Podcast Summary: LifeBlood Episode 2096 – "Accessing Alternative Investments with Bob Elliott"
Release Date: December 14, 2023
Host: LifeBlood
Guest: Bob Elliott, CEO and CIO of Unlimited Funds
Introduction
In Episode 2096 of LifeBlood, host LifeBlood welcomes Bob Elliott, the CEO and CIO of Unlimited Funds, a pioneering organization aiming to democratize access to alternative investments. Bob brings a wealth of experience from his tenure at Bridgewater Associates, the world's largest hedge fund, and is recognized as a macro investing expert. The conversation delves into the challenges of traditional investment fee structures and how Unlimited Funds is transforming the landscape for everyday investors.
Guest Background
Bob Elliott (00:15) shares his extensive background in systematic investing, highlighting his decades-long career at Bridgewater Associates where he developed systematic strategies. Bob emphasizes his shift in perspective after recognizing that conventional "2 and 20" fee structures predominantly benefit fund managers rather than investors.
"I increasingly recognize that most 2 and 20 strategies are really good for the manager and not that great for the investor." — Bob Elliott [00:39]
The Problem with Traditional 2 and 20 Structures
Bob critiques the 2% management fee and 20% performance fee structure, commonly referred to as "2 and 20", prevalent in alternative investment sectors like hedge funds, private equity, and venture capital. He explains that these high fees significantly erode investor returns, making such strategies exclusive to the ultra-wealthy and institutional investors.
"The whole industry is organized around very, very high fee, you know, structures that enrich the manager and also a whole, a whole feeling around exclusivity." — Bob Elliott [01:56]
Unlimited Funds' Solution
Recognizing the inherent inefficiencies in traditional structures, Bob and his co-founder Bruce founded Unlimited Funds with the mission to bring low-cost, diversified 2 and 20-style strategies to the broader market. By leveraging the ETF (Exchange-Traded Fund) structure, Unlimited Funds aims to make alternative investments accessible to investors regardless of their capital size.
"Unlimited is those low cost, diversified 2 and 20 style strategies like hedge funds, private equity, venture capital, but putting it into a liquid structure like ETFs and making it available for every investor." — Bob Elliott [01:52]
Understanding 2 and 20 Strategies
When prompted by the host, Bob provides a succinct explanation of 2 and 20:
"2 and 20 is actually a compensation scheme, not necessarily an investment strategy, but what it generally refers to is 2% fixed fee, which is 2% of assets under management and 20% of profits." — Bob Elliott [03:19]
He further elaborates that these strategies encompass a range of alternative investments, including hedge funds and private equity, typically associated with high fees and exclusivity.
Benefits of Alternative Investments
Bob underscores the superior risk-adjusted returns that alternative investments can offer. He points out that institutional investors often place around 50% of their assets in these strategies due to their ability to deliver consistent returns with lower volatility compared to traditional equity and fixed-income allocations.
"Those alternative investment strategies are basically sophisticated investment approaches that help generate returns that are on par with or better than sort of traditional index investing and also typically are brought with meaningfully less risk, meaningfully less volatility." — Bob Elliott [04:40]
Journey of Unlimited Funds
Starting 18 months ago, Bob and his team embarked on creating Unlimited Funds. Drawing from their profound industry experience, they swiftly developed the necessary technology to replicate alternative investment strategies within an ETF wrapper. Their first product launched six months ago and has been performing as intended, prompting a successful Series A funding round to expand their portfolio of investment strategies.
"We've only been at this actually for 18 months, which it's been quite the whirlwind, you know, starting our, you know, essentially starting our own small business from scratch." — Bob Elliott [10:40]
Current Offerings and Future Plans
Unlimited Funds' initial offering targets the hedge fund space, aiming to replicate the overall hedge fund industry returns at a fraction of the traditional fee. The company plans to expand its suite of products to include various hedge fund-style strategies, private equity-like returns through public market equivalents, venture capital, and private credit.
"Our first work is really focused on the hedge fund space, bringing those sorts of strategies to the market." — Bob Elliott [14:20]
Fee Structure and Tax Efficiency
A significant advantage of Unlimited Funds is its low-cost fee structure. Traditional 2 and 20 models typically charge around 4% in fees, whereas Unlimited Funds offers similar strategies at under 1% fees, effectively reducing costs by 75%.
Moreover, by utilizing the ETF structure, Unlimited Funds enhances tax efficiency. Investors benefit from capital gains tax treatment upon sale, avoiding the higher and more frequent tax burdens associated with traditional alternative investments.
"We're looking to bring these products to market at under 1% fees. So about a quarter of the fees or less." — Bob Elliott [15:49]
Regulatory and Entrepreneurial Challenges
Navigating the highly regulated investment landscape posed significant challenges for Unlimited Funds. Bob discusses the complexities of compliance, regulatory filings, and the operational intricacies of building a financial services business from the ground up. Despite these hurdles, his entrepreneurial spirit, honed at Bridgewater, fueled the company's progress.
"The life of a small scale entrepreneur working in a highly regulated industry is no easy task." — Bob Elliott [12:52]
Accessibility in Investment Accounts
While Unlimited Funds currently caters to self-directed IRAs, self-directed 401(k)s, and taxable accounts, traditional 401(k) structures remain inaccessible due to their entrenched, high-fee frameworks. Bob advocates for broader adoption of their products in more flexible investment accounts to maximize accessibility and benefits.
"We're not going to get into those structures anytime soon because of their structural exclusion of sophisticated or different investment strategies in those products." — Bob Elliott [18:16]
Industry Reaction and Future Prospects
Bob acknowledges skepticism from industry veterans regarding Unlimited Funds' innovative approach. However, he notes a growing recognition of the value and inevitability of democratizing access to alternative investments.
"Most of what they say is, I'm just trying to hold on before you get really ramped up is what they mostly say." — Bob Elliott [17:35]
Conclusion and Where to Learn More
Bob Elliott concludes the discussion by directing interested listeners to Unlimited Funds' website and major investment platforms to explore their offerings. Additionally, he invites followers to engage with his macro economic insights on Twitter and YouTube under the handle @BobbyUnlimited.
"If you're interested in our product, they're available on all the major platforms... check out more about what we're doing with our [products] at unlimitedfunds.com." — Bob Elliott [19:52]
Key Takeaways:
- Unlimited Funds is revolutionizing access to alternative investments by leveraging the ETF structure to offer low-cost, diversified strategies traditionally reserved for the wealthy.
- The company focuses on providing 2 and 20-style investment strategies at a fraction of the typical fees, enhancing both cost and tax efficiency for everyday investors.
- Despite challenges in a highly regulated industry, Unlimited Funds has rapidly developed and launched its products, positioning itself as a bridge between institutional strategies and the broader investing public.
- Investors interested in diversified, low-volatility alternative investments can explore Unlimited Funds through major platforms and the company's official website.
Learn More and Connect:
- Website: unlimitedfunds.com
- Social Media: @BobbyUnlimited (Twitter and YouTube)