The Exchanges

Q From the last time you came on the show, there is so much buzz about money coming from this whole private wealth channel. I'd love to just start by having you level set. What's the scale of what we're seeing in terms of this movement into alts from private wealth?

A U.S. wealth management, the amount of money that financial advisors advise to Today stands at around 40 trillion dollars. So 40 trillion dollars are advised or managed by financial advisors in America on behalf of their high net worth clients, or their, not just their high net, their any clients. In 2030, that number is going to grow to about 60 trillion dollars, which isn't necessarily a very large growth rate, but still an enormous number, which means that the U.S. wealth management market represents one of the largest collective pools of capital globally. What's interesting about it though, when we look at it through the lens of alternative investments, their allocation rates to alternative investments of that 40 trillion is less than five percent, probably closer to two or three percent broadly on average. When you compare that average to what, say, institutional investors allocate to alternatives, pension funds, endowments, sovereign wealth funds, that's typically between 30 to 50% Of their portfolios and alts. So really what we're seeing here is not only a growing wealth market overall, growing allocations to alternative investments, say from three to five percent, 10%, or 15%, which is causing really a massive reallocation of capital from traditional assets to alternative investments in the tune of up to five to 10 trillion dollars over the next decade.

AI assessment note: “massive reallocation of capital... in the tune of up to five to 10 trillion dollars”

Q Matt, what's the biggest mistake you've made, and what did you learn from it?

A That is the easiest one, and the one that I will regret to my dying day. In the late nineties, one of my companies that I started invested in technology and healthcare companies, and this small, struggling technology company needed a twenty million dollar cash infusion. It was a public company, but wanted a private placement to get over some rough times. We negotiated. I Was young in my twenties. I felt probably a little too full of myself thinking that we were in the driver's seat in the negotiation. I think I asked for too much and the deal did not happen. That technology company on Silicon Valley was called Apple. And the twenty million dollar investment that I was unable to make in Apple at that time is now worth fifteen billion dollars. So lesson learned, always do a fair deal. Even if you think you're in the driver's seat, never take advantage of a situation. I was young and boy, that one stung. I may not be on this podcast by this point if that would have happened. Surely a lesson learned.

AI assessment note: “So lesson learned, always do a fair deal.”

Q this movement of liquid alts. And if you were in the industry, there was always this sense that most of what you were getting was a watered down version of what you could get as an institutional LP in the partnership. How have the products that the alternative firms are offering evolved in such a way that it's not just a watered down version because the capital is coming in?

A There's really two lanes here. Lane number one is asset management firms in the alternative space that are using their institutional products. So not changing product structure, they're delivering the same product and outcome that they are to institutions into wealth management. And that's been growing at a very rapid clip. There are enough investors in the wealth community that can meet the requirements to invest in some of these products. However, The main event, especially lately, has been the rise of products designed for accredited investors and have structural differences around them to make it easier to invest in or scale across the client book. Lower minimums, for example, or maybe private equity in evergreen structures so there's no capital call issues. All of that, however, does have a small price to pay, most likely, but the price to pay Is nowhere near the value that's being given in order to get access to these types of strategies. Secondly, the sophistication in the product innovation that these large asset management firms are working on, whether it's an Apollo or Franklin Templeton, a Hamilton Lane, Blackstone, of course, comes to mind and others. They're really designing very thoughtful, low fee, low expense product structures for the wealth management community. The real name of the game is Treating wealth management like an institutional investor.

AI assessment note: “Lane number one is asset management firms in the alternative space that are using their institutional products.”

Q What have you seen? You mentioned product innovation and bringing lower fees to the channel. What does that look like in structure, generically, with, for, for some of these different platforms? And maybe it's different across the different alternative asset categories.

A So we've seen a lot in the private REIT and BTC space. Those are investment structures that allow for credited investors, meaning that below that qualified purchaser threshold, so a lower threshold. And whenever you can lower the investment Or investor threshold. The pool of potential capital just continues to widen. We're also seeing, of course, interval funds, tender offer funds. All of these are structural wrappers around strategies that allow for more investors to participate, and also to allow them to participate under terms and conditions that are just a little more friendly for wealth management, less rigid. So we've seen a lot of innovation in that area. The SEC is also gradually coming towards being a little more flexible on Private fund allocation and registered fund allocation for alternatives. Initially, their stance over the last decade or two has been very clear, which is alternative investments are risky. So therefore, if you lose your money, we want you to be very wealthy to start off with. The problem with that is that they've kept the bar so high and private equity and other alternatives have done so well that they've realized that that has actually been excluding a broad population of investors that do want to generate wealth. We talk a lot about capturing money and alternative investment managers, but the ultimate beneficiary of all this, Ted, is actually th…

AI assessment note: “We're also seeing, of course, interval funds, tender offer funds. All of these are structural wrappers”

Q Why don't you take me back to the path that brought you to where you are in creating Case in the first place?

A Yeah, it's quite a story. So I graduated with a liberal arts degree, and a friend of mine who worked for Shearson Lehman Brothers told me that they were hiring and training new financial advisors. I not only didn't know what Shearson Lehman Brothers was, I didn't know what a financial advisor was, but I really needed a job. So I interviewed. I can still see it today. You know, I walked in, and it's a oak-paneled room. I met a gentleman there, an older gentleman who was wearing a three-piece suit. Had spectacles on. He looked like a, like a character right out of a, kind of a Wall Street documentary. It was quite an experience, and we spoke for two hours. Any topic that I could, uh, regurgitate from school that was fresh, that made me sound halfway smart, desperate to keep the conversation going. Then it ended, and we shook hands, and I can remember walking out thinking, wow, I really don't want to be a financial advisor. That's for sure. That wasn't interesting at all. The next day, the phone rang with Shearson Lehman Brothers, and they said, uh, We'd like to offer you a spot in our training program, and I instantly said, I accept. I was somewhat of an accidental financial advisor, if you want to call it that. A year into my job, though, I did catch up with a gentleman who interviewed me, and he since became a good friend and mentor, and I asked him, why'd you hire a kid with a…

AI assessment note: “I graduated with a liberal arts degree, and a friend of mine who worked for”

Q And then on the manager side, does each investment of a 100,000 dollars look like a line item?

A It depends on what they prefer. More and more managers are actually interested to have end investors directly into their funds. They themselves have made the commitment, the asset managers to go after the wealth channel and see if they can grow their shareholder base and diversify it. And part of that is to make sure that they have a business or a platform that can accept smaller investors. Now they're smaller in check size, but they're not smaller in the net worth requirements that are still required to go into these products. And we can talk about accreditation in a second. So yes, many do prefer that. They can create different funds and vehicles to be able to accommodate that, or that those investors can go directly into the fund. The other side is those who don't prefer that, and we have the ability to bundle those investors in somewhat of an omnibus way at the case level and deliver that as a single investor. Really, we allow the asset manager to decide which way they want to have the investors approach their fund.

AI assessment note: “It depends on what they prefer. More and more managers are actually interested”

Q I want to turn a little bit to this private wealth channel as a whole. This seems like In the last 10 years, you said from very little, if you're not on, say, a JP Morgan platform to something very substantial. What are you seeing in terms of asset allocation at that financial advisor level and where this is all headed?

A The RIA channel and the regional and broker-dealer channel has been just booming. The growth just in AUM is substantial, even since when we started the platform business. More RIAs are developing. There's consolidation in the space. Wirehouse advisors, like the JP Morgan example I gave you, many are leaving and building their own RIAs. So just as an overall total addressable market, it's growing and quite substantial. What's interesting though, however, and where the opportunity is, is that the RIA channel has allocation rates to alternative investments less than two percent. Their colleagues in the larger wealth management firms, the wirehouses, on average have allocation rates between 10 and 15%. That's primarily due to the platform business because embedded in those big firms are the platforms that bring the ease of use, the product access, the due diligence framework. So we see that RIAs that work with Case instantly increase their alternative allocation rates across the board. They diversify across with many different funds and products. At the end of the day, this is about improving outcomes for the end clients and alternative investments have been doing their job. The next level here that we're seeing Is somewhat of the kind of displacement of what we would call traditional active management. Many believe that active management is not delivered and that alternative inves…

AI assessment note: “the RIA channel has allocation rates to alternative investments less than two percent”

Q So what was the light bulb that went off that led to, as you said, this sort of two-sided platform that became Case?

A It really was a light bulb moment. So having the experience of wealth management, having the experience of alternative investment distribution, and being an entrepreneur twice, actually, by the time I had started Case, always interested in networks, always interested in scalable platforms, very interested in businesses and models that solve problems. I was having lunch with a friend of mine who was a financial advisor at JP Morgan. And at the time I was Definitely scanning the industry, thinking about what ideas might be out there that I could sink my teeth into. And he was talking about the alternative investment platform at JP Morgan that had all the third party asset managers on it that they were able to pick from to be able to invest on behalf of their client's capital. And he kind of went one step further and said, it's actually a huge competitive advantage because I'm able to give access to the biggest institutional alternative asset managers that To all of my clients at JP Morgan, and those clients can't get that access from other firms, especially the smaller ones. Now, being in wealth management, I was very aware of the highly fragmented and growing RIA channel. And it quickly dawned on me that the RIA channel, though competing against the big wealth management firms like JP Morgan for the attention of the end client, didn't have a platform to be able to get access to …

AI assessment note: “it quickly dawned on me that the RIA channel... didn't have a platform”

Q How do you see this impacting what you see on the manager side as more and more money continues to come in?

A It's had a big impact. The biggest is product innovation. There are Many well-known institutional alternative asset managers who have now really reoriented their entire businesses around the wealth channel and the high net worth channel. Blackstone, of course, being one, Carlyle being another, KKR, but it's not limited just to the brand names. The multi-trillion dollar opportunity, which is the allocation opportunity in independent wealth, is a bit of a wild west. It's an area where it's not fully allocated, as I mentioned. So the firms that are investing in Today in technology and product innovation, meaning structures that are more easily and readily available for financial advisors to invest through are going to be the winners, and certain asset managers are making great strides today.

AI assessment note: “It's had a big impact. The biggest is product innovation.”

Q Does that also at the same time create thoughts for you of a competitive threat to the platform as a whole?

A No, I think that as long as you are not caught flat footed, we'll position ourselves to be in that business some way, shape or form. So as a platform, again, you are a neutral platform. So could we become a tokenization exchange? Sure. I also don't think that the world's going to shift completely overnight. Will private funds be purchased with tokens? Potentially. How much? I don't know. We're just trying to get Financial advisors to make their first alternative investment in private equity. I'm not sure how likely it is their first investment is going to be in a token on the blockchain. So if there's demand for tokens in the future and a tokenized versions of alternative investments, we'll have a role on that. But now I think we feel pretty comfortable what our position is in the market.

AI assessment note: “No, I think that as long as you are not caught flat footed”

Q So this concept of diversification beyond say, 60, 40 isn't new in the broad investment world. What's it been that's created this tipping point?

A Well, the stage has been set. Number one, you have to kind of think about the dynamic between the wealth management community and the institutional community. The institutional community has had access to alternative investments forever. The wealth management community for Structural reasons primarily have not. So as a result of not having access, financial advisors haven't spent time to learn about them, and if you don't learn about alts, understand the strategies are very hard to implement in a client portfolio, but all of that is changing, and we've been at this for over a decade, and I can tell you even three to five years ago, this is a whole new world that we're living in today. The amount of velocity and volume and interest is, as you say, at a tipping point. I'll give you some of the factors that are at work right now. Number one is I think there's complete exhaustion in the 6040 portfolio. It's not performing. It's not outperforming. It's not withstanding challenging markets. You're giving, uh, if a financial advisor is a carpenter, a limited toolbox to build a house, they can't deliver. The most sophisticated investors utilize private equity and alternative strategies regularly. They can't. So I think the need and demand, the pent-up demand to incorporate alternatives is now at a, at an all-time high. But that alone isn't going to solve the problem. The real game chan…

AI assessment note: “The real game changer has been technology. Firms like Case... have truly created bridges”

Q leadership, so the last two really require resources. You mentioned at the onset that it's not just the big guys that necessarily will win. So if you're not one of the big guys with, let's just call it unlimited resources to plow into the new distribution channel, the new product innovation, what have you seen of some of those other firms that are also getting significant flows from the channel?

A So what we're finding is that, and which is quite surprising because we use the names of these large asset managers so frequently that broadly across the United States and wealth management, no one really knows any of the names of the asset managers. So there really is no brand recognition really even at the top. Now they probably read about them in the Wall Street Journal a little more often, but at the end of the day, it's a pretty level playing field to establish trust and And brand and become a preferred fund for these wealth management businesses. So we always say is if you follow the playbook, like we talked about, you do have somewhat of a level playing field to be able to get into wealth, establish yourself and benefit. And we're seeing it again and again, even with smaller managers, we have one of the platform that Chicago based credit fund, and they were very lesser known, known institutionally, but I would say they're one of the top brands right now in wealth management because they just got on the channel and established those relationships and committed to it.

AI assessment note: “they just got on the channel and established those relationships and committed to it.”

Q When you think about these platform businesses, some of the ones you mentioned, even an Uber and Airbnb, a lot of them end up being winner take all, or maybe there's one or two. How do you think about your competitors in this landscape today?

A The barriers of entry right now to be a competitor are quite high. And it's not to say that we don't have competition. I view competition in any disrupting and technology or environment. You need multiple evangelists in the beginning to turn the tide. So we actually welcome anyone who wants to kind of throw their hat in the ring right now and contribute to the democratization of alternative investments because it's all positive for us. If they want to spend their time, effort, and energy saying the same messages, if they want to be in the channel and educate, if they want to talk to the asset managers and convince them why the channel makes sense, whatever aspect of the business they want to play in, we welcome it and we want them. There will come a time, however, where there is consolidation, but again, we're in the early innings. I think more right now is better, and we need as many players as possible telling the story of change.

AI assessment note: “we actually welcome anyone who wants to kind of throw their hat in the ring”

Q Let's say you're a large institutional allocator running a big pool of capital, and you know about these financial advisors, you know it exists. What would surprise someone that sees themselves in the weeds picking managers themselves about this pool of capital?

A I think that if you were a seasoned allocator to alternatives and you hadn't thought too much about the wealth management channel, I think you'd be blown away by the size and scale of the potential of unallocated dollars to alternative investments. It's staggering. It's trillions of dollars that are currently in process of transition away from, let's call it the ETF mutual fund land into the alternative space broadly. Whether that's hedge funds, private equity, private credit, Real estate strategies, crypto strategies, all things alternatives. It is a wall of capital. And I think if I'm an allocator, I would want to know what that means to me, impact that could have on the firms and the funds and the strategies that I'm currently working with or contemplating working with. And knowing that that capital is coming, I think that I would be able to position and select strategies that may be the beneficiaries of that.

AI assessment note: “I think you'd be blown away by the size and scale of the potential”

Q Along this path, what have been the biggest challenges that you've faced in building the platform?

A There's a challenge every day. It can be an internal challenge as a young company trying to grow a great team. There's always cycles of growing pains. In the last six months, we've doubled the size of the firm, and we're about to then double over the next 12 months the resources that we need in technology, marketing, on the investment side and the platform management side. So straight down the middle, Young company, growing pains. Other challenges, convincing anyone to do something new is hard. So when Amazon started, they probably didn't have too hard of a time, but what were they doing? They were trying to convince you, Ted, not to go down to the local store to buy something, but to use their platform to do it instead, even though their store could have been just a mile away. Uber is trying to reinvent the way we think about taking a taxi or transportation. Airbnb, the same thing. So anything that's disruptive, You need to win the loyalty of the audience on both sides of your marketplace. So really the big challenge isn't any kind of competition that case may have a competitor, for example, or other competitive forces. The main event is capturing the hearts and minds of the financial advisor to stop doing business the old fashioned way, which is find their own funds, use paperwork to execute it very manual to operating on a platform. And so that's how we're thinking about tha…

AI assessment note: “The main event is capturing the hearts and minds of the financial advisor”

Q I'm curious with all of the technology platforms that we all interact with, there's a lot of research that's gone into how those platforms gather the attention, for better, for worse, for us. As I think about the case platform from a financial advisor's perspective, how do you think about their repeat use and their engagement with the platform?

A It's a really important topic. Engagement overall, maintaining the loyalty to the platform, Is something that we think a lot about and our tech and marketing teams and digital marketing teams think a lot about. There's Facebook scary technology data, but they're watching everything. You know, you click on something and then they only double down on that type of a topic or that content with you. That's not the case platform. So the way we view loyalty is really understanding who our client is. And we really have two clients. We have the asset manager and we have the financial advisor. We know the average age of a financial advisor is typically in their fifties. They didn't grow up with Robin hood or E trade or any of these technology platforms or financial engine platforms. A lot of their businesses were built on trust face to face. So our approach has always been one of coupling the human element with the technology element. So we have a technology platform and all the imaginable aspects that you would think would be true to that platform. But we also have a very sophisticated team In the field regionally that meet with financial advisors, speak to financial advisors, and make sure that we couple the more tech experience with the more of a concierge experience. And when you blend those two together, that's the language that a financial advisor understands and knows. Maybe in 20…

AI assessment note: “our approach has always been one of coupling the human element with the technology element”

Q When you start thinking about those adjacencies, what are the particular areas of interest that have your eye today?

A Well, back to your question on loyalty. What other platforms are out there that advisors spend time with? There are many. There are many platforms that are fighting for the loyalty or the eyeballs of financial advisors. So one natural adjacency or partnership or acquisition will come in the community of firms that are currently working with financial advisors and are doing well. You can call that a customer acquisition strategy. You could call that a complimentary services acquisition strategy, but depending on how you look at it, it's accelerating growth through like-minded platforms. That's definitely one area. Second area is that technology is moving at light speed. There's no reason why we shouldn't be acquirers of other businesses in technology. Maybe they're solving the mousetrap of the Digitization business better than we are or in a different way than we are. We're always open. We have yet to find anyone yet that's done that, but we're constantly scouring the universe or just pure innovation. We need to be looking at technologies that are going to not make the old way better, but just change to a new way. I always joke, and I've said this a few times in conferences on panels, if you and I can get on an airplane with a TSA number that somehow convinces everyone that we're not bad people, Just by applying one time, it seems a little archaic that you have to send in a phot…

AI assessment note: “one natural adjacency or partnership or acquisition will come in the community of firms”

Q When you're scaling a team in this day and age, this day and age, meaning, is it hybrid work? Is it in office? How have you thought about integrating and inculcating the culture that you built the case to all these new people coming in?

A It has to be the number one thing on all of our other leadership teams list. If you don't get the people piece right, really you have nothing. We are, you know, our biggest asset as a company is of course our team and our people. We think about the types of people we want to bring into the firm. Our interview process is very selective. We try to keep case kind of on the edge of feeling like a startup, but yet having the strength of a more developed company. A lot of the People were hiring are coming from some of the biggest firms on Wall Street and also technology because they want a more entrepreneurial environment. We haven't struggled too much on the work from home versus come in. We haven't gone to a hard line in the sand. We've given guidance and the way we decided to do it was give flexibility to team leaders to be able to dictate how often they want their teams in office and when. But again, we have offices now in New York, LA, Austin, London. So Even if everyone's in the office, they're not all together anyway. So you end up shifting with different times now in a post COVID world, bringing the firm together and maybe offsite formats is much more important than maybe it used to be when you could get that kind of water cooler moment, which we don't get as much anymore, but taking care of the team, building the team, encouraging the team. I meet every new employee. I meet …

AI assessment note: “the way we decided to do it was give flexibility to team leaders”

Q Where are the areas of biggest interest in alternatives coming from the platform today?

A If you looked at a heat map or a flow chart over the past three or four years, and you kind of bucketed it between hedge fund strategies, private equity, private credit, and real estate, let's be kind of bold around four corners there. Every year there's a different winner. And every year the allocation rates oddly are around the same, but in just in different categories. So what we're seeing is this rotation, if you will, of dollars based on certain trends or macro environment that we're looking at right now. What I do find to be some of the most fascinating data that we do not publish or make available is that certain financial advisor firms are constantly ahead of the game, and they're often right. So what we're able to see now on the platform is certain firms that are Implementing ideas, solutions, suggestions, portfolio construction way ahead of the pack, and then the broad middle tends to follow. So insights like that allow us to really consult with them. We use a lot of peer group conversations around where the puck is going, and that informs our menu, our product structuring, our asset manager selection, so it's a very collaborative experience.

AI assessment note: “Every year there's a different winner... So what we're seeing is this rotation”