B (3:19)

On one side of the coin you have NEPC which has advised the very leading endowments, pension funds, foundations, very large family offices and on the other end you have Hightower that's been advising high net worth, ultra high net worth. If you're building a portfolio for these two different customers, how does that differ and should it differ? Should you have a different portfolio as a high net worth individual versus say endowment?

A (3:46)

So, so I would say they're, they're slightly different animals. The, the high net worth individual vers the institutional investor. Part of that has to do with their, their liquidity structure. Meaning that a large pension fund or endowment very often have many years ahead or a long Runway for an investment and they have the freedom to invest, you know, with 5, 10, if not 20 year investment horizons where the high net worth investor not only do they often have more requirement for liquidity but, but they also need to really understand and be able to touch feel their portfolio. And just to give you an example, today the average endowment, the average university endowment has more than 50% allocated to private markets. The average billionaire have more than 50%, the average pension approximately 25%. But that said, there's a huge gap because the average individual investor or high net worth investor has less than 5%. So we've really been working to close that gap through education, through research. But I still think that the way we approach wealth management is still quite different than the way institutional pension fund would look at it. Where our clients need to understand and need to have that feeling, you know, they feel the portfolio. You know, we look at private markets and obviously I oversee private markets on the Investment Solutions team which is led by Stephanie Link at Hightower and she's on, she's a paid contributor on CNBC on a weekly basis. But you know, our effort is, you know, we have public markets and then we look at private markets as simply complementing those public markets. So the average investor, when they're, you know, invested in, let's say Nvidia or the main you know, certain technology companies, Palo Alto Networks and others, they can understand what those companies do. They have, they have to a certain degree all that research that's available publicly on their iPhones, but also from our team here at Hightower. But then add to that the private markets which should complement and provide them with access to investments that are typically not available in the public markets. I mean, just as a, as a framework, and I'm going off on a tangent, but I just want to frame it, you know, public markets. When you look at all the companies in the United States today that generate more than $100 million in, in revenues, 91% of those companies are still private. I mean that's crazy number. So only 9% are public. So those 9% that are public, we have research, we have information that's available about them. But the 90% that are private really are this, this, this opportunity to, to generate real revenue and investment returns or risk adjusted returns by investing in private markets. So you know, pension funds are much more used to now. The institutional investors have been well educated over the past 20 or 30 years on private markets investing. That's why they have a higher allocation. But the individual investors are less exposed. They have less than 5%, mainly because a few years ago a lot of products that are available today for them to gain access were not available. So there have been huge evolution or change in technology which has made it more accessible. But most importantly, new products that have been developed by some of the leading private equity firms and other asset management firms that now enable what I refer to as the democratization and miniaturization of private markets. Where historically, just to give you an idea there very famous private equity firms, growth managers, the minimum investment size used to be $25 million. That's way above the threshold for the average investor. And today, thanks to more flexibility on regulation and new products that have developed those investments, can the same investment access can be acquired for high net worth investors for investments as small as $10,000. So that's, that's really exciting and I think that's a big benefit that we're going to be leveraging both with the acquisition of any PC, but most importantly with also this increased focus within Hightower and our wealth management firms on including and adding private markets to the, the model portfolios that we have said.

B (7:58)

Another way, at the very maximum you wouldn't want to put more than two and a half percent of your net worth into any one manager. That'd be at the very high end. So at 25 million you need A billion dollars in net worth to write that kind of check without going over your skis. And now with 10,000, now you know you need half a million or a couple million dollars.

A (8:16)

So David, I'm already evaluating you as a potential client and you clearly have the right approach for investments. I will argue and unfortunately not all of our clients are as well versed as you are and your listeners in the sense that we still have a lot of investors who are much more concentrated, much more focused on putting a lot of their money in individual stocks or higher allocations where I actually applaud. Take the similar approach that you just suggested, which is proper diversification not only on the public portfolio, but most importantly on the private market side. We also like to be well diversified across both managers and positions.

B (8:56)

On one side you have an endowment that might be 50% in alternatives, mostly private assets. And you have an individual that mostly is under 5%, an individual high net worth investor. Let's define them as having 5, $20 million net worth. What percentage of their money should be in private assets?

A (9:16)

Oh wait, I need to pull out my calculator now because now you're giving me actual numbers that I'll have to evaluate and calculate off the, off the cuff. No kidding aside. So we approach this and again this is one of the benefits of Hightower's ecosystem where you know, we own these 100 plus private wealth management firms. Each client is different. Each client is different because it depends where they are in their, in their, in their multi generational wealth, where they are with their liquidity, where they are with their age demographic. You know, a 26 year old who just had an exit from a Silicon Valley based software company might have a very different view on how they want to invest and allocate more to private markets than to a certain degree a 70 or 80 year old gentleman who really has a history of investing with GE and or more traditional stocks. So there's a lot of education involved and there's a lot of hand holding and most importantly, you know, making sure that our wealth managers know their client and do what's best for the client. So with that caveat that there's this wide spectrum of, of, of client type, you know, we really look at it as conservative, balanced and growth. So just as similar as you look at a traditional public portfolio. In the same way, where is the client depending on where they are in their age and what they want to do with their earnings and how much if they want to be more income generating versus growth and have the patience and the risk appetite for significant growth. Meaning traditionally people have talked about a 60, 40 portfolio. So 60% allocated to equities, 40% into fixed income. That would be a growth portfolio, at least at Hightower, or in some cases defined as aggressive. And we'd apply the same doctrine to the private markets piece. So let's say conservative approach would be having a, a 10% allocation to private markets. Balanced would be a 20% allocation to private markets. And then 30% allocation to private markets would be considered to be growthy. And then within each one of those allocations, conservative would be basically almost a 2080 portfolio. So 20%, if you're looking for a conservative approach to private markets, 20% as an example would be in private equity, venture capital and secondary private equity. And then the remaining 80% would be allocated across both real estate and private credit to generate income. You know, whether it be owning multifamily homes, certain public storage or single family rental facilities, and then private credit owning, you know, income and, and lending, or acting as a bank almost within this private fund. So 2080, let's say on the conservative side, balanced, it's 50, 50, so you'd have to a certain degree, 50% allocated to a combination of private equity venture and secondary private equity. And then the remaining 50%, let's say 25, 25 would be real estate and, and, and, and credit. And then on a growth side it would be 60, 40. So 60% now allocated to those different private equity or equity like investments on the private side. And then the remaining 40%, 2020. So 20 in real estate and 20 in private credit. So that's really how we approach it. And once you take that notion, it's funny, we were talking to a large private equity firm recently that everyone's trying to figure out how to approach high net worth in a rational, thoughtful way. And we were really excited because we've been struggling with this, I'd say, over the past several years on how best to handle asset allocation within the private markets bucket. And to quote this private equity manager, my colleague Frank Cordio and I, he literally, they literally said, you guys have cracked the code and Hightower has figured out how to present and allocate. Then we went through all the, the historical research on a, on an, on a 16 year basis on how those returns would translate with those type of allocations. And pretty much in all cases, in all cases, it generates better risk adjusted returns with all of those allocations compared to a traditional 60, 40 or 40, 60 public portfolio. Boy, that's a lot to Download David I hope that wasn't too much, but that'll give you an idea of kind of how we approach really just conservative balanced growth.

B (13:35)

I have a very paradoxical belief in the virtue of illiquidity and that illiquidity can be very useful in just the right times during market downturns, can keep people from committing unforced errors like liquidating at the bottom of markets. What do you think about this? And could illiquidity a feature interesting take.

A (13:58)

And I love the fact that you take that approach. So I've lived through, I've been doing this for 35 years. And historically, before really there was significant investments in private equity, everyone was investing in hedge funds. And I come from a very liquid background. I come from a trading and global equity derivative background where my mantra was always liquidity, liquidity, liquidity. And my frustration at times in the 1990s and most importantly during the global financial crisis was I was always acutely aware and our clients were always acutely aware of the illiquidity of private markets. Yet many clients would get very frustrated and angered when they would have, let's say, a suspension of redemptions, meaning that when they look to actually exit, the manager would be like, hey, you know, this would have a negative impact on not only your investment, but all the remaining investors in the fund and it's probably not prudent to sell. And what's interesting is that's actually a very fair argument because the same argument is true for your own personal house. Most Americans, at least on the high net worth side, own their home. And clearly, just because there's a bit of a, you know, either noise or some sort of a economic downturn, everyone should not rush to liquidate their home because your home price would drop almost instantly, especially if it's a for sale. And you can see it today with, you know, divorce and other effects that occur in a marriage that will often have a negative on your negative result on your pricing. So the same is true for private markets. And what we've now discovered to close out in my agreement with your position on liquidity is that investors have become much more aware of illiquidity, much more understanding and much better educated. And I really applaud our wealth management teams within Hightower have done a great job at just educating clients to understand the importance how illiquidity can be your friend in market downturns. But at the same time, only if your clients are well informed and understand what they own. And the fact that just because it's a short term blip by simply holding on to the investment, you know, keeping your wits about you, ultimately will rebound the same. This has happened both in the global financial crisis. This was true most recently during the pandemic in 2022, where there were moments, or actually, no, excuse me, in 2020, at the beginning of the pandemic, where there are moments where private credit funds had a significant mark to market change in March of 2020 and subsequently rebounded almost immediately. So anyone who would have sold at that time had a significant impact or loss where those that held on actually benefited in that thing. And I'll just give one last anecdote, which is my late father who passed away, Kurt Picard, who had a bit of a German accent, he was a great example of what not to do with markets. And he was an example where whenever he would call me and say Arab at this time I think I need to sell the market. I could literally call my brothers and my, I literally reach out to my colleagues and say guys, time to buy the market. Because he was always either the top tick or the bottom tick on the market and was always on the wrong side. And unfortunately now he's passed away. So I've lost my best indicator for when to buy and when to sell. But that's exactly very true. I think liquidity is something to be understood and the best thing we can do is to simply educate clients to understand what they own. And the fact that keep, you know, being patient, often you're rewarded for that patience.

B (17:34)

I had the CIO of CalSTRS, Scott Chan on the podcast and they had a best idea comptes within CalSTRS and the idea that one best idea is how to prepare for the next downturn. Essentially this war games of the market's down 20%. What do we do? What's our step by step playbook? And they created this playbook in CalSTRS. This is ahead of the 2022 and they executed the playbook and they had great returns. So they not only realized the value of that playbook, but they were able to have this prepared mind to do this market sell off a well known institutional investor that'll go nameless. He said the number one thing you could do in a market downturn is to cancel your ic. That is the one degree of freedom you could do to preserve your, to preserve your, to keep from exasperating your losses. Because you go to that ic, you have that one person on your eight person IC that yells fire. Nobody stands up to them. And then you end up making the wrong decision. So that's probably the most extreme action but potentially a very good action to take if, if faced with that and, and if your organization is not well prepared for, for the downturn.

A (18:37)

It's really interesting because you bring up a whole point of, you know, we're not perfect meaning investment, investment managers and anyone, you know, traders, whether it be day traders, long term investors and others, you know, we only know our most recent history and, or the, our own, our own real life experience. And, and I think what's, what I found fascinating is we spend a lot of time focusing on not only what can go wrong, but what will go right and how do we get there like from a long term perspective. And I'm half Swiss, I was in the Swiss military, very process driven in the way we operate. And the Swiss would be building tunnels through the mountains that go on for 20 or 30 years. And I kind of look at doing the same thing on the investment side which is how do we position the portfolio in a way that it's robust, that it'll be able to survive. Like look at all the risks that could happen currently, whether it be war, recent war in the Middle east, whether it be US currency devaluation and, or loss of US dollar supremacy. We're trying to always focus on what are the different elements that can impact our portfolio and how do we position that portfolio not only for those impacts, but most importantly, regardless of what may happen that we're, we're basically on riding a wave within that portfolio that will generate revenue for years to come. And for instance, we've been investors in cybersecurity now for a number of years, both on the public side with Stephanie Link, where she owns Palo Alto Networks. We've been invested in a cybersecurity fund that recently had one of our portfolio companies taken out by Palo Alto. So it was very beneficial to our investors. But you know, we really look at areas where we know for the next 10 years there's going to be significant investment in that space required by, at the board level, it's a fiduciary for every US corporation to have someone reviewing and managing the cybersecurity risk. And that's one area where we've rode that wave. Probably a year before certain well known private equity firms decided that was their top theme. In 2024 we were already investing in 2023 and that's in that, in that, in that concept. Same with AI though we are getting at times concerned with the growth and the expansion of AI but it's Extraordinary. And I think it's extremely disruptive in the sense that, you know. And we'll probably talk briefly about the transformational moment, both on the wealth management side, financial technology, but also the transformational moment in the way we operate as businesses due to artificial intelligence and to a certain degree, healthcare. So those transformational, transformational moments are really what we worry about and we spend a lot of time thinking about to make sure that we basically planted seeds that reward us for those moments. And I think Stefan Meister from Partners Group, I don't know if you had him on your show, but he has a brilliant discussion about sort of the history of finance and he talks about the period of time when we went through industrialization service economy. And then he talks about sort of the Internet 1.0 from 1990, which is a 25 year cycle, and went on to mobile and now we're entering into this artificial intelligence cycle which is a 10 year cycle. And we're probably in the second or third inning of that 10 year cycle. And right now is the time we have to be planting seeds to basically leverage and reap the rewards just a few years from now. And it's exciting though at times concerning because I was playing with an app called Lovable earlier this year in March, and I created five websites watching it code. It was a bit like War Games in the States, the movie War Games with Matthew Broderick, lovable, basically created five websites for me in about a period of 20 minutes. And I went to bed, I couldn't sleep that night. I was so upset. And I was upset because my brain couldn't process the transformational change that's occurring not only in our economy but in everything we do as investors. Because we're investing in companies that are going to be impacted by this change. We're investing in people that are going to be impacted by this change. And it's hard for myself even to comprehend the enormity of this change that's coming. So just one of the changes on that happy note, I'll turn back to you, but I just wanted to share that position.

B (23:06)

On that Note, we're in 2025. In 2030. 2035. What do you think your role will be as an asset manager? What's going to be streamlined? What's going to stay the same? What's going to evolve? And what does the future of asset management look like?

A (23:21)

Great question. And break out the violins. I'll probably be disrupted, meaning that my role today, my value add, and I've built my career always trying to add value, whether it be in global economic derivatives, volatility, convertible bond trading, structured products and investment management. How do we add value? I want to always be in a situation where a computer can't do what I'm doing. And one of the benefits of those 90, 91% of companies that are still privately owned is there's really very limited research on them. And you know, you need seasoned professionals such as myself and several others in the industry to evaluate what the best investments are for for our clients. The reality of AI and the reality of the information that's coming and the volume of information is that I will be disrupted in my role as a research analyst and as someone who diligences funds because the information will be much more readily available in the future. It'll be readily available most likely in a website or in a app format. And I'll give you example.

B (24:26)

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A (25:24)

One of those I talked about lovable a second ago. One of the One of the specs I gave was I basically created that night in five minutes I said the specifications I said is I basically just defined my role as a private markets investor. I said please create a website that will provide research on individual fund investments all around the world in private credit, private real estate and private equity. Provide investment memos using publicly available information from the SEC and other platforms and make this website compatible with U.S. securities law for a credit investor, qualified client and qualified purchaser thresholds. So that was the specs I gave.

B (26:10)

Right?

A (26:10)

And there's a lot of information there. This thing in five minutes starts coding and in five minutes it delivered a dummy platform that provided all of what I just described Obviously it didn't have all 5 or 10,000 fund investment opportunities that are out there and it didn't necessarily have in person evaluation of those, but it actually provided really good investment memos with basic characteristics, basic descriptions and basic, you know, different than Cloud and Claude and a number of other systems. And it was quite upsetting. And that's one of the, another reason why I didn't sleep that night is because I will be disrupted. So that's one answer which is I think I'll be disrupted at least my role. That's what the second one is. I believe the market capitalization of private markets due to the fact that it's only now we're in the early innings of it being embraced by the average investor. We're at 12 to 13 trillion dollars, let's say based on the most recent evaluation of market capitalization for private markets, that's going to grow over the next six to eight years to 30 to 35 trillion dollars. Bain Capital says north of 50 trillion. Some of our fund managers think it's going to be 80 trillion. So I, I think there is a significant bifurcation and transformation occurring on the investment side where many wealth management firms, one of the reasons you join Hightower is to get access to the private markets information. But wealth management firms, banks, insurance companies, pensions and others are going to be building much more significant efforts and platforms. Some of the well known platforms that are out there today that are well capitalized will also be solving for that solution of providing the miniaturization democracy, making these solutions for private markets available to investors with that growth. Whether that disrupts me or not, I hope not, but I give myself another five or 10 years.

B (28:05)

So to summarize your position, you're going to be an unemployed person on your own private island with a, with a.

A (28:12)

10X portfolio based on what's been, what's been in the news lately. I'm not sure I even want a private island and, or be associated with a private island. But that said, no kidding aside, I will be very proud of what's been built and continues to be built not only at Hightower, but what we've been involved with on behalf of our clients because it's so much fun. I mean David, it's, and you know, because, well, you're meeting with me today but this show is so well regarded and you have some of the highest caliber investors in the world on your show and you see firsthand the excitement that we have and how much fun it is for us to evaluate and learn about New, new technologies. I'll give you one example, life sciences. I met with a life sciences manager the other day. This manager told me point blank, you know Picard, if you live for another five years, if you're healthy for the next five years, you're going to live 91% chance you live to 100 years old. And this person actually is not a Charlotte. He's not a con man, he's not a snake oil salesman. He's a legitimate business builder, he's a founder, he's founded four or five different biotechnology firms. And it's really exciting now that will have an impact on, for instance, life settlements business where they have to evaluate what the average age or what are. Well, without going into the morbid elements of life settlements. But it has impacts, but it's exciting because we're learning all these new. I've got a front row seat to some of the best minds and the best investment opportunities out there.

B (29:38)

I think investing, especially in a seat like yours, is one of the most interesting. It's an infinite game. So the thought experiment, I like to say is right now we're on a podcast. The cameras, the computers behind you are closed. They're all different asset classes. Different people produce these things and there's millions of different asset classes, different geographies, different supply chains. If you were theoretically today to go and learn all these millions of different kind of industries and businesses, that would probably take millions of years without AI. But even if you were to do that tomorrow morning, that would completely change. New tariffs. Some tariffs go through the Supreme Court, some do not. A new competitor goes into the, to the garment industry, to the computer industry. Chips go up in price. It's literally an impossible game to master. And it's one of the reasons I love playing this game is because it's always, it always keeps you on your feet.

A (30:33)

Yeah, and hopefully it will keep me at least employed a little longer before I get disrupted by the. By AI and other, other solutions.

B (30:42)

So from one disruption to another disruption. Ten, 20 years ago, when you had this exit, you sold your company for $50 million in Silicon Valley, 26 year old that you mentioned you would go to JP Morgan, Goldman Sachs, UBS, et cetera. And that was what everyone did, or most people did unless they sold for a billion dollars, they started their own family office. Today you're riding this wave of the independent wealth manager. To the tune of this wave is trillions of dollars. How is it that your advisors are able to compete head to head against.

A (31:15)

The large wirehouses, one of the reasons Hightower exists today is because those wirehouses have historically been forced for regulatory reasons to centralize their investment efforts in one location. So there's consistency of allocation and investment across the entire firm. Now if you're dealing with thousands and thousands of clients who are high net worth, who are investing millions and millions of dollars, that excludes already the wirehouses from investing in many of the smaller funds. Any fund that's below a billion dollars to a certain degree is off limits for many of the wirehouses because they can't in a fair, from a fair perspective, offer that solution to all their clients. So they're actually left with a, a dwindling or a smaller pool of private market managers to allocate money to. And that's actually one of the reasons why a majority of the assets, both on the institutional, meaning pension fund and wirehouse side, are often allocated to a few select fund managers who have simply become much larger, much faster than others. So you have this huge disconnect where there's a select few well known private equity, private credit and private real estate firms that now manage hundreds of billions of dollars in some cases. And then you have now a huge growing population of smaller funds that are below a billion dollars, below 500 million, even below $100 million, that have some excellent money managers and the opportunity to invest in much smaller firms which are, I would almost argue, as a different pool of alpha from the large players who can only invest in large deals. So to a certain degree, the wirehouse is almost at a disadvantage because of their size. And what we're seeing now are all these smaller RIAs or smaller wealth managers with relationships and contacts, knowing their clients can often access or invest in smaller private equity, private credit and private real estate firms that often are, if anything, more profitable often than these larger firms. That's one differentiating factor. The other factor, there's another trend that's occurring, are very wealthy families, very successful families. But one example would be, let's say Zuckerberg, Mark Zuckerberg and a number of others have created and participated, creating their own wealth management firm where they look at it as okay, we've got all this money, rather than giving it to a wirehouse, why don't we pool our assets, hire the best investors in the world and have them not only manage our money, but then open up our, our, our firm to third party managers so we can actually cover those costs that we hired, but also invest almost as a club, or invest alongside each other and bring other clients on to and make this business Profitable and that's happening. More and more families are doing it. And we've seen some of the most successful firms recently the Bezos family have. Mark Bezos has set up his own fund called High Post, a number of others where they're doing this and that's another competitor to the wirehouses. And why they're different is because they're obviously smaller in size. They don't necessarily have the same centralized or the, the same requirements or regulatory oversight that a large wirehouse would have, but they also have a network of, a direct network of sourcing of ideas and information that is not typically available to the average private markets allocator that the wirehouses may be employing. So it's just a very different, the ecosystem is evolving very quickly. And I'd like to argue that one of the benefits and one of the main advantages, one of the reasons I joined Hightower as a firm is because we actually have the best of both worlds where we're first of all smaller. With $300 billion under management, we're smaller than the average wirehouse. So we can invest in funds, we can invest in 20, $30 billion fund managers, but we can also invest in a $250 million or $300 million firm and still offer that on a fair allocation to all of our advisor practices. But we also have direct relationships with not only our advisor practices, those hundred plus wealth management firms that are located in 34 different states around the country, whether it be Seattle, San Francisco, Los Angeles, San Diego and elsewhere. But we also have relations with their clients. So one of their clients is like, oh, I'm best friends with Peter Thiel. He has a fund that I'd like to invest with. That's a relationship that we can leverage to then gain access. And we actually recently anchored investments with individuals such as Peter Thiel, individuals such as David Rubenstein from Carlyle, where we've simply anchored and been co investors alongside them in different transactions. And that's really where we have the benefit of cross pollination and the best of both worlds. You know, individual white glove relationships with high net worth, often founders of companies and their clients, and then also this centralized national group such as Hightower with value added services such as NEPC technology, cybersecurity controls, compliance and legal that allows those companies to operate in a very efficient way under the same banner. So that that's really where I think we compete pretty aggressively. It's sort of a sweet spot for us.

B (36:28)

Said another way, because of all this education in the space, including my podcast, people are Listening and getting smarter and they realize they don't want KKR Fund 17. And when you are one of these large wirehouses and you're centralizing everything, you have to write checks of 500 million to a billion which, and you can't be a certain size of the funds so you have to go towards the mega funds. And although they have the brands and no one gets fired for investing in kkr, those aren't necessarily where, where the best returns are.

A (36:59)

Well, first of all, I'm on, I'm on one of the advisory boards with KKR on their RA advisory board. So I'm not going to besmirch KKR actually, by the way, KKR and we.

B (37:07)

I'm talking specifically about KKR Fund 17. Nothing against KKR 1.

A (37:11)

No, no, no, I got it. No, no, but it's, it's funny because we actually look at it as large cap, small cap. And one of the things, and I don't know if any other of your guests have talked about this, but not only do we invest and offer solutions in each asset class, private equity, private credit and private real estate for both Evergreen Solutions, often for accredited investors, which allow for much smaller investments on a periodic basis, but also obviously qualified purchaser drawdown structures for larger clients, but we also take a large cap, small cap approach. So for every large KKR type investment will often marry that with a smaller cap 200 or 500 million dollar fund similar to what you do with an equity, an equity portfolio. And by the way, for anyone who's interested and you should get. I don't know if Pete Stavros has been a guest, but Pete Stavros runs the private equity buyout effort at KKR, one of the funds and he has a YouTube video. He was featured on 60 Minutes recently and it's an absolute tearjerker. It's one of the best videos I've ever seen describing in a positive light the role of private equity in today's economy. And it's basically, it's great. It's a tearjerker. It's a five minute video. I recommend to all of your listeners to listen to it. Pete Stavros talks about this event, this investment they made in a garage door maker and how it changed everyone's lives at the firm and at all the employees as equity owners. So really a great story. And so that's just closing out the kkr.

B (38:34)

And also just to give credit to KKR and the Apollo Hollow today, 95% of quote unquote retail money, which is really $5 million plus net worth money is going into these five firms. So they're paving the way for retail. And some would argue, as I would, that if you want to get high net worth people to invest into alternatives, you start by giving them brand names, getting them comfortable around the product. They never lose money. They could get exposure to alternatives and then over time you bring in the specialists, the lower cap, the funds that could go 5, 10x, the more exotic stuff. So I do think there's an evolution there. One of my questions is around this issue, which is in five to 10 years, do you still see kind of high net worth focusing in the retail channel, focusing on these five names or are they going to be more diversified? And if so, what are some of those confluence of factors that's going to kind of diversify away from these five big names that are taking today 95% of retail capital?

A (39:32)

That's a great question. And this is where I would do a little bit of a pivot or a shuffle, I don't know. I think they'll continue to dominate and be very important both on creating new products, evolving technology, but I think it's going to widen out. I think it's going to mirror the public markets, meaning you'll have these large players who will continue to be large players because they play an incredibly important role within our, our economy and ecosystem. But I think that you'll just have much more efficiency and much more availability of research and information about smaller funds which will invariably grow more. And I think that's one of the reasons why you're seeing this increased interest in GP ownership or companies buying or investing minority stakes or in some cases majority stakes in some of these private markets fund investors, because it's an opportunity. There's going to be significant growth for years to come. It's a growing area and it's a way to add value, to not only participate in generating returns from the actual investments themselves, but also participate in the revenues generated from the growth of private markets in general. And that's not just limited to the larger managers, some of which we've discussed earlier, but also I think even the smaller managers are going to see a significant change. And very often I think you're going to see, as we already saw recently, where some of the wirehouses, some of the firms are going to be, there's going to be more and more consolidation where they're going to group together, similar to what Hightower has done on the wealth management side. I think the same will occur on the investment side. I think just the other day, this past week, a very large family, historically it was a family office out of Dallas, was just acquired by another larger private credit manager or had a strategic investment made. And I think we're going to see more and more of that happening, which is exciting. I think it's a natural. One of the reasons I love the US economy and have historically loved it, even though I started my career in the Euro markets, is the US economy is so not flexible, but it adapts very quickly and adjusts very quickly and there's constant movement. And often that's why the US has remained and historically been a leader for both on the, on Silicon Valley, but also I think in the financial industry.

B (41:53)

If I had to guess, I think it probably follow most markets. So you have these five players today. Mark Rowan has dedicated a billion dollars in capex into retail. So he's investing a billion dollars to get retail and to get into Apollo. I think you'll get these five players. I think that market share over time will go down from 95% maybe to 50% and will, you know, settle somewhere between 25 and 75%. That's a big range. Probably something like that. And then over time there's going to be more tools. So everything that Apollo is doing today will become productized and will be offered to many more managers and it'll become more accessible and then you'll see kind of a smoothing out more of market share.

A (42:37)

I agree. And it'll be interesting to see because look, we still have, even on the banking side, we're seeing the banks just getting larger to a certain degree. I was interested to see Citibank recently outsourcing some of their wealth management to BlackRock, which I thought was fascinating and interesting. But you know, there's these, these, these developments that are occurring constantly. I think the same will occur on the private market side more and more.

B (43:03)

You mentioned it earlier. You've been in this industry for 35 years. What has changed and what has remained the same over 35 years?

A (43:12)

The change is, is technology. The amount of technology, the amount of information we have today. I remember we used to have to, you know, use phone, you know, pick up the phone or do a telex or a fax to send out orders. Back in the 80s and 90s and today, you know, what we have available. I mean, it's like the Jetsons, which dates me again, for those who don't know the cartoon from the 1960s and 70s, the fact that we have on our iPhone so much information available. One of the big changes for instance, we now, when we present and go through compliance for getting information about fund managers to our clients, historically we'd send them the marketing deck. It used to be by FedEx, now it's by email you send the marketing deck, but now you send an executive summary and now you can send videos with them. So clients can just click on the video and meet the manager and learn very, very quickly. And it's, it's funny, I was talking with John diamond from, from Dial Blue Owl recently and he used to have a company called vencast back in 1990 that unfortunately didn't deal well with broadband or didn't have the bandwidth needed to actually show videos. But he actually had that same strategy back in 1990, in 2000. I mean, and I think that's what we're seeing is the evolution of technology. The speed of technology, the speed of change, the transparency is increased, the awareness of liquidity. But most importantly, I just see this democratization even at the level of private credit, where historically lending was done by community banks and banks or commercial banks, today now we as investors, we have the technology and the solutions where we can invest in fund fund companies or fund managers who basically our money becomes part of the bank and we're now lending, we can invest in a fund that lends to subprime borrowers or high net worth borrowers to go buy boats or buy cars or buy homes or whatever. And we basically generate or earn return on that or return or earn the income. So there's, there's these moments that are just really exciting and that's the biggest change, I think is just technology information and having it at your hands, fingertips instantly. And with AI, I mean, we were just talking recently about, you know, we have a knowledge base within Hightower where you know, Q and A about, you know, things you need to know, questions about what you need to know about private markets. And to a certain degree today we could just literally insert a GUI or a graphic user interface into ChatGPT to ask any question. Because whatever question they ask about, you know, what's a drawdown structure, what's a qualified purchaser will immediately spit it out versus us putting together a PDF with all those questions. I mean, it's just, it's crazy how much quicker we can, you know, we are on zoom calls where we're getting notes summarized where historically we had two or three people. Like I sit in meetings sometimes to this day. I was in a meeting yesterday on a zoom. I shall not talk about who I had the meeting with, but they had four people taking notes on their computers, like typing and, and scribbling. I'm like, why are you taking notes? Like what in the world? I mean, I get it that maybe that helps you listen, but that can all be automatically transcribed and summarized and you can get clear notes. You can actually listen and really do what you're supposed to do, which is evaluate the investment and be present versus just taking notes non stop. So it's just funny to see how the world has changed. Sorry, long winded answer. But those are the main, the main changes.

B (46:35)

So today you're head of alternatives at Hightower. You have over 320 billion, almost a third of a trillion dollars. What is the recent mistake that you made that you no longer do?

A (46:48)

Listen, I make, David. I make a lot of mistakes. Please don't, don't tell anyone. No kidding aside, I think the largest mistake that I fault myself is when I joined Hightower. It was one of the reasons I joined is because it was a bit like a puzzle. We own 100 plus wealth management practices or advisor practices, many of which were investing or had significant investments in private markets across multiple platforms, in feeder funds, direct investments across a number of platforms such as Case I Capital, PB Conway, many others. And it became clear to me that we needed to centralize or have a technology solution that would allow us to manage, oversee and most importantly, provide a much improved user experience for those teams. Because teams would call me all day long like, where can I find this fund? Where's this fund? What's my list? Where can I select from what's available? And I basically designed a system or a platform called the Private Markets Exchange, the pmx. I'm going to get to where I went wrong. So I designed this PMX and it would basically allow all of our teams to have straight through processing. The experience investing in private markets is really not that enjoyable because you have to fill out subscription documents. There's kyc, Anti Money Laundering, a lot of dozens of pages, if not hundreds of pages of documents. And then you get approved or not approved, then it gets kicked back. You have to go through this process. Very, very tedious. And then the tax reporting, the reporting mechanism, very, very difficult and challenging. So we created straight through processing. So from our salesforce system, straight through populates subscription documents, immediately goes through compliance, approved, not approved, goes then to the administrator, to the fund manager, approved, not approved. It typically gets approved and then goes to our reporting engines automatically. So rather than having 40 or 50 separate back offices, we've got one centralized solution. Now the Reason I'm bringing this up as a mistake. This was a great architecture and my mistake was I. This required work within Hightower of convincing leadership, our legal team, our compliance team, our risk management team, our operations team, and our wealth managers. And the mistake I made was I was too gentle, meaning I didn't, I didn't communicate with enough conviction how great this would be. And for a number of reasons. I was the new guy on the block at Hightower. They didn't really know my background. They didn't know and I think they've had bad experiences where they might have had been burned with, with solutions like this in the past. So there's a lot of hesitancy and I just didn't push hard enough. And I think my big regret is I should have just basically been much more aggressive. But again, the problem with being aggressive in a, in a, in a corporate world is sometimes that could be off putting and you really want it to be very collegial and, and work, do it in a more gentle fashion. So I actually went very gentle, took time and probably could have done it a year earlier. The good news though is we are close to production. It's expected to be launched early next year and really excited about it. But I do kick myself as I should have been much more aggressive with my messaging. And that was just me being, wanting to be loved and making sure I didn't make enough waves, let's put it that way. I didn't want to make waves. I wanted to be very conciliatory and collegial in the way I approached it and ultimately resulted in a good result. We are going to be launching, but I could have done faster. So that's my big, big frustration.

B (50:31)

There's a lot of listeners that are just starting their career or 10, 20 years in. You've been in your career for, for 35 years. What is one piece of advice that you'd give yourself as a young Robert, just going in 35 years ago that this timeless advice that would benefit the audience.

A (50:46)

The main advice I would say is be curious, keep listening, don't be afraid to trust your instincts like you know best Wisdom grows from really, really humility. And I think that's really important. That's one. The second one would be maintain your network. I was recently at a, at a learning experience at Wharton and they started explaining to us, you know, your, how important it is to maintain your network. So your network of camp friends, your network of college friends, your network of professional friends and keep in touch with that network and that is so important. Now obviously it gets difficult because you get to the hundreds, if not thousands of contacts and you really have to decide who you want to spend time, spend time connecting with that. But I think that's really important. Now obviously with LinkedIn and other solutions, you can be in contact much quicker, but I think maintain your network. And the last piece, the best piece of advice that I've learned has taken me 30 years to get there is have fun, make it fun. Make, have fun with your team. And if people are cranky, make it fun. Like just, just, just figure out a way to, to make it real. Whether it be getting tacos, whether it be doing fantasy football, whether it be playing bad boys in the morning after fantasy football draft because you, you drafted, you and your colleague drafted two suspended players and we're now the bad boys of our league. Just make it fun and make it interesting. So that's my, that would be my advice.

B (52:10)

Well, if the most effective person human on the planet is playing Diablo a couple hours a day, I think there's something to that. What would you like our listeners to know about you, about Hightower? Anything else you'd like to share?

A (52:21)

I would, I would just emphasize that it, we are, we are right now entering into a moment of incredible transformation. And you absolutely must think about not only your own career within that transformation, but most importantly, where you're placing your bets in your investment portfolio to take advantage and make sure that you're on the right track and riding the right wave within that transformative moment. Because it's coming and it's coming fast, much faster than we expect.

B (52:56)

Well, it was my first interview in our new studio and there are two seats here. So look forward to continuing this conversation. Having you back on very soon.

A (53:05)

David, thank you so much for having me. Really appreciate it.

B (53:07)

Thank you, Robert. Thanks for listening to my conversation. If you enjoyed this episode, please share with a friend. This Helps Us Grow. Also provides the very best feedback when we review the episode's analytics. Thank you for your support.