Navigating the Complexities of Alternative Investments: Insights from Crystal Capital Partners

Andres Sandate: 00:00:02

Welcome to another edition of ATL Alts the story behind the numbers. This is your host and creator, Andres Sendate.

I am joined today by a good friend, somebody I've known in this business for quite some time and excited to have him joining us for the first time on the show to provide our listeners and now viewers as we've added the video format to our, to our show here at ATL alts Alan Strauss, who's a senior partner and head of investor relations at Crystal Capital Partners based in Miami, Florida. So with that, welcome to ATL Alts.

Alan Strauss: 00:00:48

Alan Andres. It's wonderful to be on with you. It's been a long time in the making.

Yeah, I think it's at least a decade long relationship that we've kind of grown up little bit in the business together.

So I appreciate that you who know Alt really well and have certainly seen the industry mature the way that I have and now obviously you've got a forum to talk about it. So thank you so much for having me.

Andres Sandate: 00:01:12

Yeah, no it's, it's, it's a real pleasure and delight to connect with friends.

As we were talking before we, we jumped on, you know, this business comes down to, you know, people, relationships and, and you guys have been doing this at Crystal Capital Partners for, for quite some time and that says a lot just in and of itself because you know, and I know how much things change, how much people change in this business. So I always like to start the conversation with my guests here on the show because it's, it's our tagline, the story behind the numbers.

Asking you just a simple basic question. Tell us about you. Tell us about Alan. How did you get to this point in your career?

Alan Strauss: 00:01:59

Thank you very much for that. I'll give you the short side of it.

I've been doing this for 15 years and had the good fortune just after the global financial crisis to join this firm. I think maybe at one point in my younger life I wanted to run a sports franchise.

Now the opportunity to start investing in sports, sports franchises has kind of brought it all full circle.

But I had the opportunity in: 2009

Since the early 90s crystal has been investing in alternatives but quickly recognized post global financial crisis that a fund to fund structure which historically was how advisors and their high net worth clients were able to access many of what are today some of the most recognized names in the Altura Investment industry. That vehicle, the fund to fund was an easy way to do it, professionally managed diversification.

But what we learned in: 2008

From: 2010

Andres Sandate: 00:03:31

Commonly known today as I think you were getting ready to say, like private. Like private markets.

Alan Strauss: 00:03:36

Exactly. Private market. Sorry, I had a small power outage here. So we caught that.

Crystal platform exists since: 2010

And to really just wrap it all with a bow in terms of the introduction, what makes us different with respect to everything else that's out there is that we're an RIA.

And just as back in the 90s, today we continue as a firm as the partners, myself included, to be really the largest allocators through our own structure.

So as has famously been said by Bill Parcells affectionately to us Miami Dolphins fans and obviously Giants fans out there, but if you are the one going to the grocery store and buying the goodies, you better be able to cook the meal and then eat it. And philosophically we align with, with, with that thought process.

Andres Sandate: 00:04:34

Well look, I mean alignment of interests is one going to talk about due diligence today and get into a lot of the aspects of alternatives as it pertains to the financial advisor, the independent advisor, this fast growing private wealth channel. But you know, due diligence just is such a meaningful, important, critical piece, particularly for those advisors who have fiduciary responsibility.

Right. They have an obligation to understand what they're doing and who they're investing alongside and with.

Let's talk a little bit about the organization, Crystal Capital Partners first before we get into how the organization is helping advisors and their clients ultimately benefit from access to diversifying strategies. How big is the organization in terms of people? You know, this is a people business. We talked at the, you know, the pre show culture is critical.

Tell us a little bit about, you know, who's behind the firm. You are based in South Florida, so give us a little bit of the organizational kind of setup.

And you mentioned the firm's also an RIA and invest heavily in a lot of the underlying strategies and managers. So maybe you could give us a little bit of a setup of the firm itself.

Alan Strauss: 00:05:55

So we're 28 folks. We're in South Florida, which today, I think over the last five years has kind of evolved into the epicenter of the new Wall Street South. Right.

We've been fortunate from a talent influx standpoint that many of the managers we work with have realized that it's really nice to live down in South Florida. Quality of life choice, and it has always been a gateway to Latin America.

Obviously, so many of the large banking houses have been down here for a long time, but we've clearly seen many, many independent firms, which are the clients that we work with. We work with only independent financial advisors, and we've seen them moving substantially to cities like Miami.

And so it makes having them close to home. Our firm is very focused on providing solutions for advisors, and a lot of that is focused on technology.

So obviously a platform, what does that mean? It's got a user interface so someone can land on a page and then begin to do analysis on who these opportunities are. Right.

Get to learn, humanize who they are. There are managers here, they have specific strategies, they have size, they have institutionality, they have independent service providers.

So communicating all of that and dismissing one of the key misconceptions about the industry, which is that there is no transparency. The firm's called Crystal for a reason.

And so as a result, when clients of ours or prospects who are interested in procuring a relationship with Crystal, you know, having access to all that information, knowledge, at the end of the day is power.

Andres Sandate: 00:07:29

Yeah. Well, one. One anecdote that I want to share with our listeners.

I, I put a, you know, a really high importance focus, what call it what you may, on, you know, the, the meeting of the investment professionals and meeting of the executives behind the folks, you know, where I'm recommending clients deploy capital.

And I remember the first time I was in your office, I think I met Steven, one of the founders, and we were sitting in his office and there was a couple of things that struck me. Number one, your organization, this is years ago, it's probably 10 years ago, at that time, was heavily investing in technology.

And that stuck out to me. And I'm sure that you could talk a little bit about that and the importance of that, but that really stuck with me on that visit to your office then.

And then secondly, when I mentioned Stephen, one of your founders, when I was in his office, I think you were with me, but it was the first time. And this is speaking to South Florida, but It was the first time somebody had offered me a Coke with lime.

And that's like the drink of choice because being an Atlanta guy, like everybody in Atlanta presumably drinks Coke. We don't, but it was like that twist on top of, you know, being the Atlanta guy. So that, that always stuck with me.

Alan Strauss: 00:08:49

But it was probably the first time that anyone in a meeting offered you a Cafecito as well, right?

Andres Sandate: 00:08:55

That's right. That's right. Because your coffee is legit.

Alan Strauss: 00:08:58

Yeah, we have that in common as well, you and I, from our leads. Speaking of technology, you're referencing Stephen Broad, who's our CEO today and our CIO and is one of the founding partners here of the firm.

We have an internal investment committee.

So that's a critical element in addition to contracting out third party due diligence service providers that really provide a full overarching analysis and view that we can have into managers.

In addition, that we are constantly communicating with the managers, but from a technology standpoint, almost one third of the workforce, like I said, We're 28 folks here and pretty much one third of the team is our developers, affectionately known as the geek squad here.

But we've got four offices in a building and, and those guys and girls are on the fifth floor and they are constantly evolving the user interface, which actually just launched with a brand new fresh coat of paint.

So the ability now to look at funds, you're doing window shopping to filter funds based on strategies, based on size, based on themes of their strategies, is part of the ongoing effort to streamline what is an asset class that, as you well know, Andres has significant barriers to entry. And those barriers, whether real or fictitious, are what prevent many investors and their advisors from ultimately benefiting from this asset class.

Andres Sandate: 00:10:26

Yeah, I mean, and I think you, you sort of teed me up, right, to ask you some of the, you know, important questions. Right.

Our audience on ATL is the financial advisor, typically an independent advisor, the multifamily office, the due diligence officer, the person responsible for, you know, understanding the landscape of alternative investments. And which partners do they need to be working with across all the dimensions. Right.

Not just investments, but operations, due diligence, technology, etc.

And I really do believe, and I launched the show and the platform Atlas as a result, that one of the key barriers is access to education, access to information, education, and then insight. Right. On how to utilize alternatives.

And for the financial advisor, specifically, they sit in a very unique and important and critical stage for the client in that the client has accumulated wealth over their lifetime.

And they've entrusted, in some cases some, a portion or all of that wealth to an intermediary, typically a private wealth manager, a private banker, a broker, an advisor. And that individual has to have ultimately a view on asset allocation, portfolio construction, access to managers and products.

It is a huge, huge responsibility. Right, that this advisor is entrusted with. And so for me, when I step back and I look at alternatives, I get really, really excited.

On the one hand, because technology, access, information, it's prevalent, it should be better, but at the end of the day, you guys aren't selling access. And it's not just about access to great managers. And maybe that was hedge fund 1.0 and private equity 1.0.

So you could tell your friends you were in this or in that particular fund. But that's not the game anymore.

So the first thing I want to ask you about, Alan, as your organization came out of being a big investor in hedge funds in the 90s and as that industry has matured, talk about that evolution.

As you know, as Crystal has evolved and the firm's grown, you are providing far more than access, quote, unquote, today to the financial advisor who wants to utilize alternative investments in their practice. Can you just talk about that evolution a little bit and how you're serving the advisor today?

Alan Strauss: 00:13:09

Absolutely. So that's, that's a big question, Andres. Let's, let's start to unpack it little by little.

Andres Sandate: 00:13:15

Little by little.

Alan Strauss: 00:13:17

Yes. Atomic Habits, to quote a very, very widely known book that I'm.

Andres Sandate: 00:13:21

That is. Yeah. James Clear.

Alan Strauss: 00:13:23

Yes, good one. There you go. There you go. Despite the fact that he went to, I believe, Ohio State University.

So that's the only thing I'd have against him as a, as a University of Miami.

Andres Sandate: 00:13:30

I'm with you. Go Canes.

Alan Strauss: 00:13:34

Look, access is really the tip of the iceberg. Advisors today have more access to product than ever before.

And one of the key conversation elements or topics that I have with advisors whom we're working with and obviously prospecting a universe of over 150,000 investment advisor representatives in the United States today, is that access is just one component. Having access to premier managers, meaning those or institutional managers is a better word.

Managers that have been through multiple market cycles, managers where the GP is a large allocator and has that alignment of interest managers that continue to be today to be asset managers as opposed to asset gatherers, managers that are not readily available everywhere.

So it's not that they provide exclusivity, but they just really cater to a specific audience and primarily to institutional Investors who have a very high barometer for, you know, process and size and scope and scale and experience, and independent service providers.

So again, once you've arrived at having this group of managers, let's say that, that, that a firm or that an advisor is comfortable with, then it becomes about deploying that capital. These managers have high barriers to entry.

So building a portfolio, which unfortunately many investors, to their detriment, are sold product and alternatives, is an asset class that brings diversification to the portfolio. So if we're buying only one or two things, we've ultimately just dismissed the entire premise of the asset class.

And we forgot a very important lesson that we all learned in grade school. Don't put all your eggs in one basket.

Andres Sandate: 00:15:15

Okay, that's a good one. That is a good lesson. So I'm going to stop you there.

Sure, we can banter because, you know, we, we agree on many things related to the importance of alternatives. We're not going to talk your book and my book, but what I do want to talk about is how the advisor can benefit from this conversation.

Specifically the advisor who is maybe one of two archetypes. Maybe it's the advisor who's thinking about going independent. Right?

So he or she and their team have had the benefit of being at a gigantic bank, a big wirehouse, a big broker, dealer, and they are seeing, you know, hey, there's things I can't do or want to do for my clients that for various reasons, fees, compliance, technology, what have you, they can't do. So that would be one potential archetype of advisor that I'd be curious if you guys work with.

And the second would be the one that I am increasingly talking with at Endurance Strategies, which is the independent advisor who has gone independent.

They have brought clients from their prior shop or acquired assets, built up a book, and they want to begin using alternative investments in their practice for various reasons. Okay, so, so that being what it is, do you serve those two types of, let's call it advisors within Crystal Capital?

Alan Strauss: 00:16:43

Without a doubt. Without a doubt. And everything in between.

But if we focus on those two types of advisors, you know, the one advisor on one side of that barbell that you alluded to, you know, these folks that have come from the wirehouse world that have had a lot of exposure, alternatives and recognize the role that they should have. And I often speak to advisors about, really, if we break this down in its simplest form, we need a couple of levers to pull, right?

And those three primary levels that I hear more often in conversations with advisors are to reduce volatility.

And quite frankly, hedge funds have really, over the last three decades, continued to validate themselves as being the role within the portfolio to provide sort of those shock absorbers. Right.

Andres Sandate: 00:17:25

It's interesting, and I want to stop you there because that has evolved. Right. When I started in the industry, hedge funds were your alpha, right?

Alan Strauss: 00:17:33

Yep. Return enhancer.

Andres Sandate: 00:17:36

Yes, exactly.

And, and you know, it felt like 90% of the funds were long short equity and you know, a lot of them were long short equity and drag, as you really find out, because they really were not doing much shorting and they certainly weren't doing active shorting. Now it feels like the, you know, the spin or the marketing.

And I worked at multiple hedge funds, so now it feels like hedge funds is much more of a diversification, volatility reducer. You know, when the market does an.08, hedge funds are there to sort of create more of a buffer.

Now, I know there's a lot of different hedge fund strategies and we're not here to pick on hedge funds.

I agree they serve a role, but I think what you're saying is hedge funds, in addition to other buckets of alternatives, all can serve a specific purpose in a portfolio. Is that what you're saying? Because I don't want to put words in your mouth.

Alan Strauss: 00:18:29

Well, if we just look at historical data, right.

of: 2018

So we're only going back here 25 or 30 years and we've seen about a half a dozen events that created tremendous dispersion and volatility dislocations within many markets. And looking at hedge fund strategies, I agree with you completely.

There are many hedge fund strategies under the sun and there are many handfuls of them that are the high octane and what we were referring to that years back, this absolute return that gives you alpha over, but giving you alpha over also implies you can reduce volatility so that you can compound an attractive rate and still capture that same alpha. So we're looking at really defensive strategies that can accomplish that.

Things like multi strategy, things like relative value equity, market neutral. Right. You can make an argument for long short because it's not directional in the way that the market is. Right. So these managers can mitigate risk.

But you know, shorting is a very difficult talent to maintain on a consistent basis.

But given the ability to create multi manager portfolios of hedge funds is giving the investor the optimal opportunity to be able to generate that risk adjusted return through time. Right?

And then if we look at some of those other levers, then it's all right, how do I generate income for my clients that are either in retirement or nearing retirement that are potentially to a premium to what risk free or public fixed income has given investors? And it's not a trend anymore. But for the last decade and a half you're very familiar with it, private credit has been able to do that.

Again, don't buy one hedge fund, don't buy one private credit manager. It's about asset allocation. And then the third lever that investors talk about wanting to pull and give investors the benefit of is growth, right?

So if you want growth and you go only by one VC fund or.

Andres Sandate: 00:20:41

One PE fund, for example, the potential.

Alan Strauss: 00:20:43

That you're going to get the growth out of that singular investment is challenging.

But again if you buy one or two VC funds and one or two middle market growth equity and one or two late stage growth equity pre IPO and two leverage buyout and you have the consistency of being able to do that, then you're behaving like an endowment. And the blueprint is there. The endowments, foundations, institutional allocators have now for 30 years shown their report card.

And their report card has shown that if they have had exposure to alternatives, they have performed better on that operative org risk adjusted than their peers who have either ignored the asset class or only began to dip their toe relative to many of the large institutions that have had 40, 50, 60, 70% exposure to the asset class.

Andres Sandate: 00:21:35

Fair, fair. And so one of the things I want to, I want to break down for, for the advisors and those, those folks.

So we talked about these two archetypes of advisors.

Now if, if an advisor, he or she left, let's say one of the big wirehouses or one of the big Wall street banks and, and got, has gone independent, they typically are partnering up with a big custodian like a Fidelity or, or Schwab. Those are the two big ones. There's others, but those are the two big ones with the most market share.

So through that platform they're getting a variety of things, right, which we don't need to talk about on the show, but they're getting all sorts of capabilities.

On the other hand, if they've already established their firm and they are now looking to grow, take on bigger clients, serve that QP market, the qualified purchaser market, not just the high net worth. Call it accredited investor market.

One of the things I would love for you to talk about, Alan, is you refer to going and doing due diligence and sourcing as if I the advisor, do I need to be doing that or am I partnering?

You know, because I again, there's a lot of levels of sophistication when you talk about advisors and their background and where they come from and what they're used to getting. You go independent, it's a totally different ball game.

Or if you're trying to serve that QP client, that high net worth, ultra high net worth family that has money at Goldman, has money at a private bank in town, has money at a family office. Right? That's a totally different conversation. Who's doing all the work? It is, is it Fidelity? Is it, Is it Schwab?

I mean, we need to unpack this because there's, I'm not just calling up Ken Griffin at Citadel and saying, hey, I want to put some money in your fund. It just doesn't work that way. So let's talk about it in, in practical terms. What are these 28 people doing at your firm?

And, and how, when you say user interface, how's the independent advisor benefiting from all of that?

Alan Strauss: 00:23:40

Again, if you have the school of thought where you're going to DIY it, right? We're talking about these two types of advisors. The one that's recent breakaway but has very little exposure to alternatives.

And they're like a blank canvas.

And they're looking for education and they're looking for support and partnerships and even the folks that spin out of one of the larger warehouses and have had expertise, like you said, now the independent world, the ball is in their court.

Andres Sandate: 00:24:04

They have to build the models they.

Alan Strauss: 00:24:07

Need to create the infrastructure or the mousetrap to be able to service clients and do it adequately. The ultra high net worth client, they can do the plain vanilla traditional equity, traditional investment pretty much on their own. Right.

You can subscribe to any number of different software platforms from, we won't say any names, but from anyone to anywhere to the custodians you were just referring about, and easily for a handful of basis points, manage those portfolios of traditional investments. But that is not the case when it comes to alternatives.

So diying it is going to require hundreds of thousands of dollars in infrastructure, due diligence, custody, audit, and having those services so that clients can actually subscribe to these things, let alone the administrative elements that a firm would need within, you know, in house, which is, all right, I've got 10 clients here, only assuming. And they each should buy three or four things, let's say four things in the world of private equity.

Well, each of those funds is going to require a subscription document.

Now that's assuming that they're willing to take your client directly as opposed to you, the advisor, having to create a structure which is going to have more scale and, and then invest into that manager to meet its minimum. Now you've got a bunch of accounting and additional operational layers of complexity that you've added for yourself.

So the 28 people here at Crystal is to simplify all that. Right here are a number of different funds that we work with in excess of 50.

Sort them, filter them, understand who they are, lean on our team, which by the way, is investing in these very same funds side by side with you, Mr. And Mrs. Advisor.

And now that we've arrived at a grouping of funds that we think meet the objectives of the client, it's about creating a presentation that's friendly for the client to understand and digest. And now that's part A, because then it's subscribing, then you got to actually add it in.

Andres Sandate: 00:26:07

Yeah, right.

Alan Strauss: 00:26:08

Every investor thinks, well, I buy hedge funds. There's no liquidity.

But it requires tools to understand that every fund has terms of liquidity and that can be made available assuming we know when those dates are to trigger those events. Right, right. And it's just an ongoing process, the reporting of it.

vestments, they don't produce: 1099

And now if you're getting 30 K1s from 10 clients to go to an account to now have them consolidated, you know, those are all additional expenses and they are additional parts of the operational process that an advisor must deal with as opposed to saying, look, I outsource many parts of my business and what I want to do is find the best partner I can to help with this element that I plan to bring to my clients so that I can only enhance my offering.

And if it's additive to the advisor's firm and the trajectory of growth that they want to take, alternatives are a very valuable asset class for the stability of that advisor's business from a revenue standpoint, the same way that it is in terms of providing consistency to an investor and their risk adjusted returns through time.

Andres Sandate: 00:27:19

Yeah, you know, as I, as, as I've navigated through the alternative and private markets and hedge funds over the last 15 years. One thing that has remained the same is quality. Or, or as I say, the cream rises to the top. So, so performance tends to be not predictable, clearly.

I mean, we're all regulated and registered. We can't guarantee results, we can't guarantee performance. But over time there's persistence.

The data shows that there's persistence in private market returns, for example, in venture and credit and private equity and real estate.

Let's talk about the financial advisor and the access you have over the last, you know, 20, 30 years at Crystal built relationships and this, this, this notion of access that we started the, you know, the, the, the, the call with.

Can you put that into practical terms when it comes to how, how do you, how does that access and the relationship and the capital that you're founders and the employees have put to work. Excuse me, how does that benefit the, the advisor?

Because we've also seen a proliferation over the last five to 10 years in product from some of these very same institutional blue chip, top of the shelf managers who are now building solutions for what I call retail for private wealth. Yeah, you already had the access. I would, I would think in some cases.

So how do you all like Crystal reconcile that when, you know, thinking about this, this market of private, private wealth as a, as a channel.

Alan Strauss: 00:29:18

So it's to all of our benefit who are in this industry of alternatives. Right. And alternatives are anything from collectibles to fine wines.

Andres Sandate: 00:29:27

Yeah.

Alan Strauss: 00:29:27

You and I were sitting focused on, you know, three strategies, let's call them hedge funds, private credit and private equity at the end of the day, that are probably the more mainstream of the alternative category. So you, you look out at the landscape.

It's been to our benefit that as you and I talked about a few minutes ago, that there have been a number of nervous moments for investors, right. These dispersion, these dislocations in markets a half a dozen times, at least in the last 25 to 30 years.

So we have already the data on the managers that have successfully navigated the potholes along the way and that haven't done it for three years or five years or in some case even a decade, but have done it for more than that. The fact that alternatives have continued to validate themselves has allowed for the product manufacturers to create more product.

And as you rightly alluded to it, this proliferation makes it so that advisors have to have an even more discernible eye.

ously when we started this in: 1994

e way through where we are in: 2024

And you and I both know that the dispersion in our industry specific to hedge funds, private equity, private credit, even real estate is incredibly substantial between the top performers and those at the bottom.

So it makes it very critical for an advisor now to arrive at this subset of managers that they want that the information may, may or may not be available in the public domain, but they can find out who some of the, you know, seasoned investors, the these consistent investors are. But now then the next layer of the equation, how do you start to access them? How do you get the reporting on them?

How do you build portfolios and convey this information about the benefits of these investments to the client and then how do you report on it? So you got the investment ready.

Now all of the other layers which are accounting and you know, the tax preparation and audits and then the ongoing desire to make new investments and make changes and rebalance and take advantage of illiquidity. Right, that illiquidity premium that we should be collecting as investors if we're investing in these specific strategies.

Andres Sandate: 00:31:59

Yeah, I, I would be remiss if I did not ask you all because of your long track record, long standing relationships, what you make of the following. Okay, so we saw how much money, okay. Was raised up to about the middle of 21, maybe even late 21 by large asset managers.

And we don't have to name any names, but they were effectively creating whatever you want to call it, side pockets or specific SPV vehicles to invest in tech. And these were groups that were historically known as private managers, you know, hedge funds, private equity, private grid.

But because they had access to deal flow and they had access to capital, they created these vehicles and then any cases invested large sums of money in call it late stage growth equity, you know, pre IPO companies. That's just one example. And again, we don't need to pick on any one manager.

But I just am curious what you all make of these episodes that we've seen pop up from time to time. And it's generally, you know, in this case, hasn't worked out great. You know, venture is a long term asset class, but it has pulled back.

That's public knowledge. Valuations are down, not as much capital is going into that space, it will come back.

But I'm just curious because you've been in the space so long, what do you make of when you see that happen?

And how does your organization navigate on behalf of advisors through these turbulent, unpredictable times when it's like risk on, risk off, do we allocate? It's a hot opportunity, do we let it go? Do we pass? I mean, there's just so much opportunity. And I'm.

I'm curious how your investment team and your process kind of filters through the noise.

Alan Strauss: 00:34:12

So again, that is a great question. We're going to unpack it for a second. Andres. So you're looking at a. When we arrive at having sort of a universe of managers, right?

And there's somewhere between 10 and 15,000 private fund managers out there.

Once you've arrived at finding groups of consistency that have done it through multiple market cycles, then as an investor, there's no such thing as set it and forget it. It's not a one time experience. Right? Because like you alluded to, venture capital is an example.

You commit to one fund and maybe they've got a 12 year term.

If you're waiting around without having any other activity or exposure to the world of venture capital, then your timing is predicated on that moment that the investment was made and those few moments thereafter where that manager is deploying capital, which may be into similar timeframes in that specific economic cycle.

If you look at historical allocation behavior of institutions who have zero barrier to entry, and again now this is going to lead into the complexity of the asset class. And why you want to find a partner is private equity. Private credit really have to be more like an open ended activity.

They are closed end structures. The fund closes, it's not available anymore. Right.

But to continue to generate liquidity from investments, it's about making consistent investments through time.

Because we don't know if year one is a crisis year, but year two may be a bonanza year and then year three is a year that we're rising rates and year four is a year that rates are going down. So these unpredictable factors of the economy allow us as investors to really have consistent behavior.

You're not trying to hit a home run with your private market investments. We are not. We want to be consistent.

And in order to generate consistency and to have growth of the portfolio and risk adjusted returns better than in order to do that is to have consistency in the investment process and to be as dynamic as what you're alluding to, you got to have funds that Allow that.

So in the hedge fund world, being able to rebalance and being able to look at other opportunities and bring them into portfolios based on certain opportunistic catalysts. And in private markets, again, you can look at time periods on a 5, 10, 15, 20 or 25 year period and private equity has outperformed public equities.

But because no one has the crystal ball and knows what that year is, when the huge outperformance is going to be. In other words, the alternative, no pun intended, is be consistent.

And if you're being consistent with the managers that they themselves have shown consistency in their performance through multiple market cycles, then you're already giving yourself a decided advantage as an investor.

Andres Sandate: 00:37:04

Yeah, I mean, I think you hit on some really great points there, Alan.

I mean one thing I think we all have to just own as an industry when talking about alternatives, whether they're semi liquid, you know, there were a lot of people that tried to go really liquid with hedge fund strategies that didn't really work, you know, years ago. But even semi liquid privates, all the way to more of the closed in, you know, drawdown vehicles that, that you're alluding to.

I think everybody owes it to the client. And clearly fiduciaries must disclose. This is not a space you get in and out of. This is a space with longer term lockups. Illiquidity premium is real.

If you're going to go into these, these asset classes, you need to tell the client there are certain objectives that each manager and strategy have.

And, and I think that as that message gets out and as that resonates and as the, you know, ability to explain and educate and inform the client starts to take hold, then there is really a good story to tell in private equity. Right. Do you want to just own the 500 largest companies in the country through an S P index fund that you can buy yourself?

Alan Strauss: 00:38:14

Well, because the reality is say you.

Andres Sandate: 00:38:16

Only get seven, you're getting seven. Right. And they're, and they're highly correlated. Or do you want to have access to the rest of, you know, the economy in the US Right.

Most of which is private businesses, small, medium, even large, that are just not publicly traded.

Alan Strauss: 00:38:32

So yeah, I believe the statistic today, by the way, is 87% of the businesses in the US with 10 million or more sales are private companies.

Andres Sandate: 00:38:39

Right.

Alan Strauss: 00:38:39

It's a tremendous opportunity for sophisticated lenders as well as buyout or acquirers to be able to employ their strategies, take advantage of what's out there. And again, you just mentioned a Huge opportunity cost that most investors typically look at.

Do I want to be in public equities and expect that the maturation of these companies will continue to scale at the growth rates I've been seeing? Or are things going to slow down? And the answer, spoiler alert, is that things tend to slow down in public markets. Right.

Blockbuster Video, we used to go and buy movies there are rent movies there all the time. You don't rent a movie anymore.

So whatever the tailwind that's coming, that may eliminate a company from being so efficient and so necessary in our world, you know, that that may change and we can't control that.

But what we can control is not having to make the opportunity cost anymore and be able to get exposure to public companies that are mature and are probably stable for a long period of time versus companies that are innovating and that are the next generation of the, you know, video store and whatever that evolution becomes.

Andres Sandate: 00:39:48

Right. You know, your team did a fantastic job. So credit, credit to your team for, for giving me some, some thoughts and ideas and questions.

And so what I'd like to do is maybe spend the last 10 minutes before we wrap up kind of talking about some themes and, and some areas that, you know, when you're talking to advisors and they're trying to decide, you know, I'm looking at two different platforms, Alan. And you know, you guys have these really great managers, you've cultivated over, over many years.

You've got terrific access, you've got all the technology, blah, blah, blah. But then they also want to know, like, what are you all seeing? What are you thinking?

What, what are the institutional managers that you guys have built these relationships investing in? So we're going to talk about a few themes.

First one I want to talk about is income and the, you know, just the explosion that we've seen take place in private credit.

And I want to drill into it because I've had guests on the show where we've talked about the idea of when you just simply say private credit, the vast majority of folks in private wealth think lending to, you know, private equity firms to do buyout financing. So we call that like direct lending.

Can you talk about private credit when it comes up at Crystal Capital Partners and like, how do you all look at that whole universe and what kinds of things are you guys looking for?

Alan Strauss: 00:41:31

Sure. I don't mean to sound like a broken record, but first, the main, most important element is the diversification component, right?

Again, not buying one thing. There is no one lender. That is the panacea Everyone can stub their toe, right?

And we've seen lots of major league baseball players go to the hall of fame for batting.300. You don't have to try to hit home runs every single at bat because often you'll strike out more than you'll be successful.

So when you start with that, okay, it's around diversifying, around what kind of managers, the types, the, the ingredients that we've talked about, this institutionality, these deep teams, long track record. And then it's about finding firms that have done so with their own risk mitigation process. Right. I. E. Incredibly low default rates.

Do they have repeat businesses? Repeat customers, rather. Right. So they're constantly doing deals with other sponsors in the industry as private credit continues to.

I'll use the word mature, but you and I pointed, you know, you pointed out and you and I were talking about it. I mean, private credit has really been around for the last 15 years.

It has become incredibly popularized over the last few years as we've exited a zero interest rate environment. We're now in a rising rates environment. And private credit managers are still delivering yield at a premium to traditional fixed income.

So that's the key to why advisors really are more and more enamored with it. Because investors need the yield so that they can keep pace with their own liabilities as they enter retirement, or are there.

But then again, the need to diversify, to find managers that have deployed billions into the space and have done it with no or historically very, very low defaults, because that is the enemy of the performance of those funds. And then it's about being able to blend managers that encompass this strategy.

But in conversations with advisors, sure, we can find lenders, and we work with lenders that are lending to 50 different industries, 60 different industries, right? From actual technology focused industries, you know, to hospitals that need to finance the new wing of a surgical center.

But what is garnering some attention and what is very interesting to advisors, if we want to share a specific strategy, is really in the world of software, okay? And there's a very, very widely known investor in the world of software who's been doing this since the early 90s.

They run a very recognized shop and they really coined the term that the software contract today is senior secured to anything else. And the reason I say that is because you and I are doing this podcast through a software platform and because of what took place with the pandemic.

We were already as a society very reliant on software.

But you tell me a business that would rather pay the bill on the mortgage as opposed to the subscription license on the communication software that they have to continue to market to clients and for their teams to communicate. Right. You're going to default on the mortgage of the office space, make everyone go work from home.

But so long as we continue to pay the subscription on the software. So that software contract has recurring revenue and is probably senior secured to any other piece of paper.

And that's really one thing that has attracted advisors as they're building multi manager credit portfolios. They're looking at software as being one of the elements from an asset allocation standpoint.

Andres Sandate: 00:44:59

Yeah, that's for sure.

I mean I was just up in New York doing due diligence and one of the things I think advisors also have to be mindful of and I'm sure you guys do this on the investment committee and when looking at, you know, ownership within the portfolios at the manager level is, you know, what you want to make sure is that these, these private credit managers aren't all allocating to the exact same credits. Right. And that's just, that's just sort of obvious. But I think the point is.

Alan Strauss: 00:45:30

Right, it is, but it isn't because a lot of folks will, will not have access to that information, I was going to say, or may gloss over it. You know, there are very important correlations that you can run to determine what's the similarity of manager by manager.

You can have three multi strategy managers that are uncorrelated to one another. You can have three private credit managers that are uncorrelated to one another.

Unfortunately, when you look at traditional investments, what ends up happening most often a client is buying into a portfolio of multiple mutual funds. And those mutual funds are different in name, but they are identical in exposure. And they have a correlation of 1 or 0.8 or 0.9 to one another.

And so that's a really key piece of when that advisor. Again, why does that advisor want to find platforms to work with? Because they have the built in diversification.

A platform like ours really supports the FAA in building out the portfolios.

And so having that element and that layer of hand holding is going to be critical in conveying the message and putting together the asset allocation so that it meets the objectives of the investor.

Andres Sandate: 00:46:35

Yeah, that's fair.

When you, you know, a second theme I'd love to talk about is, you know, when you look at advisors and they have the choice, some clients may or may not be big enough to meet some of the minimums and we don't have to talk Specifics. But in general, like I said, we talked about this earlier in the conversation. The semi liquid strategies that are becoming, you know, more prevalent.

Right.

So the non traded products, the registered non traded products relative to the more traditional vehicle of choice in the private, private markets, which is more of the, the LP GPLP vehicle or the closed end fund. How does Crystal think about that dynamic? And as a theme, you know, with, with choice, you know, it's always marketed as choice is good, but is it?

Alan Strauss: 00:47:33

So there is the issue of qualification standards, right?

Andres Sandate: 00:47:37

Yep.

Alan Strauss: 00:47:37

Or for whatever reason, the federal government and the different governing bodies have said that in order to invest in certain strategies, you must be of a certain level of sophistication. And that sophistication is determined by ultimately net worth.

Whether that is a good equation or not is neither a topic for discussion at this moment.

Andres Sandate: 00:47:56

That's right. It is what it is.

Alan Strauss: 00:47:59

Right. So certain products inevitably or certain solutions and strategies are not available to certain investor types.

Andres Sandate: 00:48:07

Right.

Alan Strauss: 00:48:07

So if you're an investor type that has graduated into this categorization of wealth and qualifies as a qualified purchaser, there really is no reason to have exposure to a product that is more designed for retailer mass affluent because those investors have a different need for liquidity than would this ultra high net worth or institutional allocator. Right. And managers aren't dumb.

There's no reason for them to provide a product where they have the ability to have a higher expense ratio in one over another. And it's very difficult for certain strategies to really lend themselves to a wrapper of semi liquidity. Right.

You're clearly giving up something in the exposure to the underlying assets. An interval fund. Right. There are liquid assets within that portfolio.

So it's just going to be very hard for that fund to generate what the traditional LP is if you're getting exposure to distressed credit liquid fund. I mean we have to look at the assets and the liabilities and they're not going to match up.

So it's very hard to find a distressed credit fund in a liquid wrapper. Multi strat. Maybe that's a different story. Long, short, maybe that's a different story.

But again, as you look at the history with managers that have had proven track records, their ability in giving a true LP solution has historically provided a risk adjusted return that is at a premium to the slightly more or incredibly more liquid version. Fair.

Andres Sandate: 00:49:43

Two more themes. You're on the hot seat. We only have a few more minutes. We've covered so much ground.

Alan Strauss: 00:49:50

Or this is just me.

Andres Sandate: 00:49:51

No, you're gonna be able to answer this one.

You know, historically in, in, in retail portfolios, when you look at non stock and bond allocations, historically retail investors, private wealth investors are over allocated to real estate.

Alan Strauss: 00:50:07

Why?

Andres Sandate: 00:50:08

I guess it's just in America people understand real estate. We identify with, with real estate, it's all around us, they tend to be over allocated to real estate.

And generally, you know, the case is it's an inflation hedge. You know, real estate doesn't lose value, can touch it and feel it.

But there's increasingly, and I'd love to get your take on this, a conversation around infrastructure, right? The highways, the toll roads, the ports, you know, the tunnels, the airports.

Let's talk about, you know, let's, let's call it the private wealth space, the RAA market and infrastructure. How does infrastructure, you know, because we've spent a lot of time talking about these other big food groups.

How does infrastructure fit into the conversation at Crystal?

Alan Strauss: 00:50:57

So we have these conversations infrequently. Where infrastructure has really begun to play a role is in what we're seeing managers referring to as new infrastructure.

So bridges, tunnels, roads, all of the necessary infrastructure you're referring to is traditional infrastructure.

Andres Sandate: 00:51:16

That's old infrastructure.

Alan Strauss: 00:51:18

It's, it's dated and yeah, it's necessary and it's dated and we're seeing it.

I mean everywhere here in South Florida we've got lots of bridges to get over certain water waterways and all of these bridges are going through renovation projects. But new infrastructure is referring to space exploration, it's referring to software, it's referring to the connectivity of consumer applications.

And that takes us back to software lending. So clients are going to infrastructure investments for the consistency of income, the yield component, the inflationary hedge fund.

So maybe software doesn't have that component, but it certainly is generating yield for the lending to these types of companies that are financing their growth, that are expanding the connectivity of satellites and of communication towers and so many elements that are part of our new age infrastructure that that's really the conversation goes. And why does it still fit?

Because while it may not provide necessarily, it can certainly provide the inflationary hedge because you're seeing the outperformance of the yield, but it's because an investor can still capture that traditional income.

So now in the context of a multi manager credit oriented portfolio or income generating portfolio, you can have new age and very traditional infrastructure.

And that really does seem to provide a client with exposure to things that are incredibly applicable today and gives them again well rounded exposure to both innovation as well as traditional assets.

Andres Sandate: 00:52:56

Yeah. When you think about the real estate space, just to pick one area and this term, I like it by the way, new infrastructure.

I think my thought also goes to, in addition to the list you outlined, it goes to things like data centers and, and the importance of data centers and even last mile kind of logistics in our on demand economy. Being able to get packages from point A to B and do it quickly and be closer to the, you know, the in buyer.

But just the data piece back to that one, the data centers. I mean the lead times on getting the equipment and infrastructure to put in the data center, not just the building itself.

We're now talking multiple years. And as the amount of data consumption increases, not only here in the U.S.

but globally, I got to think that's an area, you know, that's going to become increasingly, you know, more and more critical. As tragic as it was the bridge that went down right in, in Maryland, imagine a major, major data piece, a data center portfolio going offline. Right.

And just the critical nature. So these are like super, super meaningful assets.

Alan Strauss: 00:54:11

Listen, new infrastructure also has to refer to data security. You know, you hear security experts, national security experts who talk about our grid and the susceptibility of it. Right.

It's very foreign that a foreign army is going to invade the US these days, but it's happening every single day where there are foreign actors trying to destabilize the infrastructure. From a grid standpoint, can you imagine south Florida with no electricity for two weeks because the grid was shut down?

Can you imagine no traffic lights, no refrigeration facilities? You know, things would spiral into anarchy very quickly.

Andres Sandate: 00:54:46

Well, and I live there, so I do believe because when you have hurricanes hit, people forget that the common courtesy is we come to a four way stop. No, it's, you know, it's like who's got the fastest vehicle? Okay, one more topic and then we'll wrap up. Let's talk about Venture.

You know, a lot of people, a lot of folks look at Venture, we talked about it earlier, they might say Venture, I'm out of that game right now because valuations are down, blah, blah, blah, blah, blah.

On the other hand, I am more of the school of thought is when everybody else is saying this is a really long dated asset class and valuations are way down, public market activity is down, M A activity is down. So all the reasons on the surface you may say Venture, pass.

I kind of think maybe Venture, these are going to be really attractive vintages over the next, you know, year or Two, what is your alls? What does your all's team think about venture in terms of access? And how does an RIA think about this asset class?

Because it is where all the innovation typically is funded.

And to get access to that part in the portfolio, I would think, you know, unless you live on Sandhill Road and you've been going to Stanford for three or four generations, it's pretty tough to break into that space. So how do you guys approach it?

Alan Strauss: 00:56:13

So I'll start by answering that question. I was earlier this year in New York and we were with a manager that we respect very much and happens to be on our platform.

And they alluded to us that, that they see most institutional investors making sure that they have a dedicated exposure to venture capital of somewhere around 5% of the portfolio. Right?

So when you're a billion dollar firm sovereign wealth fund and you've got, let's say $100 million to deploy into private markets now you've got a pretty sizable base. That five to $10 million that you can allocate gives you a little bit larger of a universe to be able to deploy that.

And going back to our initial premise to diversify across maybe one, two or three different things.

Now let's bring that to the world of the advisor where they're talking to a $5 million investor and that individual wants to invest somewhere between, I don't know, 100 to $500,000 into Venture, the problems just became exponentially greater for that advisor to actually find quality products.

So in a long winded way, what I'm saying is that venture should be a dedicated portion of the portfolio, specifically to what you talked about, to take advantage of that innovation and to diversify among multiple managers. But now is going back to why many advisors do need those partnerships.

How can you now find two, three or four funds that can fit within the context of the asset allocation where the client can deploy this level of capital and that these are managers that are not emerging managers and are willing to negotiate fees and may or may not have success.

But these are proven fund managers who have been in the investment world who have identified venture technology or venture companies, not just in the last three years, but in the last 10, 15, 20 years. And that is a big challenge.

a mandate in this country by: 2035

It is just beginning so if we're going to get there, there has to be investment from the private sector into continuing. It can't just be Tesla saying that now every EV company out there can use their superchargers.

There's only 35,000 of them and there's 300 million Americans.

So maybe not every US person is driving an EV, but if we have, you know, a 50, 60, 70, 80 million, 80 million individual penetration rate of EVs, we better have a lot more infrastructure and ultimately the investment to do it.

Andres Sandate: 00:58:47

Yeah. Wow. What? You didn't have to call a friend. You were able to answer all my questions. The next time we do this.

Alan Strauss: 00:58:56

That's why I'm already talking on friends.

Andres Sandate: 00:58:58

Yeah, the next time we do this, I'm going to hit you with even harder ones.

But you did great and man, I think we covered enough ground that, that even, I like to think even the more experienced advisors, you know, we, we talked about those kind of two archetypes of advisors and everything in between, but even the more experienced ones, hopefully you got not only some insights of, you know, what you guys find interesting, but also just the importance of really understanding what that partner brings to the table. Right. Beyond, beyond access to product, beyond access to managers. There's so much more that goes into it.

But I like to give my guests the final word as you think about where Crystal goes from here and building on the rich and long success track record that you have earned in the marketplace. And then you compare that to how rapid change is happening not only amongst the asset manager community, but also the wealth community.

We've seen so much wealth created in our country over the last 15 or 20 years.

What, what are some of the most exciting things as you look ahead for, you know, for Crystal Capital Partners and, and the team in, in terms of serving the advisor community.

Alan Strauss: 01:00:21

So the fastest growing channel in financial services is the outflow of wirehouse folks becoming independent.

Andres Sandate: 01:00:28

Okay.

Alan Strauss: 01:00:29

And we sit at the perfect intersection of wealth management and technology. Really wealth tech fintech, what is commonly referred to.

Yeah, and there are very few players in that wealth tech fintech world that offer a conflict free ecosystem, meaning there are solutions here that are not paying a provider to help you deliver them.

So that is a really important element that as this channel continues to grow, we want to provide a really effective solutions based service that is really non threatening and ultimately to continue to evolve as we have over 30 years in providing solutions from a technology standpoint that eliminate the barriers to entry and that make alternatives a frictionless asset class which is unfortunately not the way many advisors experience it today.

I would say to advisors, find a qualified and quality platform partner that you feel comfortable working with and make sure that all the dynamics from a cultural standpoint match up with what that advisor's business ultimately looks like so that there are tremendous synergies.

Andres Sandate: 01:01:39

Well, hats off to you guys and the team. I hope you'll tell them all hi because clearly it's working. You have 200 of these firms that you're working with today.

You've been doing it and, and delivering for clients for some time. It's always great.

Alan Strauss: 01:01:57

1994.

Andres Sandate: 01:01:58

Yeah. I mean I need the hat. I need the celebratory hat. The, you know, but what I was going to say is, you know, the markets can be unforgiving.

And I think one thing that we've stressed and I said this and I think you would agree that it comes back to the people, it comes back to the relationships, it comes back to the question culture to help you navigate through the, these, these difficult times for the end investor, the client, you know, who's putting their hard earned dollars in their hands, in the advisor's hands.

So Alan Strauss, senior partner and director of investor relations at Crystal Capital Partners out of Miami, Florida, nodded 1:1 with the Celtics in, in that first round series.

Alan Strauss: 01:02:43

Best rivalries in basketball. I love it. Speaking of the last, last 10 years, I've been very excited for South Florida basketball. Last 14.

Andres Sandate: 01:02:50

Totally, man. And I'm on that, I'm on that train.

We, but we are really excited to have you here on atl, Alan, and I hope you'll consider joining us again to share another update. Undoubtedly there'll be more to chalk, more to chalk up and talk about and chop up on the show, but we'll leave it here for now.

And please give my best to everybody on the team down there in Miami at Crystal Capital Partners.

Alan Strauss: 01:03:18

Will do. Andres, congrats on your success. You know, hosting a podcast and I've seen a number of the, the interviews you've done previously.

I think you're doing a great job. I really appreciate you providing us some time on your forum to talk about alternatives.

Andres Sandate: 01:03:32

Absolutely. Great to see you, Alan. We'll do it again soon.

Alan Strauss: 01:03:35

You too. Take care, my friend.

Andres Sandate: 01:03:37

Bye now.