Wealth Management Invest: How MAI Capital Approaches Private Markets with Ben Sayer

(upbeat music) - Hello and welcome to the Welp Management Invest podcast. I'm David Boedmer, part of the editorial team at wealthmanagement.com. In this episode, I'm excited to bring on Ben Sayer, who is the alternative investments group head and managing director with MAI Capital Management. Ben, welcome to the podcast. - Thanks David. Excited to be here, great to see you again. - Yeah, I could see you. We had a chance to be on a panel together, wealth management edge in a couple months ago, which was fantastic. So, wanted to continue that conversation on the podcast. So, you know, to get things rolling though, like I wanted to, you know, if you could just set the stage for us a bit, talk a bit about MAI Capital and some of your client base, like what kind of folks that you're serving, and then also talk a little bit about how you got into the role that you're in. - Sure, yeah. So, MAI was founded originally as part of IMG, the sports agency here in Cleveland, Ohio. And so, we've officially separated from IMG back in the early 2000s, unfortunately, after Mark McCormick, the founder of IMG, passed away, a private equity firm purchased IMG. They didn't want SEC oversight. And so, they left MAI out of that transaction. Our current executive chairman, Rick Bunacore, purchased the firm back in 2006. And so, he has been very busy since that point when he purchased the firm. We had, you know, a little under a billion dollars. Of assets under management. And today, we're north of 30 billion. And so, we do still have probably, you know, 25% of our business is serving that core kind of high profile athlete and entertainer. That is a holdover from the IMG days. And then we've also diversified the business and grown the business to serve kind of three main kind of client groups. And so, we have the athletes and the entertainers. We have the ultra high net worth multifamily office clients. And then we also have traditional high net worth investors as well. And so, creating investment solutions across those three buckets is a bit of a challenge. And each one of those client bases have their own unique needs and problems that they face, but kind of solving those for all of our clients is really the challenge here on the investment team at MAI. - Yeah, so definitely gives you guys an interesting purview just given that client mix. So, yeah, so talk about then, yeah, your role and how you came to the firm. - Yeah, so I joined MAI back in 2017. I came from PNC Capital Advisors, whereas a product manager working on the PNC branded mutual funds as well as some of the large institutional size as accounts across numerous investment strategies every there. I really wanted to get closer to, you know, directly making investment decisions instead of working on investment products. And so, joining our current CIO Kurt Nye as kind of the first hire on the alternatives team was a big leap, but really, really excited how that turned out. And so, we started just kind of the two of us and we were supported by our alternative investment committee, which was, you know, 10 plus really experienced advisors from across the firm that have really helped build out the investment capabilities of the firm. And then as we have continued to grow my roles and responsibilities have grown right alongside the firm. And so today, I view the alternatives team our challenge and our main goal is to build kind of plug and play alternative investment solutions across three different categories of alternatives. And so we break up the universe into income and low volatility alternatives. So think of things like private credit or a market neutral hedge funds in that bucket. Certain flavors of real estate and real estate debt also fall into that category. Then we have growth alternatives, which are traditionally private equity and venture capital. Just kind of an extension of a client's equity portfolio just taking on the liquidity. And then finally, we have real assets where we put traditional real estate and infrastructure. And so, like I said before, we're really trying to get our clients kind of plug and play exposure across those categories in meaningful ways that can help their kind of achieve their financial goals alongside their financial advisors. - So I find like, you know, it's an interesting seat that you're in because, you know, in the industry itself we're in this moment where everyone is like suddenly paying attention to alternatives. And there's a lot of like new players coming in or a lot of people embracing it, but like your view goes back further. Because just, I imagine partly because of this function of the client base and like those are the kind of people that would have been thinking about alternatives for a longer. So what do you make of like the way that the industry is like, maybe it's always catching up to stuff that you have been doing? - Yeah, and I mean, that even predates me. And I tribute it a lot to just the entrepreneurial nature of our firm. And I would say, you know, kind of one of our core ethos is like don't let structure, don't let paperwork or hassle get in the way of a good investment. And so like one of our longest partnerships dates back to doing a co-invest alongside a firm back in 2011. - Okay. - That firm is actually, we were doing alternatives prior to that as well. Building our own fund of funds and things of that nature. But that co-investment really kicked off a relationship where, you know, our firm has grown tremendously and that firm we invest alongside has grown even faster. And it was really, you know, my boss Kurt and I and our managing partner Rick just really seeing, hey, the risk return in this investment is really, really great. One, let's do this co-investment. But also we like the way those guys think. Let's go partner up with them on a more meaningful level. And that really kind of kicked off what we've done a lot of, which is when we go structure these partnerships, one, we're looking for long-term partners where it's going to be meaningful for us. It's going to be meaningful for our clients. But hopefully also meaningful for the firm and the capital that we're going to bring to the firm we're partnering with. And so whether we structure that as an internal feeder fund where we're going to aggregate all of our client capital together so that we can go with one check to the GP and drive some fee savings that we can bring back to the client or some GPs or managers in the space have the capability to take clients as low as $225,000. And if clients can go direct that way and that's the easiest way to make the investment happen, we'll pursue that avenue. And so David, just like you said before, I feel like the industry's catching up of how do we solve the administrative burden of having small check sides of small tickets go into these investments? How do we manage the liquidity prudently and how do we kind of make those things in easy bite sizes for a traditional high net worth portfolio? - Yeah, so it sounds like, you know, and correct me if I'm wrong, but like, so you're doing a lot of this stuff basically in-house, just like doing this kind of managing of the relationships and all of the administrative work that goes into managing alternatives. But you know, also recently you guys did a partnership with like capital. So I guess if you can like contextualize that a bit. Like how has the technology or this infrastructure in the industry that's developed? How is, you know, what's your take on that and how is that kind of interface with like, it seems like an interesting challenge than taking like, okay, if you've been doing this for a long time and you kind of built your own processes, but then like now you also like are trying to maybe migrate it or work together with someone else to help further that. I don't know, if you could just, I'd be curious just to hear about that. If that, if one of the same makes sense, yeah. No, it totally makes sense, David. And I would say the one big thing and it goes back to what we were literally just talking about, how do you make these things scale? And so that was the heart of our partnership with like capital was how do we make the processes and the fun, the fear of funds that we were building in a house? How do we make that scale as, you know, we went from, you know, a small, you know, sub billion dollar RAA to a $30 billion RAA today. And, you know, I don't think around here there are any plans to stop growing. And so how do we make these things scale across, you know, new advisors, new acquisitions and new clients. And so I capital was, I think a key solution for us to help that process scale. And so it was, you know, you're sitting here in a desk today thinking, all right, this is a little burdensome today, whether it's filling out paper sub-docs on a PDF and printing them out and having them signed, you know, then re-downloading those PDFs and storing them, making sure all the answers are correct. And we got all the pieces and parts in place to get the investment, you know, into the client's account. How are we reporting on it? How are we running tax? How are we running audit? All of those things and saying, all right, if we're struggling to do this now with the people in places we have today, if we're gonna go double in size, how do you, how do you do that without more than doubling in size, the employees that you have? And so I would say technology is certainly the answer there. And I mean, I think RIAs are probably not on the forefront of technology. It might be a stodgy industry that we're in. But I think, you know, I capital is one of those groups out there that's, it's really bringing the technology to the forefront. First and foremost, just on like the pre, we refer to as pre-trade, right? Like you identify a fund we wanna go into, if we wanna build a fund, a feeder fund around that to use the size and scale of MAI to pass on some benefits to our clients, I capital can help do that with relationships and with technology. So they can help us build that fund. We identify the GP we wanna partner with. They'll help us build the fund and then they'll digitize the subscription documents as well so that our clients can, we can just log into the I capital. portal, basically click some dropdowns and say, all right, this client wants to make a $250,000 commitment to this fund. They select those buttons. There may be a couple of extra questions that they have to answer. But a bulk of that information is already stored in there and used from other subdocs. And so they can just port that over to a new subdoc instead of having, you know, whether it's me, whether it's one of our advisors or one of our client service specialists filling out a 75 page PDF that has most of the same questions as the last one did. But they're a little different this time. And so really just coming into the 21st century of using these digital tools is key to our partnership with that capital. And it helps on the front with filling out the subdocs. It helps on the back end when you're managing the fund. It helps distribute the K1s. It helps distribute the quarterly capital account statements. It helps get all that information into our portfolio accounting systems so that during those quarterly meetings with clients, you can show the most updated information we have to the clients directly because that's, you know, another challenge on reporting with alternatives. So basically, you're also able to take all of these legacy things that you've done in base and bring them into a platform, like bringing them into this new platform. So it's like you could, like you're not just like starting from scratch on new stuff with them, like you're able to take the legacy stuff and manage it all together now. Yeah. And not all of it because, you know, there's some small stuff positions and things like that. But that maybe didn't make sense. But yeah, we were able to bring kind of key legacy positions on the platform to help manage as well as anything go forward from here that we want to spin up. And so there's obviously been some growing pains and some onboarding pains with any new technology. But it's been really positive so far. So just looking at like, you know, the pivoting bit to like the alternative private market, you know, whatever, both of these terms get tossed around kind of interchangeably a lot of these days. But there, you know, we have the traditional kind of drawdown structures that have been around. Now we have the sort of these newer kind of evergreen structures that are coming. There's just a huge amount of interest from the asset management side on the wealth side. I mean, we also, I mean, I basically get inundated with like press releases about new funds, also about the teams they're building, you know, like, oh, we're hiring a new head of RHA channel, we're hiring a private wealth. So how does that, what does the challenge become on like the diligence side, you know, you're sitting in your seat now, like seeing this increased interest, increased competition, increased kinds of fun structures. Like, what does that, I mean, I mean, sounds are pretty exciting to me. They have to have to be in that right now, but curious about what your changes. Yeah, I mean, it's super exciting. On one hand, you're like, all right, this should open up new avenues for more of our clients to get exposure to things that are hopefully, you know, positives. And you know, if we're doing our, you know, like you can kind of basically divide up the diligence challenge, right, to underwriting and understanding and finding really good underlying investments. But then you also now have to understand like the vehicle that you're coming through and any pros and cons of that vehicle. And so what like what we see is basically the challenge of these new evergreen structures is that yes, it's really easy to get exposure to some things that you might find really attractive. But you want to make sure that if you're coming in through an evergreen vehicle, you really want to be cognizant of the price you're coming in at. And then possibly the price you're going to go out at. And then to if there's, if and when there might be hiccups in that liquidity along the way. And so I think it's really difficult to diligent some of these things because they're one, for some point of us, they're illiquid. And so you can't snap your fingers and make this magical liquidity transformation of turning an illiquid asset into a liquid one. It took us hundreds of years to build the liquidity we have today. And our public and our public markets. And so we're certainly not going to do that with private markets, you know, in the course of a decade. But for us, it really goes on a gradient, right? Like I think there are things like private credit that are that are fairly easy to to value on a quarterly basis. And you're just saying, hey, is this loan impaired or not? If not, it should be traded roughly a par if it's a floating rate loan. Are there differences in credit spreads from when this was underwritten for versus today, possibly, and that should change the pricing a little bit, but across a well diversified portfolio, you can get pretty comfortable there. And then moving on to things like real estate, we do have in the country today, like we have a robust way to value real estate. And you can say from an investment perspective, and you know, at the margins, it may be right or wrong. Like I don't want to make an investment decision based off of simply an appraisal report, but if I'm investing in a broad diversified portfolio, you can get a little more comfortable there. But then as you stretch out into the risk spectrum and the things like private equity and venture capital, the price you're paying on those things today, and then the price you're going to exit out in the future becomes much, much more year. And so I think that honestly takes some of the benefits away from some of those asset classes and just makes the evergreen structure much more of a challenge to wrap your arms around, even if you really like the manager who, you know, put the structure together and is sourcing those deals. And so if I'm sourcing those deals beside them in a drawdown structure where everybody comes in at the exact same price, they sell that asset five years from now. Everybody leaves the exact same price. There's a little less owner on the vehicle diligence, whereas on the evergreen side, it gets a little more. Challenging. Yeah, it's been interesting. I think there's increasing amounts of data to about some of these things. I mean, Morningstar has expanded their coverage. You know, there's there's pitch book. Some of these folks were really even doing this over a year ago. Now suddenly you have like reports that are looking more at this market. I thought some of Morningstar's analysis, which I think a couple of things jumped out. Some like dovetails, what you're saying, one was that there seems to be a tremendous amount of momentum around private credit in some of these, about the BDC and the Interval Fund wrappers. But also the fee structure, the report that they did was very eye-opening and looking at all these layers of embedded costs that you're paying. As long as it's a performing, you still might get a decent return, but it's just like you're paying pretty significant chunk of compared to some other things you might be investing in. So I guess if it's a net return, you're still okay. You can be okay with that, but it does seem like it's also perhaps a place where there's further a movement here, like being more competition, there's fee compression in that space and these things become better, I don't know. Yeah, and I mean, it's something we wrestle with all the time, right? Of like, okay, first it starts out where you're providing more access, people rush in, and so it's great, but then the more people rush in, you know, the more capital-chasing you give an asset class, right? You would just expect just from an Econ 101 perspective for four of returns to go down. So is part of the illiquidity premium, is just the complexity premium of the difficulty to access these things, and so that if you remove all those roadblocks, then maybe we get some fee compression too, but also do we get total return compression and trying to balance that long term is very difficult. Yeah, it's something going to be interesting, space to watch especially, you know, I guess the other thing that we haven't seen, I think which you also alluded to, is like what happens when there is a liquidity crunch, you know, like when you have a situation where these funds are hitting their redemption gates, and people are like wanting to get the money out, but it's like, you know, we can only do five percent or we can only do one percent of quarters, so you're going to have to, you know, you have to, there's going to be a queue for a while, and then you just have like, you know, what, or if there's like a, you know, we have a credit in the market, what happens, like, so like there's some ways that these things have not been tested, at least not some of the newer things, I think, you know, we've certainly had, you know, not treated rates go back further, we've seen cycles with those, we've also seen other things happen with those, but like, I'm really curious to see what happens with private credit funds, you know, when some of this stuff comes to a head. Yeah, and I think that goes back to, for some foremost, educating your client on, you know, yes, there's quarterly liquidity now, but it doesn't mean there's always going to be quarterly liquidity, and so, you know, luckily, we've not, I mean, obviously not luckily, we've had some experiences with interval style funds that have taken a while to line down and have been gated for periods at at a time, and you do feel, I forget exactly what the, the kind of paradox is, but I think it's Zeno or Zeta's Lama, I had a math teacher in college that exemplified this physically in the room, it was very funny, but it's basically if you walk halfway to the wall, and then you walk halfway again, mathematically, you should never get there, but the professor smacked his head against the wall to make the point, right? But so when you're in one of these, you know, one of these funds, and you're only getting 50% of your commitment back every quarter, when you request a redeem, it feels a little bit like that. And so, I think living through that with clients and also educating them at the beginning is just really, really helpful, but you've also got a bunch of other participants that It may not have had that experience yet, and just saying like, oh, there's quarterly liquidity and there will always be quarterly liquidity. And so kind of rushing into and putting clients into some of these vehicles that may or may not have the ability to to take on that liquidity. So for firms that, you know, don't have the experience that you guys do with just the asset class and some of this stuff, what are there? What are some tips that you would just have brought market tips for like RAs that have not done a lot of alts and maybe thinking about it? Are there some pointers you would have for them without giving away any any secret sauce, of course. I don't think we do anything secret over here. I think it's just the basics of blocking and tackling and going through the suck. But no, I would say like the the first thing is is re if they if they provide you with legal documents, read illegal documents, if they don't provide you with legal documents, ask for legal documents. And so maybe go the extra mile spend the actual legal dollars to maybe talk to some external counsel to guide you through these things because a lot of a lot of counsel will, you know, fairly, fairly cheaply give you what their perception of market is and what's market and what's off market. Because it's what they do on a day to day basis. And so they'll bring up things and you may, you know, read through the legal documents have a list of questions. They'll read through the legal documents and have a list of questions and highlights to say, this is market, this is off market. Why don't they have X in here? Because you can read things and say, I don't like the way this reads. I don't like what about this scenario, what about this scenario? But what you won't see is what's not in the document. And so they could come back and say, oh, well, it's very it's very normal in the situation to have a GP removal clause. Why doesn't this fund have a GP removal clause? And if you don't have the experience of looking through hundreds of these documents, you won't say, like, man, where's the GP removal clause? And so it's just spending the time to read through the details of the agreement, know what you're agreeing to, know what investor protections you have. And then also hopefully talking to somebody else to say, hey, there's, what other investor protections should I have here? And what should I expect for bringing, you know, XYZ capital to, you know, to the table with a fund like this? And so doing all of those things, I think is just first and foremost, to one, understand the economics of the investor investment you're getting in, but to understanding the structure of the investment you're getting into, you know, whether it's an interval fund or a private drawdown vehicle is really, really kind of paramount to understanding what you're getting into. And then after that, I mean, it's really just, you're not going to know everything. And so just going in it with some humility and preparing your clients for that because like, there's just delays in reporting, there's going to be delays and tax filings. And so preparing clients on the way in and then just being humble when it happens of saying, I thought I was going to get a K1 by June. I'm actually not going to get a K1 to mid-August. And it's because of XYZ with my accounting firm that I chose to hire for tax year or something like that. And then there's going to be delays getting quarterly capital account statements into your accounting systems and things like that. And so being prepared for delays and for hiccups is just going to be a natural course in these deals. And once again, I think it's, you know, it's part of the reason these opportunities exist and provide access returns is because not everybody can deal with that with the complexity going to it with humility and especially the liquidity. I know it's going to be obviously contingent on clients like their goals, their risk tolerance is, you know, all the kind of proper conversations that have to happen. But is there like a general range for like what kind of allocations that you are working in in terms of, you know, alternatives for the folks that are using them? Yeah, yeah. And it's certainly predicated on because obviously for our client base, right? Like if you're talking to a 25 year old NFL player on their, you know, ending their rookie contract and signing their first big contract and may have another big one after that, they have a much different time horizon than a person of similar wealth that's in, you know, maybe they're mid to late 60s or 70s, right? And so you want to take all of that into account, right? Future earnings when you're sizing things and then liquidity needs, right? But and then also total portfolio size. And so that's a lot of variables that you're trying to melt down. But once the advisor and they talk to people in my team all the time about these things is like once they have a general idea, the first step is to just sit down with the client and say, Hey, I think you could have 15% of your portfolio in illiquid style private markets opportunities. Are you comfortable with taking 15% of your portfolio? And it's not going to be tomorrow. It's not even going to be next year. It's going to take us a couple years to build up to 15% as we source the opportunities. But once we get there, are you comfortable with, you know, if you have five to 10 million dollars, are you comfortable with that number not being available for you to just withdraw at a moment's notice? And having a very frank conversation with the client and then as that number starts to go up or their experience with alternatives may go up, I think they get a little more comfortable with those things. And so once you get there, then you can say, well, we were comfortable with 15. We met our 15 goal over three to four years by making these commitments and having these draw downs. Maybe the portfolios grown some two are we comfortable now at maybe 20% or 25? I mean, some of our largest clients are truly have multi-generational wealth and are investing much more like a foundation or an endowment than a traditional high net worth client would. But we're still trying to provide the tools for our advisors to make that decision for a five million dollar client, the same way they would make the decision for, you know, a $750 million client. And that really comes down to client comfort and education. But then also the tools to say are and if I'm building a 5% allocation private equity, how do I make commitments today? How do I make commitments next year? And how do I make commitments the year after that? And then how do we reassess the long way to see where distributions are coming back? What's the size of the commitments? We just made to manage that expectation. And then the biggest thing I think is to really understand with that advisor and with that client to understand that, hey, the market's probably going to have a drawdown across, not probably, 99% probability will face a drawdown here. And so just because we're targeting 5%, doesn't mean if yes and P drops 20, that now all of a sudden we have 7 and a half percent of our portfolio and private equity. Because we, you know, most likely those marks aren't going to move as much. And so just being ready for that and having that flexibility and just really trying to educate with as much as you can because you can talk to your blue in the face, but until client experiences at first hand, it's, you get a very different reaction when it's real and right in front of them. And so doing as much as you can on the education front going in and then also being ready for, all right, we're working through a broad market drawdown right now. We're also working with our investment partners to figure out where everything is. But we also have to take that time to provide like the hand holding and the reassurance that hey, things are still going just fine. This isn't a time to panic and try to go sell something on the secondary's market or something like that. So it's certainly a lot, a lot of education. Yeah. Yeah. Well Ben, I appreciate we've gone for a good, good stretcher. So probably good, good place to end things. But before we wrap up, just wanted to, you know, if there's any like final thoughts or things that I didn't ask that you would want to just share with the audience. And secondly, if folks want more information about M.A.I. or about how to reach you, if you want to address either both of those things. Sure. I would say the only final thought is, you know, like the old investment adage of there's no free lunch, you know. And so I don't want people to think that just because you have access to alternatives now, that access returns will just magically appear. There's no, there's no replacement for doing the work, finding good underlying investments and finding good structures for those investments. And so I'm not, I'm not worried about my job or my team's job going away anytime soon because there's still a lot of work involved. And so, you know, don't just run out and buy the first alternative investment you see. You know, go out and do the work and survey the market and try to find the best opportunities for your clients. And then, yeah, if people want more information on M.A.I., you can go to our website at M.A.I. Capitol. And then if you'd like to reach me, I'm on LinkedIn, and you can shoot me a message. Okay. Well, David, if people have questions for you, how do they go about doing that? LinkedIn's probably the best way to reach out to me. So just, you know, connect, send me a message there. Also, just make sure to be, you know, if you're picking up this podcast on one of the services, make sure you come to our website, wealthmanagement.com, check out our investment section where we have lots of additional coverage of not just alternative investments, but SMAs, model portfolios, all the tools that advisors are using for managing college investments these days. - Okay, well, thanks to both of you and thank you for listening today. Please like, follow and share this podcast with your friends. Until next time, I'm Wendy McConnell. (upbeat music)