets
Live from Nuveen's nPowered Conference: Nuveen's Jeff Carlin - "It's all about the end client"
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This episode of the Altcos Mainstream Podcast is brought to you by Ultimus, a leading full service fund administrator for asset managers in private and public markets. As private markets continue to move into the mainstream, the industry requires infrastructure solutions that help funds and investors keep pace. Ultimas is a leading full service fund administrator for asset managers in both private and public markets, offering a wide range of capabilities across registered funds, private funds and public plans, as well as outsourced middle office services. Delivering operational excellence Ultimas helps firms manage the ever changing regulatory environment while meeting the needs of their institutional and retail investors. Ultimas provides comprehensive operational support and fund governance services to help managers successfully launch retail alternative products. Trusted by institutions, investment consultants, registered investment advisors, state governments and fund managers, Ultimas provides solutions for nearly every investment structure in the marketplace. Visit www.ultimusfundsolutions.com to learn more about Ultimas technology enhanced services and solutions or contact Altimus Executive Vice President of Business Development Gary Harris on email@gharrisultimasfundsolutions.com we thank Altimus for their support of Alts Going Mainstream.
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Everybody gets a piece we're going mainstream Everybody's gonna eat we're going mainstream all my family see See you on Mainstream we're going mainstream. From Wall street to Melrose Avenue, we're.
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Going mainstream Venture capitalists to athletes to.
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Creators to the person who has collected trading cards we're going mainstream In a collision of culture and finance, we're going mainstream.
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Welcome back to the Altcos Mainstream Podcast. Altcos Mainstream was live from 1.2 trillion AUM asset manager Nuveen's N powered conference, a two day event bringing together Nuveen thought leaders and industry experts to explore challenges and opportunities in private markets. We interviewed some of Nuveen's senior leadership on site to hear their views and perspectives on private markets working with the Wealth Channel in Product innovation. We talked with Jeff Carlin, Senior Managing Director, Head of Global Wealth Advisory Services at Nuveen and a member of the Senior Leadership team. He's responsible for leading the placement, distribution and support of all products through the US Wealth Distribution Channel.
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Jeff and I had a fascinating conversation.
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About working with the Wealth Channel and how Nuveen has created products to serve this growing investor segment. Thanks Jeff for coming on the Altcos Mainstream Podcast to share your wisdom and expertise. We hope you enjoy.
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All right, we are here live at the Nuveen n Powered Alts Conference. I'm here with Jeff Carlin. Pleasure to have you here.
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B
It's Great to be here. I'm glad you could join us for the conference. It's going to be a great day.
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C
Oh, it's been fantastic. I think so much interesting conversations at the intersection of geopolitics, everything that's going on in the world, what that means for this whole, I think new world order, not just of kind of the geopolitical landscape, but of investing. And Nuveen is really at the forefront of a lot of that with the types of products you're creating, particularly for the Wealth Channel, which I'd love to get into as you talk more about what you've done and what you're focused on first would love to just start with your background and what you do at Naveen, who you work with as a grounding for the conversation.
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Yeah, sure. So I've been at Naveen for, it'll be 15 years. This summer. I joined Nuveen to run the RIA business for the Wealth Channel and over the years have done a number of different things on running the sales organization. And about 2018 I was asked to take on running the full business for the US wealth business. And then subsequently in 22 I was asked to put a business strategy together and ultimately then got investment from the firm to take on responsibility for our global wealth distribution as well. So I run the entire wealth business for Naveen. And for Naveen, the wealth business is two thirds of our third party assets. So if you think about the history and legacy of Naveen, we were started when our early days of our first acquisition of an asset management company was really to bring solutions in the income space for the wealth market. And over the years, as we acquired more and more asset management arms, we bought institutional firms but then plugged them into the wealth market. You think about TIAA, our parent company, and they acquired us. It's actually 10 years ago this past October 31st is when the deal was closed. They had really acquired asset management capabilities largely for their own retirement plans and then ultimately for their own general account. And so they acquired us for really the distribution aspects. There was some investment capabilities that we had at Nuveen that they didn't, but for the most part they could have had any investment capability they wanted because of the size and scale that they were. And so they really wanted us for distribution. So it's been a very fascinating kind of history or transition over the last decade of really taking a lot of things that were not commercially oriented and making them commercially oriented. Before I got to Nuveen, I started as employee number 11 at a ETF startup that had 3 million in assets under management in January of 2009, right after the great financial crisis. And what we were doing, the tagline for the company was democratizing alternatives. So we tried to create ETFs that would mimic indices, that would give you exposures that would be in private markets vehicles. Great team there. Prior to that, I spent eight years at Schwab, really building out and running the separately managed account platforms for both their wealth channel and their RIA channel. That's where I really got to learn the RIA business inside and out and. And then I really cut my teeth at Smith Barney. So I started as a analyst at Smith Barney's consulting group which was bringing institutional caliber consulting services to the high net worth and small to medium sized institutional marketplace. So it's kind of a winding path to get to this point, but it's helped me along the way.
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C
Must have been such a fascinating view into the evolution of distribution. Yeah, there's a lot to unpack in what you just shared about your background in the backdrop of how distribution has changed. Also this kind of intersection of the traditional asset manager with alternative asset managers and then how do you actually distribute because you have great relationships with the wealth and RIA channel. So ton to unpack there first I want to start with what has kind of some of the biggest lessons you've learned from this evolution and distribution. Over 15 years you've been in Nuveen, but also, I mean you've worked with the Wealth Channel for some time before that too.
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Well, the biggest evolution I think has been when you go back to pre 2008, you know, in that early 2000s and even more so in the late 90s, there was a lot of product just like we have today. But the way that many advisors operated was very few had discretion. Most of the decisions were made on the next new client kind of scenarios. So you, you meet with an advisor today. Whoever the client was meeting with or the family that they were doing a review with in the next couple days, they typically would be making decisions on them and they would be okay. The most recent conversation would be an input to how they actually decided going forward. So the biggest evolution, and I learned this in the RA space because when I was at Smith Barney, which is part of Morgan Stanley today, I think it was probably less than 5% of the advisors were doing anything discretionary. And when I landed over at Schwab and I started spending time in the RA channel, it was probably 90% of them were fee only advisors that all Took on discretion. So it's like, wait a minute, what's going on here? You had no discretion over there and discretion over here. And that discretion gave them a lot of power because they could make one decision across all their clients and not have to go talk to them individually. And so that's probably been the biggest change because basically, even when I was at Smith Barney, which was trying to bring advisory and advice and who was the leader in it back then, the whole platform structure, it still is done on a client by client, product by product decision. And as the industry has evolved, where discretion has a much bigger impact today, whether they're using their own models that they create or models that they buy from somebody else, it's a much more efficient way to go. It's really meant that the actual salespeople have to take a completely, almost 180 degree different approach to those advisors.
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In what way?
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Well, for one, it's never a one and done kind of conversation because the advisor is not going to get paid any differently. Whether they actually buy that strategy or not. They need to solve the problems that the advisor is facing. You still have to be able to build relationships. You still have to make a connection with somebody. But in the late 90s and early 2000s, a lot of the sale was a relationship sale. People did business with people they liked. Now that's still true today. But then you also have to add a lot of value. And so that value means you have to be a lot more technical. You have to understand your products and platforms very well and your competitors. You need to understand the Advisor's business very well. And when you ultimately are getting to the point of helping them make a decision, the end of the day is you're trying to solve a problem they have. And your fund that has great performance, that's done well over the last three years is not a problem that the advisor's trying to solve for. What they're trying to solve for is how can they make allocations and decisions in their client portfolios that are going to give them the best chance for success. So that's all forward looking. So you have to get yourself in that mindset to really be successful.
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So it sounds like it's much more of a consultative sale, 100%. Does that mean you hire from different places to hire the right type of distribution professionals?
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Yeah, for sure. When I first started in the industry as a salesperson, there was really very few people that had CFA designations or any other advanced designations. Today, if you don't have one of those Designations, whether it's a CFA or a CAIA or a SEMA or any of those others, you're probably at a disadvantage. So we tend to hire analyst types more so than we hired purely relationship types. At the same time, though, I would say a lot of the things are just still the same. Everybody has to be self motivated, willing to take advice, take coaching, and willing to be, you know, creative. Like there's probably a lot more creativity today than you had to have back then.
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Creativity in what sense?
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Just when you're trying to create a connection or somebody, or trying to make an intro to somebody, or try to build a relationship with somebody, given that, that the preference for most of the allocators out there is don't call us, we'll call you. You have to create a reason why they should call you. And that takes creativity. Whether it's a leveraging a former relationship or something else, it takes a lot of creativity to get that going.
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C
You bring up a really interesting point, which is that the way in which you communicate with a client or resonate with them may be different. So if we think about a few different things, so now there's more product choices, there's now new products to choose from, alternatives. If you think about all of that and the way in which they want to interact with you and your distribution team, that's all different. But at the end of the day, firms buying products on the wealth side is really about trust. So if trust is still what you're selling effectively, but the way in which you do it may change. What are some of those ways in which you may have to change? Is it more about the. Not at the relationship level necessarily, but is it about the firm's brand or something else that the firm does? That is the way in which you communicate trust. That maybe was different when you were on the distribution side 15 or 20 years ago.
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Yeah, I think you're spot on in that that path to trust is so important. And I'd say the brand is part of it. The brand will help. That trust component, it might be a starting point for an advisor, but the trust is proven day in and day out. So some of the things that we think about is there's no shortage of information that's coming from every corner about what's going on in the macro environment. So we are trying to help advisors discern from our vantage point what we're seeing from the macro environment and ultimately test that off of what they think they're seeing too, so that we can have this dialogue. But sometimes that Macro environment may be calling for things that are in our portfolio, things maybe that we've sold in the past to that advisor or is a big part of our business. The macro environment's really not really favorable to that. And the second we're not honest with advisors about that, then that trust goes away. It's like, well, I can't really have you only being bullish on everything you do all the time. We have to be honest. So that's a big part of it, I think, making sure that we're delivering what we are saying we're going to do. We tend to be at Nuveen, a bit of a conservative company. Sometimes I wish we were more aggressive on some things on how we market, but we tend to be conservative. We tend to want to deliver more than we say we're going to deliver. And I think there's an element of building trust around that as well. When I was at Index IQ and we were trying to build these ETFs, it was all about trying to give the return pattern that you were expecting. And so if we could explain to somebody why this will give you the return pattern you're looking for, and it does, then it should fit in. But Nuveen, it's the same thing, just a different set of ingredients. In many cases, like, does this give you the outcome you're looking for? And if it doesn't, we should be able to explain to you why it's not and what you should do about that. We like to call what we're trying to build with advisors indispensable partnerships. And if you can build an indispensable partnership that then is durable and without that it's just a transaction business.
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That also brings up the question of how much are you selling specific products versus selling holistic way of thinking about it. So almost like a physical therapist who looks at someone's body holistically and says, okay, maybe they're hurt and to shoulder, but you know what, if you worked on their back or their hip, maybe that's what's causing it. So how do you think about the interplay between kind of point solution, sale of a product versus just saying holistically, let's sell a concept, portfolio construction, maybe even a model. Because I think the model piece is making it easy for advisors to just invest into something, a concept they can believe in and fits their asset allocation model makes sense. So how do you think about that interplay between those two things?
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We think about it's a relation of time, like how much time should you be spend on the macro versus the Microsoft. And just by that nature the macro is much bigger than the micro. We should probably spend more time on the macro and how that relates to our conversations. And believe me, we have a lot of commercially minded investment people around Nuveen and they want their vehicle or their investment category to be the number one thing that we think about in the distribution team all the time. And it's hard for them to hear when I say okay, well yes, your product could be a solution, but if we don't figure out what the advisor thinks the solution is first, we'll never get to yours. Or if we do just pitch them your solution, they're probably going to turn themselves off. Even if they buy it's a transaction, it's not going to be a durable buy. So it's hard for the folks that are managing the money to really see this. We probably would say you'd want to spend 70 to 80% of your time in the macro and 20% of your time on the product. If you're the one managing a product, you want us to spend 120% of your time on the product. So we just try to put ourselves in the position of the advisors. What are the things they work on? They work on their business outside of investments a lot more than they work on inside the investments. So if we're not bringing non investment related themes to them on a regular basis, well then we're only going to get so much of their time. And if we don't get their time, it's very difficult for us then to understand the issues. They have to then bring them a solution that will solve those issues. And so that's kind of how we think about it quite a bit. It can be couched as consultative selling, but I think of it as we're solutions providers, we're problem solvers and if we can get to that spot where we build an indispensable partnership and the advisor now starts bringing us their problems, now we're in a really good spot.
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You bring up a really interesting point in the context of the broader evolution in private markets, which is that the alternative asset managers are obviously looking to get into the wealth channel in a bigger way. But so too are traditional asset managers and they've had in many cases long standing relationships with the wealth channel. So in the context of your last comment of hey, we need to be solutions providers and we're not just helping them with a specific investment. And that could be a specific investment in public markets or sorry, private markets but for you, that could also be a specific investment in public markets. How much do you think the fact that you span both public and private gives you an advantage in the distribution of private markets products relative to alternatives managers? Because like you said, you said it's not just the investment side of things, it's other things that you want to help them with.
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The numbers are staggering as far as who's using private markets and at what level. So I think the industry would say less than 3% of the industry asset allocation has gone to private markets. But then if you unpack that and you go start talking to the advisors, there's the power users, that minimum is 25 to 30% in private markets, some cases up to 50%. There are even advisors out there that are telling us that the public markets, they don't feel like they can add any value, they only can add value in the private market side. They're doing things to make their public markets portfolio be as streamlined as possible so they can spend more time on the private market side. So to get from 25 to 30% with some to 3% or less across the industry means there's a lot of people that are at zero. And so some of our earliest successes has been taking the same themes and reasons of why somebody used us in the public market side, that is tax advantaged income, and bringing them other solutions that are also tax advantaged income income that is private real estate. That cross selling has allowed us to go to a different set of advisors than may have been the early adopters. When a monoline private markets firm brings a wealth product to market, they may have gone to some of the big power users, but they're not really going to go far and wide. And so that's an advantage for us because we already know the client, we already know their business well and we can bring them solutions. But it's also an advantage for the platforms and why they choose firms like us because we can help them broaden the universe as well. So it's those two things that I think put us in a unique spot relative to the traditional alternative shops.
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And the other piece of this too, I want to extend this to a global perspective because you manage wealth globally and different regions of the world probably have different ways of interacting with distribution teams. They probably have different ways of interacting with certain brands too, based on how brands resonate with them in different parts of the world. How does what you just shared change based on the geographical elements of the clients you're working with, whether it's Europe, Asia, Latin America.
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The investment themes tend to be similar across the globe. So just my observation, I think Asia has similar investment themes in a similar timescale as we do in the US I would say Europe and the UK are slightly different because their capital markets and their asset management markets are more Europe and UK centric, more developed. They tend to have a more Europe and UK view on things. But it might be the similar theme. It just tends to be a little bit delayed behind the US Whereas Asia is a little bit more in line with the US Then there's the whole wrapper working within the UK and Europe in the last number of years. Just realize that if we had to have 50 different states that we had to have regulatory discussions with all the time, nothing or very little would get done. What's important to the UK for one regulatory body, that is the private markets for the wealth space is different for Switzerland and different again from southern Europe. And so the themes ultimately will get there, the markets will ultimately open up. It's just going to take longer and probably in Europe and the UK than it will take in Asia because the Asian markets are a little bit more tied together.
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C
Does that mean you focus on specific channels? What I mean by that is like private bank channel versus the independent or other types of wealth channel investors in some of these regions based on some of the hurdles you may have to face, either regulatory, operational or otherwise.
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B
The global financial institutions, we try to cut across them everywhere because even though they may have different concentrations of their businesses in different spots, generally many of them are going to have at least some US presence across the globe. So we view them as a separate kind of body. Just because they see these things across the globe, they may act differently. Some of them still have all decisions made in the local markets, but they at least see it across the globe. Then outside of them, it's the financial institutions that are pretty specific to their home country or home region. Those are another big area for us. I'd say the family office and the large independent wealth platforms are emerging aggressively in these other areas. Well, the family offices are global in general, but the independent wealth platforms are growing. And we think that again is just a little behind us here in the US but we think that's a trend that's going to keep going as there's more and more infrastructure put in place to support those folks. So the regulatory piece is still difficult. I think more and more the private markets are making the regulatory pieces more similar than they're making different than versus like ucits and other things like that. But our finding is you've got to pick your spots. Like some markets are just best for us to do sub advisory business and other markets. We can go in and actually work with the private markets. We're just not at scale yet. Anywhere where we're going to be a full fledged wholesaling type of organization in any one of these countries just yet. And I'm not sure we ever really want to be, especially in the private market side. We think we could probably stick with being with a certain part of the market and be very successful.
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C
Why is that?
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It's just a people thing. We're not a build it and hope they'll come kind of firm. It's a we'll invest along the way. And getting that kind of scale when there's already firms that are fully entrenched that we're doing this 10, 15 years ago, US firms that have done this 10, 15 years ago, not to mention the local firms, it's just a harder fight to have.
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C
It's interesting you say that because I want to touch on both the structural and non structural advantages that firms can have on the distribution side. In a sense you actually have some very unique structural advantages and have almost manufactured some of your own distribution by having an insurance business as owner of the business. There's been a select set of alternative asset managers who've done the same in their own way. Apollo with Athene, KKR with Global Atlantic. I want you to talk about the element of structural advantages in distribution, manufacturing, your own distribution in some senses, and then the non structural advantage of distribution and what you can do to just out compete other firms. Both of those contexts the biggest structural.
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Advantage is, and this resonates everywhere, even more so outside the US than inside the US is that our parent company is a consumer of the same products and everything that we're bringing to market. So we like to say that we're an allocator as much as we are a manager of assets. And so the fact that our parent is side by side with our clients, in many cases subordinating themselves to our clients is a really powerful thing. Now that I'd say it's interesting, outside the US that resonates in a big way.
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Why does that resonate more outside the.
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U.S. well, I think outside the U.S. it's much more common for there to be large financial institutions dominating these markets. No matter what market you're in, there tend to be a smaller number of bigger financial institutions dominate. And so the fact that whether it's a sovereign wealth fund or whether it's a big. Well, most of those financial institutions don't have balance sheet that they use. But if they were, it's more natural, more comfortable for them versus in the US we're very dispersed and very intermediated. And because of that in the US it's not seen as much of a big need. Actually even in the US some of our partner firms have viewed that investment side by side just purely as seed capital. And they're like, well we don't really count seed in your aum. We're like, but this is not seed. This is our parent making a strategic investment. It just so happens to be side by side with your clients. They're like well that's just seed capital. We're like okay, understood, we'll move on. Outside the US they all see it as this is a powerful alignment of interests. And so I think it's just the dynamic of how those markets have evolved. The US is very dispersed. It was becoming more concentrated. The markets outside the US have always been traditionally pretty concentrated.
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C
And then when you think about non structural advantages where you just have to out compete other firms when it comes to distribution, what do you think stands out and how do you build an outperforming distribution organization?
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I think it starts with all the little things. You have to have a way that you do things first and foremost so that everybody can buy in. I think having a diverse platform that allows for you to actually be consultative and not have to have an axe to grind all times. The private markets, there's some warts to it, there's structural warts and there's actual real investment warts that you have to be concerned with. Well, that's not the only saw that we have. We actually have other solutions out there so we don't have to be tied to that. Same thing with the public markets. There's pros and cons there too. So I think the outcompeting piece is I think we have an opportunity because we can truly span and bring solutions that cut across all these things. And we don't really have just one solution per se that we can bring. We can bring multiple ones and work with the advisor. All the advisors are telling us that they want to work with less firms and it's partly for scale on their side. It's a lot of work if they have a lot of firms they're working with. So if you're one of those firms that has proven deep at scale platforms across all these things, well, you're checking boxes right off the bat that's a structural advantage that we have that allows for us to be further along than maybe some of our competitors.
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C
When I hear you say that firms want to shrink the number of asset managers that they work with and you have both public and private products, where my mind goes is, does this mean that you'll start to create almost like the Nuveen model portfolio if you haven't already, where it's like, hey, here's an entire portfolio solution you can use public and private.
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B
So we have done some of that on the public market side. I would say we have a vision for doing that on the private market side as well. And we think that there's a spot for that. I mean, we have a portfolio solutions group in our team that is that consultative advisor to advisors. So we already are there and a lot of the discussions are where do you take from to give to our PSG team did a recent study saying like, okay, if you're allocating to private markets, it's more important for your ultimate outcome where you took the money from than it is even than what you gave the money to. And that type of work and that type of thinking is just helping the advisor make those decisions. So absolutely, that is a component that we're already there. Now if we were to be truly honest with ourselves and really think that really deliver a kind of multi strategy solution commercially, we'd want it all to be our own product. If we're thinking for the advisor, we'd want to have both third party and our product in there. So there's probably a balance in between over time where firms like us can do that and do it in a credible way that would allow for us to be able to play in that space.
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C
It's fascinating to think about how advisors will start to think about things when it comes to how they'll want to think about overall portfolio construction. What you just said about where you take money from being more impactful than where you put money in, I mean, I think that just speaks to that. You can't think about private markets and distribution in a vacuum.
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B
Oh yeah, for sure, for sure. Whether it's how we create products, how do we tap into investment themes, how do we deliver it to the advisor and all the things around it. It's a big mosaic that has to be interlinked. If you're doing one and not the other, or doing two and not the other third, then yeah, you're going to leave a lot on the table and ultimately the clients are going to be dissatisfied.
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C
But what in your mind is the biggest challenge in working with the wealth channel and distributing particularly private markets products to the wealth channel.
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B
So I grew up in the SMA world, so consulting to the consultants was always what we did. But the SMA business was fairly simple, fairly straightforward. You hired a manager, you signed a contract, you put the cash in the account, and then you saw all these individual securities, whether bonds or equities, in the account. Pretty simple. When I moved over to Schwab and was dealing more with mutual funds, there was a lot of things that I just wasn't privy of, like all the rights of accumulation and all the other intricacies of the actual open end fund 40 ACT wrapper that advisors care about, how much they get paid, what's the trailer like? And all this other stuff. You take that and you go to the private market side and it's even more so. The intricacies of the wrapper are really, really intense because you have subscription documents, you got redemption periods and how it gets invested. If you're in the truly 3C7 vehicle world, you got K1s versus 1099s. And what I see is understanding the client is tantamount to be successful. First and foremost, understanding the investment theme is really also very easy for everybody to kind of get their arms around. But the actual implementation is the biggest challenge. And I would say the private markets world, especially our traditional alternative competitors over the years when they were dealing with just the institutional marketplace, they did a lot of things that were beneficial to them that weren't necessarily beneficial to the end client. And I would say the drawdown feature and the drawdown structure is not what clients are looking for.
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C
Even institutional, would you say?
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B
Yeah, I mean, well, just look what's happening for us in areas like private credit. The investors were demanding us to have a perpetually offered private credit 3C7 vehicle. It still has a drawdown feature to it. But what they're telling us was it's the same investment team and the same investment thesis. It's not really all that different from one underwriting cycle to the other. Why do I need to do a new IC and a new ddq? Just give me a perpetual vehicle and I'll just continue to keep allocating to you. As I give you money, you give me money back. And we can just keep recycling things with taking out that work. And so that's solving for what they're looking for. Now, you may not be able to do that in other vehicles like private equity or other things, but for that space, it's like, okay, so That's a simplicity factor, even worth a lot of things. Where there's been private fund sponsors have done things to use lines of credit so that they can draw on the line of credit before they call the capital to kind of maximize irr. Okay, well, so when you have an investor who says, okay, I'm going to give you a million dollars and this represents, let's call it 10% of my portfolio giving me this exposure, but yet only 30 cents is going into the ground today. I'm now not really allocated to where I want to be. And so that becomes a challenge. We had a roundtable discussion with, I think it was 15 multifamily offices and the average AUM was probably across these firms was probably about 7 billion. So all sophisticated, all successful, all allocating really big percentages to private markets. One of them told us that it was a $5 billion shop that had 200 clients. So their average account size, household size was very large. And they had a full time person. The only job was to manage the capital calls and the cash flows for these, whatever, 30 families basically across all these different investments. That's not good for the advisor. Probably not great for the client because although the returns are great, they love the returns, but the infrastructure is really.
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C
Tough and every client might have a different time horizon, different taxable, non taxable entities and all of that. And think about how hard that becomes not just to manage it, but then how do you think about allocating to the next vehicle? And if, to your point, if you had evergreen structures as new clients come in, you can add, Absolutely, absolutely.
- [33:39]
B
Right now the biggest thing that's been keeping advisors and their clients from allocating to maybe private equity, other things is there hasn't been any disbursements, there hasn't been any transactions. So it's a great vintage to be getting into the market. But either they don't have dry powder or they don't know when the dollar is going to come in or when the ones they've already committed to are going to get called. So you kind of add all those things up. It's just a lot of uncertainty. So that to me is the biggest challenge. The interesting thing is even these semi liquid vehicles that are accredited investor vehicles, I think some 40% of the investors are qualified purchasers. And so you ask the question, well, why is that? Well, for one, maybe you're not getting pure allocations to that asset category, but you're getting pretty darn close, you're getting a lot of it. There's a liquidity profile in there so that it takes some of it down, but you're getting pretty darn close. And it's so much simpler. It's immediately invested. You have a 1099, not a K1, and you can make an allocation and actually move on to the next decision, not have to revisit that decision over and over.
- [34:45]
C
So going forward, do you think that Evergreen Structures will become the main way that allocators, particularly in the Wealth Channel, access private markets? And I'm sure there are nuances between whether it's private equity, private credit, other strategies, but do you think that will become the main way and the Evergreens will almost be the core and then maybe they'll do some drawdown funds as a satellite, things like that.
- [35:11]
B
So this is our view at Nuveen. I think the industry estimates there's about $800 billion in private markets through the Wealth Channel globally. And over the next 5 to 10 years, that number is probably going to 5 to 10x from here. So anywhere from 4 trillion to 8 trillion. At the end of the time, our belief is 80% of that will be in vehicles like the wrappers that we're talking about, whether it's private or public, private BDCs, private REITs, interval funds, tender offer funds, and probably other wrappers that we haven't even thought of that still get to what you're getting. You get the liquidity you're looking for, you're getting the access to the underlying that you're looking for, and you're not necessarily subjecting yourself to all the difficulties that you get out of the traditional spots today. So that's our belief. And I think if you look back through time, at least where I grew up in the separately managed account space, the parallels are pretty amazing of how Advisor Adoption took off. It was when the platform started picking up and started developing more and more tools and making it easier for the advisors to do that kind of business. And it then has since kind of ballooned from there.
- [36:20]
C
So from that perspective, what in your mind would be the biggest unlock from either a technology perspective or a structural perspective that would enable the Wealth Channel to start really putting capital into private markets?
- [36:36]
B
Yeah, the whole sub doc process, there's definitely some firms out there today that are doing a lot of good work to actually make it simpler. And I know even outside of the big fintech firms that are the major players today, the cases and the icapitals and the subscribes are there. But even if you go one step further to the distributed ledger and blockchain technology and all those types of things you think of, it's still extremely manual today. If you could take that manual processes and I've seen things where some of the blockchain technology firms that are coming in saying they're taking what would take two weeks and getting it down to five minutes. Because it has everything to do with emails going back and forth between entities. It's similar to the portfolio management systems that were in place for whether it's big asset management companies or. Or as you can see, where the breaks are and you can go address the breaks really quickly. Right now all of those breaks in the sub doc process are, are then followed up with email and communication back and forth. If it's done more seamlessly, I think that's going to improve things dramatically.
- [37:37]
C
How far off do you think we are from that type of adoption?
- [37:41]
B
It's hard to say. The technology I think is there. It's like a lot of things of the big platforms today. Who's going to be the first one to actually say we're going to do it? If you get one of them to do it, I think a lot more of them will follow on and then the scale will be there. Then it could be applicable to the RA space much more. With the RAS today you could get one RIA to do that, but now you're talking about one of 15,000. You know, if you had one Morgan Stanley do it, then you could get scale and kind of proof of concept pretty quickly that then could be brought to other places. But without one of the big platforms doing it, I think it'll take some time. If it's done grassroots through the RA community, I think it'll take us years. If it's done by one of the big platforms and then scaled quickly across more spaces, I think it probably could be done pretty quickly.
- [38:29]
C
What excites you most about private markets.
- [38:32]
B
Going forward from an investment standpoint? I'm an investment person at heart. I've been in sales my whole life. But when I graduated college, my degree was in finance with a focus on real estate. And so I actually took classes in public policy and stuff like that. I wanted to be a real estate developer. I just happened to graduate during the middle of the SNL crisis, the savings and loan crisis, not Saturday Night Live crisis. And everybody was telling me, don't go into real estate. It's a horrible time, it's never going to come back. And so I went a different path and now have then come back to now private markets and real estate and the like. So I think the world is opening up to see there's a lot more investing possibilities if you go beyond the public market side. So my daughter just graduated from college. While she was in college, she was investing through Robinhood and things like that into cryptocurrency currencies. Her generation is way more comfortable in the private markets than mine.
- [39:23]
C
So I want to talk about that. You've seen it firsthand with your daughter. Obviously, the ability to invest in things, the click of a button and invest in more risky assets. Which is interesting too because there was a Bank of America study on high net worth individuals from the Gen Z's all the way through to boomers. And they found that the youngest cohort Gen Zs were wanted to invest into alternatives and crypto, but then also after that it was cash. So they had this really interesting psychology. Maybe it's because of when and how they've grown up. But how do you think some of those forces of recent times in either the market or technology innovation, where now people can invest in a more gamified way, in a sense more social way, what do you think that's gonna do to the way in which alternatives are sold and bought?
- [40:12]
B
So we also did some research on this. Our Advisor education group did a lot of research and it was all about the intergenerational wealth transfer. And what we found was the old trope that when the dollars go from one generation to another, it leaves to go to a new advisor and you're going to lose a lot of the assets. What we found was most of those dollars that it was going to, they want to stay with their matriarch or their patriarch or their family's advisor, but they're not being engaged. But more importantly, they're way more interested in the private markets than their parents are. And so if you're not opening up and embracing that, you're going to more likely lose those assets than keep them. So that I think is starting to kind of seep through and I think it's helping the current advisor population. But the advisor population is aging too. If you look at the AUM weighted average age of the advisor, it's in the late 60s range. But then if you go by sub channels, the big national full service brokerage firms versus the independent broker dealers versus the RA channel, it goes independent broker dealers are the oldest, then the second oldest is the national full service wires. And then a very distant third by the youngest, like almost by 15 years is the registered investment advisor channel. So I do think that this gamification Thing is not really great for investing, but if it draws people into these possibilities, then I think it's a good thing. When I talk to my daughter about it, she's like, well it's just like a casino, dad. I'm like, well I said maybe in some aspects, but if you sat at the casino for 10 years, you're going to lose all your money. But if you sat in the markets for 10 years, you're probably going to double your money and that's the difference.
- [41:53]
C
So I think that's a really important and interesting point. So the older I get too, I look at things like evergreen structures or even just draw down funds in private equity, private credit and you're like, okay, if I can get mid teens returns and compound that over 10 years, that could be a 2, possibly 3. I mean 3x. You look at some of the papers that firms have put out 10, 11% return in an evergreen structure over 10 years compounded, you're getting close to a 3x which that's really meaningful. You do that another 10 years, that's 9x pre tax. So it's interesting to think about that is a great way to over the long term invest capital and try to compound capital. Now when you juxtapose that with how younger investors think about things, they understand certain names, this could be in public markets too, right? They look at certain stocks, name stocks or meme stocks we want to call them that, they invest in those specific names, right? Do you think that younger investors will find investing in an evergreen structure or a drawdown vehicle where yes, they have exposure to something but they don't necessarily know the name, too boring.
- [42:57]
B
Especially the group that's probably from, I'd say in their late teens today to their mid-20s today, they've lived through a lot of upheaval. Even if you go into the mid-30s, you're talking about the great financial crisis and everything like that, there's been a lot of upheaval. So it's kind of understandable that they have a lot of their money in cash. But at the same time you're looking at this proliferation of creators that are out there, whether it's the social media influencers or just the proliferation of how you can learn to do things so simply and easily now via watching a YouTube video. And so I think that's what fuels the risk taking nature is that everything seems so accessible and so easier to learn about than it is today. Now I think if you put those two things together, durable safety along with, I'd say taking Risk. It's not terribly different than somebody saying I'm going to take my public markets portfolio and put it into something that is actually pretty straightforward. Maybe a direct indexing SMA that does tax loss harvesting for me as well as fixed income in there in a balanced account and then surround it with other. So I think over time just educating the market around those types of concepts will probably feel pretty normal to this next generation. Coming up than stock, bonds and cash was for my parents generation or me when I first started. So the 401k, I think it just had a 30 year anniversary or something like that. So if you think about it, that's essentially in my working lifetime is when the 401k has been around. And when I first started in the industry, most money in the 401ks was in guaranteed insured compensates, GICs or cash. And so I was taught pretty young, well listen, if you put money in the market and it compounds this is what it'll be when you retire. Who thinks about 30 years, 40 years in advance? Not many people, but now with the default options and things like that, it's much more powerful engine. So I think if an education process comes to that market in those terms and puts it into the things that really understand, I think there's a lot of room for them to be big participants in the capital markets over time.
- [45:11]
C
You mentioned another thing that's really interesting which is related to this whole conversation which was that now there's this proliferation of information, different ways you can watch a YouTube video. You said you could listen to a social media influencer for better, for worse in those cases. But, but I think that speaks to something which is people are able to get and communicate directly with an audience. How do you think about that change in the way people access information and change in media as how you think about the distribution world of private markets products?
- [45:41]
B
Well, I mean I think what you're doing here with long form podcasts and others as well I think is absolutely where messages are going to be. It's very difficult to break through the clutter. Sending an email to an advisor today is extremely, I mean it happens. But again, just like you calling an advisor on their cell phone, they're only going to take it if they know you. That is you're in their contacts, same thing in the email. They're only going to take it if they know you. So, so breaking through that and helping the message get through is you have to be creative, you have to go to new spots And I think YouTube videos, I think long form podcasts. I think all these things, even things from social media, I would say just in the last five years, probably things like LinkedIn and things like that, which were a very powerful tool to communicate and to understand what your clients are thinking and doing. We still will have that. Cause you can see what they're posting, you can see where they went to school and where they worked before and things like that. But actually as a conduit to folks I think is already diminishing and I think towards other avenues to get information. And so I think there'll be more powerful, more avenues to get your message out. But you're going to have to be very focused on where you do it.
- [46:52]
C
Well, that was not a scripted question because this is an unscripted podcast live. But it does get to, I think, something that's really important to talk about, which is how do you think about education and doing education differently in today's world, both for younger investors but also for advisors?
- [47:09]
B
Yeah, we have a whole group on our team called Advisor Education. We've actually had it as a part of Nuveen for probably since 2000. So it's been a part of our DNA. But in the 201819 timeframe we decided to really invest in it. It was using one of the catchphrases from one of our platform partners going advice beyond investing. We've invested in things and we do things around Social Security and intergenerational wealth transfers and how to market yourself so you could be more effective and productive and things like that. But for the private markets, we just did a full underwriting of the market and we found there was a lot of the what and the why, but there was very little on the how. So we're going to provide Advisor education on what private markets are and why private markets. But we're also going to spend a lot more of our time on the how. Like where do you take from to how do you use these things? Let's talk about liquidity. On your panel earlier it was discussed. Liquidity is a very expensive thing and if you spend too much expense on that, it's going to take away from other parts of your portfolio. Well, what does that mean to a mom and pop investor who's never had anything that's been illiquid? At least they didn't think it was illiquid. So really digesting what liquidity is and how much do you actually need, if you're really putting this money away for retirement or from long term, you could use that liquidity to your Advantage. And I think those are aspects of that education component that we want to spend our time on.
- [48:36]
C
So on that point, if you think about kind of across the spectrum of the wealth channel that you talk to on the client side, what do you think is the biggest question that they have on their mind about private markets?
- [48:49]
B
You got to remember, many advisors for the longest time have sold against things like opaque structures that are expensive and you can't get your money out. So if that's what you've been selling against for a long time, it's hard to then turn to your client and actually say, this is a good idea. So we just take that for what it is. And it's not terribly different than what we did in the Muni market to a great degree in that we say, okay, you were not wrong. You actually were right. But the market has changed now. And so let's just discuss how the market's changed. The wrappers that were the private REIT wrappers in the kind of early to mid 2000s and 2000s, they weren't what they were marketed as, and a lot of people got burned on them. So let's talk about what they were and why you marketed against them to what they are now and maybe why you can consider them. Because if you can go to your clients and say, hey, listen, I'm constantly on the lookout for how the market's changing and how that can benefit you. Let me just tell you how the market's changed here and why it may benefit you. And so our approach is trying to help them turn what was maybe their a defense mechanism for them in the past to how do you turn it into an offensive mechanism? The other part is, and we hear this from advisors all the time, and our platform partners say this to them, that if you're not talking to your clients about private markets, your competitors are talking to your clients about private markets. So you better be prepared to be able to have a good answer, whether it's, you know, why you should do them now or why you shouldn't. But if it's why you shouldn't and they want to do it, you got to remember, they're still the client. They make the decision. So be prepared to maybe lose clients over time. And so that's changing quite a bit.
- [50:29]
C
I think that's such an important point, which is the end client is what matters most in all of this. And obviously the space is going to keep structuring products. They're going to be thinking about all different ways to work with the wealth Channel. But ultimately, at the end of the day, and this is a theme that has threaded through your podcast as well as with Keith. It's all about the end client.
- [50:46]
B
It's all about the end client. I mean, if you think about it, if you're putting money in the equity markets and 80 or 92% of all the companies that have an EBITDA of 100 million or more are private, well, you're saying the best opportunities are only in those 8% that are actually gone through the gauntlet to be a public company. And that's where you want to win. Okay. But maybe you're leaving something on the table and you amplify that by a number of other things. I mean, the fact of the matter is there's more small business owners in the US Than there are people who work at the big corporations or any incorporated entity. So most of people are living this day in and day out. Most people know somebody or even somebody in their family that has a rental property, that they inherited a house from their parents, whatever, and they kept a rental property. That's private real estate. I think we probably, probably did ourselves a disservice in the industry by calling them alternative investments versus private markets. And that's where we try to use that language a lot more today is private market investing versus when did that shift happen? Well, for me, it happened in the last few years, just because when we were actually having these conversations with advisors and talking about alternatives, they're like, alternative to what? So it just became real that if we're going to be trying to describe these things for what they are, we should actually use that terminology versus alternative asset classes, because alternative sounds bad, sounds weird, sounds out there. Private markets is actually a description of what it is. So for us, it's been the last few years. I'm hearing it more and more now from our competitors as well, that alternative asset classes are not what we're talking about is private markets, because private equity is just another form of equity. Private debt is another form of debt. Now, the areas where you do get true diversification is private real estate and private agricultural farmland type of stuff, like real assets. So those are differentiators that really are new ingredients into a portfolio that give you the different outcome. So we just have to be cognizant of what we're actually talking about.
- [52:43]
C
I think that's such a great way to end this podcast and kind of put a bow on this entire conversation because it shows how important words are. Words really matter.
- [52:50]
B
They do. Yeah, absolutely. No, listen, I'M really impressed with everything you're doing here. I'm a listener, so I mean, longtime listener, first time caller kind of thing. So I really appreciate you coming to our event here and participating as well as doing this as well.
- [53:05]
C
No, thanks for having me. And thanks for all the work you're doing in private markets, not just on the product innovation side, but on the education side as well, which is so important.
- [53:11]
B
Absolutely. Anytime.
- [53:13]
C
Thanks, Jeff. This was great.
- [53:14]
B
Absolutely. Thank you.
- [53:17]
C
Thanks for listening to this episode of Alt Goes Mainstream. I hope you enjoyed it.
- [53:21]
A
You can read more about Alts at.
- [53:22]
C
My substack altgoes mainstream.substack.com Thanks a lot and have a great day.