Inside the Alternative Investment Platform Megatrend | Alan Strauss of Crystal Capital Partners
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Alternatives are actively managed assets, and in turn, they need to be actively managed. In this asset class, performance dispersion is more significant than in any other asset class. The top quartile funds in private credit, private real estate, private equity hedge funds typically outperform the bottom decile by 15% to 20% year over year. So it's important not to make mistakes, and it's important to really diversify client exposure.

Before we get started, I just want to do a quick disclaimer. Crystal Capital Partners is a non-discretionary investment advisor that provides customized hedge and private market fund portfolio solutions to financial advisors

Hello, everyone. Welcome to another edition of Other People's Money. I am joined today by Alan Strauss. He's Senior Partner at Crystal Capital Partners.

They're an alternative investment platform, which is one of the biggest megatrends in the industry right now. The increased access that investment advisors, smaller endowments are getting to alternative investments, hedge funds, private equity, venture capital through platforms like Crystal Capital. Alan, thank you so much for coming on today to talk about this huge trend. Thank you for such a nice introduction, Max. Try saying that five times fast.

All right. Well, look, Crystal Capital has been sort of at the forefront of new ways to get access to alternative investments since your founding. I know you go back to the early 90s, the early days of fund of funds. So much has changed in the industry in the way people can get access to alternative investments like hedge funds besides direct access. You've seen it all. I'd like to start there with sort of

the history of fund of funds moving into the platforms that we're seeing now and how Crystal Capital fits into that history.

My pleasure, Max. And thanks so much for having me on the podcast. Uh, have heard a number of, of your, your prior segments and, uh, some really talented, intelligent folks that you've had come on here. So thank you for making an exception for me. Um, listen, we, we definitely, I don't like to use the word pioneer. We were, we were very early, uh, going back to 1994 when our firm really was launched. Um,

And it was to provide the opportunity to gain exposure to, at that time, what was pretty much a cottage club industry, right? The world of institutional hedge funds. They were smaller funds. They were not the large multibillion dollar complexes that they are today. But nonetheless, they were starting to become recognized by a very small group of investors, namely what are referred to still today as institutional investors, right? The pensions, the sovereign wealth funds, endowments,

and ultra, ultra high net worth investors or family offices. We were fortunate enough to begin to invest in many of what are today some of these brand name, highly recognized, routinely recognized, and also have been successful through multiple market cycles. So there's been longevity and consistency in these managers. They also happen today to have some of the highest barriers to entry. But back then, one of the

the ways in which an investor could ultimately deploy capital to these funds was through a professionally managed fund of hedge funds.

And for a long time, that was a great solution. But as many investors navigated the global financial crisis in 2008, we obviously did as well. And one of the really cool dynamics, I think, is the alignment of interest that we have here with our investors. Back then, just as today, we are crystal team, other partners, including myself, we're the largest investors in our own platform. So we are putting our money first and then letting our clients know that, you know, this too can be good for you. Let's identify, um,

What are strategies and opportunities that you're looking for working with their advisor? So from 1994 through 2008, we really managed one fund. And it was not customizable. It was not driven by anyone's particular objectives, but just basically to gain exposure to the asset class and with managers that were on a risk-adjusted basis, continuously being successful relative to traditional benchmarks.

But 2008, as the global financial crisis occurred and we learned about the inefficiencies of pooled vehicles, right? No general partner is ever calling their underlying LPs and saying, hey, you know, my biggest client's about to redeem. Maybe you should consider putting a redemption too. So being the ones who are

primary investors, substantial investors as clients in 2008 start to run for the hills. You know, many are thinking we're headed for a barter system at that point, but whether you're going to be trading cattle or capital, the need for having liquidity was prevalent in the minds of investors. And that bifurcation created really a detractor of performance for a pulled vehicle where everyone is, you know, only being rewarded when they step up to submit a redemption.

And then there's a line that's formed as a result of that. So 2008 taught us a lot of lessons and allowed us to move forward in 2010 and launch much more of a customizable program. Using our experience and our desire to want to continue to invest in the asset class, hedge funds, despite some popular misconceptions out there, were not the cause of the global financial crisis. In fact, many managers displayed their mettle and revalidated their strategies

and the ways in which they deployed capital to really reward investors. So in 2010, only two years after the financial crisis, we evolved our firm into a slightly different offering, where today we work with over 250 advisors who have the ability to invest across over 50 different fund managers of different strategies and opportunities across hedge funds,

across private markets generally, but that's really private equity, private credit, and real assets, and the ability to leverage a team that no longer charges a performance fee the way a fund of hedge funds had. So now it's really the best of both worlds. Have the ability for an advisor to build portfolios, customize to their client's unique objectives, gain exposure and access to managers that have distinguished themselves over multiple market cycles, that

that have high barrier to entry, and that integrate everything seamlessly so many of the operational and administrative barriers or burdens can be eliminated for that advisor. And that's Crystal Capital in a nutshell in 2024. Yeah, you talk about 2008 and that people were starting to redeem. And I've talked to many managers who actually

It was surprisingly the people who did well who kind of got the most redemptions because nobody wanted to sell what they thought was a good asset at a bad price. And so the people who did their job, showed up, performed well in 2008, actually suffered for that because people looked at it and said, I'm willing to sell here and redeem here because I feel good about this value. Whereas this other guy, I think that these prices are maybe not fair over the long run.

Well, I think in therein lies the paradox of what was the fund of hedge fund general partner. My potentially best performing assets are my most liquid assets. And I've got to line out the door of clients who are panicking for many other reasons other than performance and they want redemptions. And so what does a fund to fund manager have to do? Has to generate the liquidity, whether they may be a mismatch because a fund to fund has to market itself with slightly more preferred liquidity terms than what the underlying exposures have.

And that mismatch can create problems, especially when you go through a 2008, right? They've got three or four or five of the, let's say seven or eight managers underlying in that portfolio. And if half of them have a litany of gates or, or really more, you know,

prohibitive liquidity terms because maybe the strategies dictate that it puts the fund to fund manager in a real bind. And then what ends up happening is they liquidate the better performing assets. The other investors who are still there, not only get more e-liquid, but potentially with assets that are not as not performing as well. And then really that is at the crux of why we created Crystal and a platform that allows advisors to use an interface, pick and choose things that they want, understand what these funds are,

And then at the same time, educate themselves and ultimately their clients about what these opportunities, these strategies and what these managers are doing.

Now, when you started to move into platforms, it was extremely new. Now, today, it's something that you can't click on the hedge fund section of Bloomberg or Financial Times and not see an article about increased access to advisors via platforms. I mean, it's such a huge trend. But at that point in time, almost nobody was talking about financial advisors as the next frontier for asset growth for hedge funds.

So what did it look like at that time and where was the demand and how has that shifted over the last 15 years?

That's a great question. I have three small children, and anytime something is new, it feels intimidating. And despite the fact that Alteras have been around now for about four decades and have, there is sufficient data to support their efficiency within portfolios, and I'm painting Alteras with that very broad brush. And in fact, the size of Alteras as a multi-trillion dollar industry today suggests it's pretty mainstream at this point. But if you go back to 2010, as Crystal is launching, as we're going out

to make outreach with registered investment advisors, wealth managers, multifamily offices, folks that were financial intermediaries. It was really important to find advisors at that time that were not intimidated by the asset class and who had some level of understanding of it. In many cases, it's folks that were spinning out of the wire houses and becoming an RIA. They didn't want to continue to have

You know, the mothership really dictating all the terms of what they could do and source for their clients. So, you know, it was tepid in the beginning in terms of helping people understand. And it was all led by education from a data standpoint. So quantitatively, here are managers. This is how they've distinguished themselves. Look at how they fared relative to traditional benchmarks, to industry benchmarks, to their peers.

And again, understanding that we're an RIA, we are putting together and are consistently curating this menu of available opportunities where we are investing in them first. These funds are not on the platform because we're a broker dealer or a placement agent and helping to place assets in those funds. We have a direct alignment of interest with our clients. So-

Making that part of the discussion and making it a very disarming relationship that we have with that advisor, we're not getting paid because you continue to place assets into a specific fund. If we all are in line with the asset class and have adopted its benefits, then from time to time, there may be funds that need to be changed. Every portfolio needs to be rebalanced.

But you fast forward ahead to 2020, when there was a tremendous proliferation of demand for alternatives because of what we saw in the early days of the pandemic, right? Many investors who had not had, and I'm talking now, let's focus on institutional allocators who did not have large exposure in the 30, 40, 50, 60%, which is what many of the most successful institutional investors have had in terms of percentage exposure within their portfolio.

from an asset allocation standpoint to alternatives, they are considered the trend setters. And advisors, this is not belittling, but many investors and advisors become trend followers. And as now we have 30 years of data to support the logic behind using alternatives, there has been a greater adoption rate, certainly by advisors.

And now the consideration for advisors is how do I find systems that allow me to be scalable? How do I find opportunities that give my clients alpha that they're looking for or the risk mitigation properties that they're looking for, the ball mitigation properties that they're looking for? And similarly do it with managers that are still asset managers and not asset gatherers, of which there are many in the industry. Are these people who...

maybe have invested in hedge funds before, but can't get access to the big brand names that you are talking about? Are these people where they're coming to you and you're really their first experience with hedge funds? What types of advisors are sort of legging into this? Because I know managers listening to this, whether they're at platforms like you are hearing, you got to talk to financial advisors. That's where assets are growing, but it's a huge group of people.

Listen, the level of expertise and comfort with the asset class, that's across the board. From the novice alternative investor to the most experienced and established alternative investor. You know, when I joke,

And I think you and I, when we were getting ready for the show, we were joking about, you know, what does asset allocation look like at Crystal? My portfolio is a 60-40 of hedge and private equity, not traditional investments and traditional fixed income. And listen, I definitely come across advisors who adopt that philosophy, be it for themselves or for their clients.

But there are certainly more that are of the, we use a 60-40 as the foundational. Now that being public fixed income and public equity is really a foundational piece. And we want to have satellite exposure alternatives that can vary anywhere from 10 to 40%, depending on client age, appetite, sophistication, et cetera.

Look, I think that it's very efficient for asset managers to be able to reach RIAs through platforms like ours. It makes their job certainly easier. It doesn't put them in a situation. And many of the largest asset managers are not going direct to the RIA. So they are leveraging platforms like this to be able to help clients gain exposure.

But I think all of it starts with education for all the advisors to understand that our approach is not about buying simply product, which is why many advisors, you said they bought things in the past. They had a slightly negative experience. Alternatives are actively managed assets. And in turn, they need to be actively managed. It should never be about set it and forget it. A

A portfolio of hedge funds, despite popular misconception, has liquidity. And depending on the types of investments you ultimately choose, can have quarterly liquidity at all times. It can have semi-annual, it can have quarterly gates, it can have rolling two-year liquidity, et cetera. But in the design process is having a general understanding of

of how do you create that portfolio? So I think our approach makes things very different. And that also makes for the type of advisor that wants to really roll up their sleeves and that wants to work with a team that's there to support them every step of the way and

and really help them build solutions and not just create transactions with their clients. So that customization side of things is something I want to get into. And you walked me through the platform before we did this call. And, you know, without getting into like the full sales pitch, I think it's important to understand how your wrapper works.

is different than what most people get when they make an investment through a platform or through a fund of funds. And just the customization that is available now and why that's part of the reason why advisors are coming to platforms like yours. Sure. I mean, we work with today over 250 RIAs. Those are firms of all shapes and sizes. It could be a solo practitioner. It could be an individual that's got a few billion under management and has

a team of 40. But the bottom line is that these advisors definitely need solutions. They need solutions to address the needs of clients that may be grouped because they have similar objectives or for some of their largest clients. And unfortunately, most platforms out there are set up to provide a transaction and exposure maybe to one or two things. But as we all learned in grade school, you put all your eggs in one basket and you check the box and say, we bought the hedge fund. We bought the private credit fund.

Listen, in this asset class performance, dispersion is more significant than in any other asset class. The top quartile funds in private credit, private real estate, private equity hedge funds typically outperform the bottom decile by 15 to 20% year over year. So it's important not to make mistakes and it's important to really diversify client exposure. It starts with having...

a window where an advisor, once they've got trust and developed that relationship with Crystal, that they understand that these funds that are on the platform are not paying Crystal in order to be there. They're there based on their merit. And then there is quantitative and qualitative information so that an advisor can go end to end. And a lot of platforms promise this. We find ourselves at a unique intersection these days

We consider ourselves sometimes a 30-year startup, right? Because we are providing financial services support, but there's also an intense technology component. Max, you've seen it. So the ability for an advisor to literally log into a password-protected portal, go into a sort of shopping menu and identify from over 60 funds across different strategies,

and asset classes, and then be able to understand what these funds do, put them together in sort of a presentation, which is really a portfolio, then have feedback from our team and our investment committee, and then understand that we'll sit alongside that advisor when they do talk to clients, whether they're presenting it for the first time or whether we're meeting for semi-annual, periodic, quarterly, whatever the case is, reviews.

And so why N10? Because not only quantitative and qualitative information on the fund, let's research and understand who these funds are. Let's educate ourselves about it. Let's be able to execute on a mandate of a client gives us the green light. And then the ability to manage and rebalance these portfolios, add new assets as objectives change and evolve. It's pretty dynamic, but guess what? It's the way any investor,

large institutional allocator with teams of dozens of people operate their alternative investments. And it's the way any ultra high net worth, high net worth client that is qualified should also have the same abilities. It's also like spitting out a tear sheet too for those funds looking back. So let's say you go in, you select six funds in

in two minutes or whatever it was, like there was a track record that was there. That is the track record for your specific portfolio and not just the six funds, like whatever percentages you wanted. It's incredibly dynamic for the advisor because now not only have they satisfied the objectives of a client who may be looking for alternative investments,

They can literally create that portfolio and be able to use it for other investors who may want to invest in something similar or the exact same thing. So it gives that advisor tremendous scalability. They've achieved investment objectives and they also have business development support. Now, what about the fees side of it? So you're not being paid by the managers. You're not getting a commission like a broker dealer on bringing assets to a specific fund. So you're

These advisors are often charging a fee. Obviously, the funds themselves are charging a fee, and then you guys have to eat too. So you're charging a fee. So the cost of access of this customization is higher management fees.

Well, the cost across the board in the industry of platforms, right? Investors, unfortunately, if they have the ability to go direct, they should never work with a platform. But there is a very large segment of the population that falls under a qualified purchaser. And those folks, for the most part, have significant barrier to entry when going to want to invest with the more established managers that are out there who have a high minimum or otherwise. So that's where Crystal really has value to offer to advisors and their clients.

Our fees are pretty industry standard and our fees also scale down by 25 basis points as relationships grow with the advisor we work with. So again, it's really all designed to be scalable and for that benefit of expense ratio to be reduced to ultimately fall into the hands of the investor.

Now the industry is increasingly becoming winner-take-all with these sort of big brand name funds taking in more assets, more talent, more media and mindshare.

You know, the platforms like you guys have often been touted as a place for smaller managers to go out and get access to new people. But I know from looking at your menu that it's mostly the big brand names that people are familiar with. So, you know, if you were talking to smaller managers about what it takes to get on a platform like yours and whether there's even end demand from financial advisors, what would you tell them? Persistence.

Persistence and continuity. We don't have a bias against smaller managers, and there are definitely managers we work with that are of the larger category, like you alluded to. It starts really with demand, right? And where Crystal can genuinely provide value. With smaller managers, there are a handful of things that we look at. Number one is survivorship. You know, there's data out there that suggests that

for a fund to really survive past five years, typically it's one out of five managers that are surviving past five years. It's a lot like the restaurant industry. So you've got that element that's going against you because of the demands that investors have today for oversight, for scrutiny, and rightly so, these are expensive line items and many smaller funds may not be in a position to provide those things. You know, if you go to a very well-established

fund that has barriers to entry, asking them to reduce their minimum investment. If you're an advisor calling that fund to inquire, there's going to be dial tone before you even get to the, can you reduce dial tone? So there are smaller managers that may be inclined to offer founder share classes or reduce minimums. And that's not a situation we want to be in where we're trying to negotiate a minimum. What kind of value do we really provide there? So it's genuinely about

You know, the largest and most sophisticated investors out there have had exposure to these types of funds. Mr. and Mrs. Advisor, you can now do the same thing. And if there are managers that you know on a local level from a geography standpoint that you can access, well,

Well, guess what? Our system's completely open architecture. So we should load data into our system of some of those other managers and genuinely measure their efficiency relative to some of the other funds. But what we're looking for, we're not check the box type people, but we certainly want to try to mitigate business risk as much as investment risk. We all learned in school, investment risk, you mitigate through diversification and doing it properly so. But business risk,

We want to try to find managers that have had that consistency, that persistence through multiple market cycles. I think I started saying I just didn't finish this sentence, but we work with large managers that may from time to time come to market with a private fund or a hedge fund that may be smaller

But again, they're part of a much larger complex that has all the infrastructure in place and for whom there is tremendous oversight, in addition to the fact that, you know, they happen to be registered with the local financial governing body, whether it's USSEC or, you know, whether it's elsewhere.

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advisor clients and say, hey, we have to rework your portfolio because this fund doesn't exist anymore.

Fortunately, because we've had, right, we entered the asset class back in the 90s when these were small funds, right? A $50 million fund, a $100 million fund in the 90s was the equivalent of a multi-billion dollar fund today. Fortunately, we always stuck true to that and said, we want to find folks. As obviously the business continued to mature and the funds continued to grow larger, we made it a concerted effort to find those peers, right?

and to see funds develop. And in addition, we also contract a due diligence firm to support our investment teams ongoing due diligence of all the managers on the platform. But it is a curated list. So Max, kind of to your point, we are always adding and removing funds. And there's always funds moving into a more established classification. They now have more assets under management. They now have more systems.

You alluded to it. It is an arms race to hire and retain top talent in this industry. And so as a result, you tend to gravitate toward the managers that have those elements, those personal assets underneath their hood. Yeah. So when your investment team meets, your investment committee meets and you're assessing your existing managers, thinking about adding new managers, what can get you kicked off the platform and what can get you added?

That's a great question. We look at character breaks from a quantitative. So we've been tracking the data of this particular fund, and now there are a few data sets of anomalies. Did it enhance performance? Did it lead to a detractor performance? Are they trading now in a slightly different strategy?

And we want to have answers. If the questions, if the answers to the questions are validated, um, then that fund, you know, we continue to watch that fund. What are things that, that necessitate a fund to be removed from the platform? First and foremost, you see funds closing, becoming family offices with dynamic. That was unfortunately relatively prevalent with some of the most, uh, sought after names in the industry. Some of the most highly recognized investors close their doors in the 2010s. Um, you know, which some have defined as the lost decade. Uh,

The way the 2000s were lost, I could have equities. Some define the 2010s as a lost decade of alternatives. But nonetheless, you are always looking at qualitative factors. Is the management team continue to hire, continuing to hire and retain top talent? Are they investing in systems? Is the management team highly invested? Are the GPs the largest investors in their own product lines? That is an important consideration for us. As a fund may underperform,

If it's leading toward liquidity being drawn by investors and ultimately the potential for insolvency for that manager, those are the kinds of things that have a fund removed. They're significantly more qualitative. Are key people leaving the firm? Has one or two or three of the partners left? Are they not reinvesting into the firm? When you start to have...

real experience and understand how these firms that are successful look, and you can find similar attributes among those, those are the kinds of things you continue to look at. But again, when we launched Crystal in 2010, we probably had 90 funds that were just hedge on the platform. And obviously today there's approximately 50 to 55 funds across hedge MPE. So there's a very substantial lineup that has been very carefully curated and

Everyone does their grocery shopping in two places, I think. You go for the foundational things and the things that are easy to find in your more big box consumer discount store. But when you have a special meal, when you have special items, you need special diets, we're so much more into the food we consume today, you tend to go to more of a boutique, farm-to-table place.

Again, the word curated experience, and that's really how we consider Crystal. We're your curated marketplace, and we can genuinely help to find those opportunities that should be part of an alternative investment portfolio from an institutional standpoint. Hedge is obviously core to your DNA going back to your founding, but private markets, private equity, private credit, venture, that is also a huge growing opportunity

growing asset class, how much, when you think about the demand from your end user, how much is made up between hedge and how much is that private markets? And is one...

taking more share? I can tell you accurately today, our platform is kind of split around 60, 40, 60% in the hedge fund part of the program and 40% in private markets. When you look at private markets, the largest source of interest and where capital flows have gone over the last couple of years has really been private credit.

And quite frankly, because of the opportunity of multiple managers and again, clients with their advisor come here to put together a portfolio of multiple private credit funds. I want to have exposure to software. I want to have exposure to middle market businesses. I want to have exposure to traditional businesses. I want to have exposure to a capital solutions group. So the ability to put together a portfolio of multiple managers, the reason private credit has generated so much popularity is its consistent yield

at a premium to traditional fix.

Then you talk about growth strategies. We've seen venture capital, growth, equity, even buyout be successful strategies relative to public markets. Since 1996 alone, we have 50% less public companies. So the opportunity set there, you could argue is waning. Also the growth potential, many of those companies, while we've seen the Mag7 continue to grow and evolve, what is the continued exponential growth potential of those companies?

relative to owning a company in its infancy, seeing it mature past VC into growth equity, and then ultimately an exit. And those exits, by the way, don't just have to happen because there is a very frothy public market. There are sponsor to sponsor transactions and that creates the liquidity. So

Private markets allows investors to take advantage of segments of the economy and industry that is just not readily available in public markets. These are private companies. And by the way, of the companies in the United States with 10 million or more in sales, they make up a significantly larger percentage of the company universe than our public companies.

So whether you're looking to gain equity in those companies or lend to those companies, there is a tremendous opportunity set. I genuinely see more and more interest in private markets. Will private markets on our platform one day be 50-50 with hedge funds? I don't know. You know, hedge funds have developed their own pretty unique technology.

set of skills that they provide or attributes that they provide to a portfolio, we see a lot more clients coming to hedge funds in a need for capital preservation. And then when they're looking at growth and supplementing income, that's really the private market side of the platform plays a significant role.

Do you see private credit as providing better liquidity? I mean, you even mentioned it, like the IPO market, it's not super hot. Like a lot of the liquidity is sponsor to sponsor, which depending upon your view of things might not be a good sign for overall liquidity for the private equity market. Is that a big reason why you think people are moving towards private credit?

Well, I think, again, I go back to first and foremost, investors, I think, mostly think with a pocket, right? And so if there is a greater possibility of yield, which we've seen, that's factual, right? Everyone's seen the returns of many private credit managers. We don't have to discuss any specific private credit funds here, but generally speaking, the data has shown that private credit has provided a premium to traditional fix. And then there have been many surveys where investors

The overwhelming lion's share of the respondents who are borrowers are preferring private credit managers as counterparties as opposed to the traditional banking routes for better terms, for speed of closing, for partners on the M&A side down the road, and so many other factors. So I think that's really one reason why folks have chosen private credit. When you look at the ability of private credit,

in a sort of, I'm gonna use this in kind of a non-traditional way, it is generating liquidity. So when we do have conversations with advisors about asset allocation, who are looking for growth and income, the natural discussion is, well, we wanna have a little bit of, depending on the age or interest of the client or objectives, the growth strategies, the VC, the growth equity, the buyout. But if that investor is also somewhat concerned with liquidity,

Well, then it's important to layer in some of the income generating investments because most private credit funds within the first quarter or second based on called capital are already providing a distribution and yields.

And then when you come to think about private credit managers and their real efficiency from an economic standpoint, like you alluded to, we could be in a rising or falling interest rate environment. And because private credit managers have continuously had the ability to provide a premium to traditional fixed, they ultimately employ floating rate and very strong covenants and warrants.

Then you try to find private credit managers that have very low historical default rates, if any. And when you do, those are the managers you want to continue making capital commitments to because they've generated a repeatable process and the enemy of the yield are defaults. And so these are managers that don't routinely stub their toe and they've really developed a system and a process and borrowers want to come to them as opposed to them always having to solicit borrowers.

Now, what about new funds coming from managers that you've worked with in the past, whether it's an SPV or it's just another Roman numeral in the long line of funds? How do platforms fit into their capital raising plans for these funds that are not as mature as maybe some of the funds that have been around for decades?

Well, I think what's really nice about our portfolio approach, and I don't want to make this salesy at all, but most investors are very cognizant of the J curve. So I'm making capital commitments and all I see is negative performance because it takes time to ultimately get out of that letter J and start to see positive performance of the underlying portfolio companies.

What's really nice about how we structure portfolios in the private market world is, again, go back to we're an RIA. We're not getting paid for funds being on the platform, but we are constantly sourcing. So it's the ability for that advisor to make the private market portfolio truly open-ended as opposed to because each fund has a fundraise and then they close and then you can't buy any more of it. But

Whether there's managers that are coming onto the platform of follow on vintages or new strategies and opportunities, it organically allows the advisor to continuously diversify the portfolio based on vintage. So the timing based on strategy, based on industry, based just simply on manager name and to minimize shop costs.

risk or get shop diversification, that also generates liquidity, right? Because if you think about how investors would use traditional investments, your ladder, a fixed income portfolio, your dollar cost average, a stock portfolio. When you think about private markets, the investments of year one typically start to create distributions around three and a half, especially in the equity world, right? With credit, we talked about that within one or two quarters, you're seeing distributions. Um,

But as an investor, you cannot use private markets to set it and forget it. It has to be a consistent and a serial approach. Year one starts to distribute in year three, year two in year four, year three in year five. And what ends up happening is that by structuring the investments properly and creating a portfolio and using that type of an approach, the investor inherently creates liquidity. And the liquidity that's coming down the road

allows them to potentially keep using those distributions to make new capital commitments in the future. And lo and behold, after some time of setting this process up and marinating the investment portfolio, then it's a cash flowing vehicle and it can be done so, so that it's happening perpetually.

Now, and maybe your answers about how your structure as an RIA perhaps gives insight into this question, but do you see yourselves ever being a marketplace for secondary interest in these same sort of funds? Maybe those vintages that you just can't have access to anymore? Well, I think we'd still rather be the ones for now to provide primary exposure to those hard to get into or sought after opportunities.

The world of secondaries provides additional liquidity. There's other schools of thought that say, you know, if it's on the secondary market, is it really that great? I'm buying it either at an extreme discount or I'm paying through the nose at a premium for it. It's someone else's discarded stuff. We prefer to be really focused today on primary offerings and really helping advisors to navigate those. So I want to go back to the

to another topic, which we said, how are people getting onto the platform? So I know you said you keep an open mind, you're not opposed to smaller funds, but obviously there's gotta be a line in the sand somewhere. So how long of a track record should a fund that's looking to get on a platform like yours have before they can expect to be taken seriously? What AUM should they have?

before they can expect to be taken seriously? And are there any other considerations that you guys really focus on?

So as Mason once said to Dixon, we've got to draw the line somewhere. You are correct, Max. We have a very painstaking approach at due diligence. We take everyone very seriously. But if you're asking for baseline parameters, we're looking for firms that have a billion in assets. We've talked about that earlier in the podcast as to why the asset base is important, retention of talent, systems, so many other things that are line items today, but are necessities for organizations.

for oversight that clients and investors are demanding. So past that size, we're looking at firms that have a minimum of a six-year track record so that we can see potentially that they've been through a market cycle or have navigated maybe if they're now a 10-year firm or a five-year firm, that they have some experience in seeing other things, right? And seeing how markets may behave and so on.

We're looking for firms that have all independent service providers that are top tier. So custody, audit, administration, prime brokerage, et cetera, have all of these independent service providers. And clearly these are lessons that we had adapted in our fund to fund days, but post 2008 have become even more important.

As I alluded to earlier, we also contract a third party institutional due diligence firm to simply provide us with added resources from an operational due diligence standpoint. We need to meet with all managers. We need to review their documentation. We need to do in-person visits with managers. And then really that's the qualitative side. From a quantitative standpoint, upload the data into our system. And if they've met some of the other initial parameters that we're looking for and relative to their peer group, then...

then, you know, it's time to start a real conversation about how we can onboard that fund into the platform. And look, we meet on a quarterly basis, an investment committee, and we take very seriously, especially on the, well, on all sides, on the private equity side, we are consistently benchmarking any fund that we're reviewing or any fund that's on the platform to their respective frequent benchmark. On the hedge fund side, we can do also peer benchmarking.

comparative analyses. And we can do that relative to specific strategy industry benchmarks. And we have on a three, five and 10 year basis continued with the candidates. And so we refer to the funds on the platform. Candidate funds have continued to outperform in a sizable way relative to other industry peers, the funds, as well as the benchmarks, right? You don't want to just come here and buy beta. There has to be a justification for leveraging a platform

like crystals, but we're always talking to existing managers on the platform to understand who they really respect out there. And that oftentimes leads to introductions. And listen, as we saw in the 2010s, folks who were some of the most recognized name in the industry and decided, I don't want to deal with the oversight and the investors or anything else anymore. And they went family office, ultimately some of their best lieutenants, portfolio managers and things of that nature.

spawn off and create new firms that have permanency and that will create a legacy and that are institutions themselves. And certainly those are the kind of shops we want to continue to work with.

Yeah. So what are the benchmarks? Because there's some people who they say, look, we beat the HFR index of other hedge funds. There's some people who are benchmarking themselves to the S&P 500. Or if you're a fixed income focused fund, you might be benchmarking yourself to some fixed income benchmark. Yeah.

And there's, I guess, how you think about it. But at the end of the day, it's what the advisors want. I mean, that's the end demand. What do they care about in terms of hedge fund performance? Because in years like 24, equity markets do fantastic.

Multi-manager platforms go out and they put up pretty good returns. And you start to see this commentary like, who would ever buy this? Look at my personal trading account. I was up 70%. I was overweight. Palantir. Why would I buy a hedge fund when I can go put up 70% myself? And so when you're dealing with a client base that is perhaps...

more familiar with that perspective on investing, their idea of benchmarking might be very different from somebody like you, Alan, who's been in alternatives for years and years and years.

So first, that may not be our client. We may not be able to work with everyone, right? I think the value of... There's one really cool chart that we use all the time, and it's a return histogram. And whether you look at three, five, or 10 years, when you plot the S&P 500 or even a 60-40, all we're saying to investors is when you look at that plotting of returns over a period of time, whether you're looking at 120 data points or 60 data points or...

two years and ultimately 24 months worth of data, just see the distribution of those returns and they become pretty random, which is not to suggest that it's good or bad, but it doesn't allow for long-term decision-making because life gets in the way of the time horizon from a liquidity standpoint. And if the S&P drew 25% and a client was looking at retirement six months from now,

Now they're in a real bind. So all we're saying is if you look at the returns histogram and the distribution of even just an index, and you asked me about indexes, we use all HFRA indices. We use Barclays indices. We then also benchmark relative to the peers and candidates that are already on the fund based on strategy so that we can see which managers based on strategy grouping continue to perform at a consistent level and which ones have become outliers. So

When you have all that data available, you can make pretty intelligent decisions about the types of funds that continue to be part of portfolios and continue to be part of the platform. So you said it's about 60-40 hedge fund to privates. Within privates, you're seeing strong demand for private credit. What about on the hedge fund side? Within those sub-strategies, where is the demand right now?

Really, I would look at the risk mitigating categories, which would fall into relative value, multi-strat, equity market neutral. We can make an argument for long short. And then to be able to use those strategies that are risk mitigating to couple them when using proper or optimal asset allocation to use what we'd refer to as the more return enhancing, whether they be macro strategies or activist strategies. Really,

really more strategy focused, long short strategies. Like I'm interested in gaining exposure to technology with a long short manager. I don't want to buy the NASDAQ because that's just market direction. Right. So ultimately that's really where I've seen the majority of flows on the hedge fund side and the demand from investors, capital preservation, risk mitigating strategies, and on the private side, more about, okay, here I can find growth and

And technology has been a large component of that, finding exposure to firms that are buying and selling technology companies, be they software, be they data security, be they the evolution of space exploration, be that electric vehicles.

home automation, foods, and so many other elements, payment platforms, et cetera, as well as private credit. Do advisors ever bring you funds and say, hey, we'd love to have this on the platform, and then you have to due diligence it? Happens all the time. And there's a real luxury for the advisor to be able to have two elements at play. One is

they've been investing in this fund, or they're very interested and they got enamored with either the individual or individuals who came to present to them. And they made a personal connection and they're looking at the tear sheet and it looks attractive. The ability to use our system, which is totally open architecture and measure this 100 or 200 or $500 million fund, which is typically how that happens. It's a smaller manager that that advisor has been exposed to. And they say, look, I've been working with these guys or I met them in our local area. And

And we can measure them, you know, relative to the folks that we feel are the all-stars. And that's the same adage as when you're looking at, you know, professional athletes. Hey, newcomer on the block. Well, let's measure them. Let's put them on the court with some of the, you know, some of the folks that have been doing this for a long time. And that is...

compare apples to apples. Let's look at the managers that do what this manager does and let's compare them. And then secondarily, as we do develop a relationship with that advisor, one of the real elements that we bring to the table is the consolidation. If an advisor wants

10 investments in a portfolio, they sign one sub-doc here as opposed to 10. And now multiply that, they're probably got 10 clients who want to do those 10 things. They don't have to do 100 sub-docs here. So if that advisor has found something that we also feel has real value and we've done all the checks and balances and we ultimately incorporate that fund into our structure, now that advisor has the benefit of all of the consolidation services,

the professional support from us and the interface and one structure to be able to deploy capital across funds that we've been sourcing historically. And now they found something that has a real application, a real value for them. So would an advisor ever bring you a manager and you would put them into a portfolio of managers just for them, but maybe that manager doesn't go become a candidate for all of your advisors?

That is definitely a possibility that exists. Mostly what ends up happening is an advisor has a manager that they may want to introduce. And we upload that information first into the platform so that we can show that advisor and really show

show ourselves, you know, what are the, what are the adages? What are the ingredients of this manager? And then if it's something that makes sense on all sides, it can definitely be made available just to that advisor, or ultimately it could potentially be made advisor to the entire ecosystem, made available to the entire ecosystem. Okay. But candidly, that's happened less than five times in my career here at Crystal. Less than five times. Okay. Correct. Wow.

So, look, I want to round out the conversation a little bit. Obviously, this is a mega trend in the industry, advisors getting access, platforms like yourself. What does the future look like and where are we in the trend? Is this just the beginning for advisors? When you think about the advisor landscape out there, how many of them are...

are still completely unallocated to alternatives. Well, I think I saw a stat the other day that among institutional investors who you and I sort of tepidly agreed, they're the thought leaders when it comes to investing. And roughly only 27% of institutional investors actually have dedicated exposure alternatives in their portfolio.

And I would say I haven't seen the statistic recently, but in stats in years past, the number for high net worth investors was below that. Yet at the same token, there are statistics that Prequin recently did that suggested that over 86%

of institutional investors, so 86% of that 27 are going to meaningfully increase their exposure alternatives. And a number of the private banks have also followed up and what we're typically or their high net worth clients within asset allocation to have somewhere between 10 and 20%, that number is encroaching 30% at this point and even going further. And obviously you find investors like ourselves

that have substantially more invested in alternatives. I would say, as I joked at the outset, alternatives are pretty mainstream. When you're talking about hedge funds and private equity, you're talking about a multi-trillion dollar industry. It's less of a trend today. What we will continue to see are thematic trends, whether it's, again, space exploration, alternative food, climate, sports equity. These are things that may continue to be

not as foundational, but growth equity certainly is not going anywhere. Leverage buyout is certainly not going anywhere. The ongoing, in a positive way, proliferation, increasing exposure of private credit, these are things that should be considered foundational pieces. Hedge fund strategies, whether it's the risk mitigation strategies or the return enhancing strategies, many of those are now foundational pieces within portfolios and they are not trendy. But I think as societies

Society generally continues to evolve. We saw that very presently. We were always using technologies like this in 2020, and it's become even more prevalent, right? Whether it's and how we consume, everything is on our fold. We look at how I look at how my young kids learn. Artificial intelligence is prevalent in the classroom. So that's going to genuinely lead to more consumer opportunities, more investment, more development and

and ultimately new trends in the future. Where they go, if only the fact that our firm is called Crystal gave me a crystal ball, it gave me a real advantage. Yeah. And what about for fund managers themselves? I mean, is this a trend that is going to accelerate the winner-take-all nature of the industry? Are you guys the savior of the little hedge fund, or do you see that as a trend that's going to continue?

I think it continues to be an arms race. It's been accelerated in terms of the need for, I don't think it's ever winner takes all, but I do think for investors, they have to keep a mindful eye on firms that, again, the bifurcation, the disparity between an asset manager that may be large, but continues to manage assets repeatedly as a consistent process and delivers returns on a risk adjusted basis that are more than adequate for the investor, net of all fees and expenses.

And then there are asset gatherers, which may only provide the more opportunistic investments to their largest clients, but still push multiple product down multiple channels in an attempt to raise money because things are now more globally adopted, like is the case with Altura. All right. Well, Alan, thank you so much for joining me today, sharing all this insight. Max, thank you so much for the time. Thank you for providing a platform yourself, like other people's money. Always happy to come on. Thank you.