January 10, 2025 • 38 mins
In this episode of How I Invest, I sit down with Lawrence Calcano, Chairman and CEO of iCapital, to explore the transformative potential of alternative investments in the wealth management space. Lawrence shares his journey from Goldman Sachs to building iCapital, a platform managing over $200 billion in alternative assets. We dive deep into the challenges and opportunities in democratizing access to private markets, the role of technology in scaling the alternatives industry, and the growing appetite for private equity and credit among high-net-worth investors. If you're curious about the future of wealth management and the intersection of technology and alternatives, this episode is a must-listen.
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Episode Transcript
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(00:00):
Well, so Bain did a study.
Every year, they do a study of the wealthmarket, and the 23 study had an estimate of
about a $145,000,000,000,000 that was owned byretail on a global basis.
So if you think about that 145 trillion.
145 trillion.
It really rivals the size of the institutionalmarket.
And if you think about some percentage of thatbeing allocated to alts, it's a fairly large
(00:24):
addressable market for the community.
If you're successful, what will I Capital looklike in 2030?
So what is the mission of I Capital?
Give me a sense for the scale of the businesstoday.
Sure.
So the mission of I Capital is to createopportunities and access for financial advisers
to be able to invest in the highest qualityalternative products, the same types of
(00:49):
products, for example, that institutions wouldhave access to.
And at the same time, it's to help GPs accessthe very fragmented wealth management market.
Today, the business is about 205,000,000,000 inassets on the platform and alternatives.
We have about a 170,000,000,000 in structurednotes that we manage in their life cycle and
(01:10):
nearly a half a $1,000,000,000,000 of dataassets that we report on.
So walk me through going from Goldman Sachs tothe founding story of I Capital in 2013.
Sure.
So at Goldman, I ran tech banking, and we spenta lot of time taking companies public, doing m
and a, and making a lot of investments.
And, you know, so fast forward to I Capital,there's a a great group of people that had the
(01:33):
same idea around bringing automation into thisalternative space to provide both that access I
talked about, but not just access itself, I e,I can now have a chance to buy the product.
Importantly, my whole experience would be basedin technology and would be automated.
A lot of the early advisors that we you that weserved at I Capital, they were managing a lot
(02:00):
of money but were fundamentally still smallbusinesses, and so they didn't have the
capability or the desire, frankly, to hire lotsof operational people, administrative people,
etcetera.
So they needed to be able to leveragetechnology to sort of manage the life cycle
from learning about funds to, subscribing tofunds through all of the post subscription
(02:22):
activities like capital calls, distributions,reporting, etcetera.
And and being able to rely on a tech platformwas critical for them to be able to really,
implement the technology or the the product intheir platforms.
I've spoken to some of the top private equityfunds in the world, and they're all focused on
this wealth channel.
(02:43):
Why is that?
Well, so Bain did a study.
Every year, they do a study of the wealthmarket, and, the 23 study had, an estimate of
about a $145,000,000,000,000 that was owned byretail on a global basis.
So if you think about that 145,000,000,000,000.
145,000,000,000,000.
(03:03):
It really rivals the size of the institutionalmarket, And if you think about some percentage
of that being allocated to alts, it's a fairlylarge addressable market for the community.
And I will tell you when we started thebusiness, you know, most of the GPs that we
talked to, not all but most, were not reallyfocused on this channel.
(03:24):
Historically, they raised all their money frominstitutions.
And so over time, as it's become very obviousthat the channel is large, it is also stickier
than I think a lot of people assumed when theyfirst started thinking about the channel.
They realized that they could build a afoundational part of their fundraising strategy
(03:46):
within this channel, and so that's reallywhat's evolved over the last, you know, decade.
Was it difficult when you started?
You had this contrarian thesis.
You saw the world differently.
Was it difficult to build something that a lotof people didn't think should exist?
Well, I don't know that they thought itshouldn't exist versus they just didn't think
(04:07):
about the question, you know.
And I think, the the hard thing was the classicchicken or the egg problem.
Right?
So if you would go to independent, financialadvisors and say we're gonna bring you a
platform that will provide access toalternatives, the first question is, well,
which managers are on the platform?
And if you go to the managers and you say,we've built a platform that's gonna give you
(04:32):
access to this massive and distributed wealthmanagement channel, they're gonna say, well
well, how much money is on the platform, whichadvisers are on the platform, etcetera.
And so building that or managing that chickenor the egg problem so both sides of the of the
equation, if you will, sort of grow over timewas really the critical challenge that we were
(04:52):
able to overcome, throughout the last decade.
And what surprised you the most about theinterest of high net worth investors versus
traditional institutional investors?
You know, I think probably the biggestthreshold issue for a lot of individual
investors is illiquidity.
Institutions are very used to that.
(05:13):
Right?
They're investing in these assets to fundlonger term liabilities, whereas individuals,
you know, illiquidity is a less natural and orcomfortable topic.
Yeah.
And so managing their perception ofilliquidity, and thinking about how do they
properly incorporate these types of productsinto their portfolio, you know, has been and
(05:37):
continues to be a really important challengefor
the industry.
Which if you think about the market as beingefficient, efficient market hypothesis, one of
the only true ways to outperform is withilliquidity, the illiquidity premium.
So not being able to take advantage of thatreally disadvantages high net worth
(05:57):
investment.
And I'll tell you, I say this a lot.
You know, the illiquidity is not a bug.
It's a feature.
Right?
And if you think about how these asset managersgenerate, you know, returns for their
shareholders, that period of illiquidity isfundamental to what they do.
If you think of private equity, for example,it's it's probably the ultimate active asset
(06:20):
class, where they're not just investing andfollowing a company.
They're investing in the company.
They're taking a seat or several seats on theboard.
They may control the company.
They're hiring management.
Maybe they're firing management.
They're buying divisions, selling divisions,launching new products, changing prices,
growing geographically.
There's a lot of really fundamental activitiesthat this, you know, these asset managers are
(06:46):
undertaking.
And as we think about the asset class and as wethink about how do we evaluate the individual
managers, probably one of the most importantthings we think about is what impact do they
have on their portfolio during this sort ofactive management period?
What are they actually doing to improve therevenues and profitability of a company?
And while they can generate some return maybewith leverage or multiple expansion, the the
(07:11):
real value and the differentiator, the alpha,if you will, is in what they do with the
companies and how those companies grow andimprove their financial characteristics over
time.
So when you're looking at high net worthinvestors today, q 1 2025, what are they
looking for?
So right now, people are beginning to shifttheir interest back to equity.
(07:37):
Over the last 2 years, I would say credit hasreally dominated the the calendar.
And what's been behind this credit interest andcredit?
Yeah.
So if you go back to 22 it's a great question.
If you go back to 22, the the markets were werein a bad place.
People were expecting the Fed to raise interestrates.
(07:58):
And in a rising rate environment, people arelooking to be hedged.
Right?
So they tend to be more risk off.
They want shorter shorter duration.
And with respect to private credit, most of theprivate credit structures are floating rate.
So if you think the Fed's gonna raise rates, itit creates a hedge for you.
And and over time, as the Fed did in fact raiserates, at at one point rates were maybe 4 or
(08:22):
5%, the absolute return to private credit was10 to 12%.
So even the absolute return was attractive.
Now that we're seeing rates begin to come backdown, we're seeing, more of a sort of
reopening, if you will, of private equity intothe market.
Right now, if I look at this year to date, if,actually, if you go back to the first half of
(08:48):
the year, private credit was roughly 45% of theflows and equity about 35% of the flows.
That reversed in the Q3, and we had, equity atclose to 50% of the flows and private credit in
the low thirties.
So we're already seeing that shift inextension, into the private equity strategies,
(09:10):
which we expect to continue.
To double click on the equity dispersion, whatasset classes are we talking about?
So it's, you know, growth equity, bioequity.
You know, technology is one of the themes thatpeople are very interested in, but it really is
across the board.
I think one of the important things about ourplatform is all of the different strategies and
(09:32):
underlying sort of industrial focuses are onthe platform.
So you can get private equity, private credit,private real estate, private infrastructure,
all the hedge funds.
You can get funds that are focused on financialinstitutions or technology or energy or health
care, etcetera.
And so the important thing about the platformis that any adviser can build a a portfolio for
(09:57):
their clients irrespective of the marketenvironment.
So if we're back in 22 and people are risk offand they expect rates to go up to go up, they
can buy a a full cadre of of private creditproducts.
If the market's rallying and rates are comingdown and people are focused on equity, there's
a full menu of equity products they can buy.
(10:18):
And being able to provide that, over time isreally critical for advisers to serve their
whole client base.
You've made a bet on The Wealth Channel.
You've also made a
bet on alternatives.
Tell me about the future of the alternativesindustry.
We think it's a good bet.
I mean, if you look today, and you do a surveyof where the wealth manager CIOs are suggesting
(10:42):
allocating to alts, you'll find ranges from 15to as high as 40% suggested allocation to alts.
If you then look empirically and and see wherepeople are actually allocated, what you'll find
is, you know, mid low to mid single digitallocations.
So we think there's a very substantial amountof room to grow into the allocations.
(11:06):
In fact, I I I like to think about 2 phenomenaas a a way to think about where we are in the
market cycle.
The first is the participation rate, and thatspeaks to how many financial advisers are
actually doing the business.
Right?
And today, you probably have 20% of theadvisers driving close to 80% of the volume, so
(11:28):
the participation rate is still quite low.
If you then look at the allocation rate as Iwas just describing, it too is way below that
sort of targeted allocation suggestions by theCIOs.
So I think both those dynamics as theparticipation rate grows and as the allocation
rate grows, you've got significant potentialflows into the asset class.
(11:52):
I think you could also look at it from what isthe efficient what what should you be
efficiently allocated to alts versus what's thereality.
And if you look at what is efficient, you haveto look at the endowment world.
Right?
Probably some of the sharpest investors in theworld, the Yale model, specifically a David
Swensen model, most endowments are roughly 35to 40% and sometimes up to 50% of their entire
(12:17):
portfolio.
And then you go to the to the wealth channelsand you see the the low single digits.
What's the reason for that dispersion?
So first of all, I played golf over the summerwith the CIO of a Ivy League school that has a
60% allocation to Alts.
Okay.
So your your point is exactly right, though.
(12:37):
And I think the issue that there's multiplereasons, and I think probably to start, the
most significant is just access.
You know, institutions have been buying theseassets or investing in these assets for 45, 50
years when the industry first really started,and individuals except for the wealthiest
(12:58):
family offices, you
know Talk about $1,000,000,000 plus families.
Yeah.
Real family offices that frankly are just likefoundations and endowments in many respects.
Many others, however, haven't really had thatsystematic access I was talking about to
alternatives.
And so that that has changed a lot, and nowpeople do have access.
(13:19):
But what what's needed is the automation Italked about and also the tools and education.
And I would say probably today, if you lookedat one of the biggest reasons for the alts
allocation where it is broadly, education isstill really what's needed.
There's still a lot of advisors that are newerto the asset class, and, obviously, most
(13:44):
responsible advisors aren't going to suggestproducts that they first don't totally
understand Tom.
And understand the applicability of thoseproducts for their clients.
And so as that education process happens and asadvisors get more comfortable with the asset
class and it's it's really happening, I thinkyou'll see those numbers start to grow.
Whether they get to, you know, 40, 50, 60%, I'mnot sure they're gonna get that high.
(14:09):
Yeah.
But but, fundamentally, the reasons whyinstitutions invest in these assets are are
every bit as germane to individuals.
Right?
They have long dated liabilities.
Retirement is a long dated liability that youhave to save for.
They have other events in their life they haveto save for.
They wanna protect their portfolio.
They want diversification, and assets thataren't totally correlated with their liquid
(14:33):
assets.
So all of the things that drive institutions toinvest are are the same types of things that
are attractive from an individual's perspectiveas to why they should invest as well.
How do you know that the the wealth channelsare not being adversely selected when it comes
to these funds?
You have a large fund.
They wanna go to endowment or pension fund.
(14:54):
Why would they want to allocate to a wealthchannel?
So it's a it's a super question, and I'm gonnabefore I answer that, I'm gonna make one
observation that strengthens the questionfurther, which is to say, within alternatives
you take private equity again.
The difference between the top performingmanager and the 4th quartile could be over a
(15:15):
1000 basis points, 10 plus percent.
You're in a totally different asset class ifyou're not in the right managers.
We'll be right back, but first, a word from oursponsor.
Innovation is a driving force in the world andruns through everything that Reed Smith does.
Reed Smith is a law firm that combinespioneering technology with industry expertise
(15:36):
in order to solve their clients' mostchallenging matters.
Their approach is grounded in collaborationwith a focus on growth, efficiency, and
customization because every client's challengesare unique and their solutions should be too.
I'm proud to partner with Reed Smith, a firmthat continually adapts to meet their clients'
needs.
Some say venture capital is the best assetclass, but also is the worst depending on which
(15:58):
portfolio
you're with.
Right?
If you're with the top in in venture, the thethe, pool is even smaller, I would argue.
But, you know, with respect to really all ofthese alternative strategies, you've gotta be
with the best managers, and part of what we'retrying to deliver as a platform is access to
those managers.
I think, historically, when people haven'treally had robust access, you really have the
(16:23):
adverse selection problem because they have afriend who's running a real estate fund or
they, you know, they they know someone who's ina private equity fund.
If you don't have robust access and you don'thave robust information to understand how any
given fund performs, it's hard to make arelative decision about who the top performer
is and who's not.
And so information
(16:44):
Is that also the standardization ofinformation?
Because I think that's one of the difficultthings is, you know, some are not even RIAs.
I'm assuming you you work you work mostly withRIAs, but but talk talk to sometimes it's hard
to even standardize and and look at differentasset classes.
Yeah.
I think access and standardization, knowingthat you have all the relevant material, is
(17:06):
really important.
We we try to provide that.
We try to provide due diligence for, you know,many of the funds on the platform, so there's
the an another lens, another analysis for anadviser to talk about with their clients.
You know, I talked about how the best managersgenerate returns.
That's one of the things, for example, in ourdiligence reports, we're really focused on
(17:28):
which of the managers are driving underlyingportfolio company growth and improvement.
Again, the alpha Where's the value add?
Where's the value add?
Exactly.
ICapital has both the platform, but, also, youhave a curated set of managers.
Talk to me about that.
The underlying thought as we were building thiscompany is we needed to build the full
(17:50):
automated platform.
I talked about that in terms of how importantthat was for people to be able to really drive
and grow the business, but there was also, aswe're discussing now, a lot of importance
around making sure you have access to the rightmanagers.
One of the things as we go to market is that wedon't require people to use all of what we
(18:12):
offer.
We we simply say, here's what we have to offer,an end to end technology platform, access to
great managers, research around great managers,and you choose what components of the offering
is most valuable or important to you to achieveyour goals and objectives.
For many of the independent RAs, they use boththe full platform from an automation
(18:34):
perspective, and they also use the productsthat we've curated and made available to them.
Many of the large banks, for example, that havetheir own historic access and incredible set of
relationships might just use the technology orsome of the services that we offer around
managing the business, same for the GPs.
And that's part of, you know, sort of meet thecustomer base where they are in terms of
(18:59):
providing the solutions they need and notrequiring people to take things they don't.
There's a saying in private equity andalternatives that nothing takes more time to
manage than a $25,000 check.
You make an exception for for a friend andfamily, and you end up spending more time than
the $25,000,000 check.
How do you obfuscate the investor relations,you know, pains of dealing with small check
(19:23):
writers, and how does iCapital help?
Good question.
And this really speaks to one
of the important services that we provide forGPs in addition to technology is this
aggregation.
And so if you look at the infrastructures ofmost general partners, because of where they
they've always raised money, they're tuned togetting a very small number of really large
(19:46):
commitments.
Okay?
The high net worth space, however, is the exactopposite, a really large number of smaller
commitments.
And so their infrastructures aren't tuned forthat new reality.
So we step in, and we aggregate in lots ofdifferent ways all of these smaller tickets.
(20:06):
And so we look to a GP like one largeinstitution.
And so we can interact and and connect to theirinfrastructure a lot more seamlessly than 2
1,000, 50,000, or a $100,000 investors.
And and that's a big part of the serviceoffering to the GPs as well as helping to
(20:27):
create access to this fragmented group ofpeople in the first place.
You mentioned earlier in the interviewsomething that surprised me that the wealth
channel is sticky.
A lot of managers would look at high net worthindividuals as the last one on the boat, first
one off.
Why is The Wealth Channel sticky?
Well, I think it's like anything else in life.
If people are having a good experience, youknow, with a manager, and and the manager is
(20:52):
delivering what they've promised.
And and what they promise beyond just, I'mgonna invest in this in in these strategies in
this way, and it's gonna generate x returns,It's also, and I'm gonna report to you.
I'm gonna, you know, have transparent support.
Experience matters as much as the objective.
Yes.
And I and I think in a lot of cases, there's arelationship that forms with the manager, and
(21:17):
delivering, you know, consistent returns, beingtransparent about your your your investments,
your reporting, your fees, etcetera, is how yougo about building that relationship because it
develops trust.
And just like institutions that, you know, havegood experiences with some managers and they
and they grow their relationship, and maybewith others they don't and they probably shrink
(21:41):
or eliminate those relationships, this channelis the same way.
And I think it represents an incredibly longterm channel for GPs.
And and I'll tell you going back to 2014,running around talking to GPs and having many
GPs say, you know, why would I ever need to bein that channel as we talked about.
Today, I would say almost every GP that we talkto understands my my comment from the Bain
(22:08):
report, the size of the market, and now they'reall very focused on figuring out what is the
right way for them to access this channel.
It's also the final frontier.
A lot of the top institutional investors havemade their allocations, have made their bets on
their horses, and, they don't typically changethat often.
So you almost have to if you're an emergingmanager, you almost have to go after that
(22:30):
channel.
Yeah.
I I I think you're right.
I think a lot of the the the newer managerstend to have sort of a friends and family sort
of origin to their capital base.
And and then as they create track record andthey have demonstrated success, then they tend
to go out and raise more institutional money.
(22:51):
But but I I will tell you the decision making,having spent a lot of time with these advisers
whether they're, you know, on a bank platformor independent RIAs or IBDs, they're very smart
and they're very discerning.
And, you know, what no manager should think isthat that this channel is any less discerning,
(23:14):
any less shrewd and and thoughtful as theinstitutional channel.
And as you see, you know, one of the big trendsin wealth management is this sort of growing
aggregation.
The RIAs are combining, creating much largerentities.
And as they do, they represent more dollars.
They've got, you know, mature, built outstaffs, and and they will look to the GPs like
(23:41):
the banks look to GPs today in terms of theirsize, their reach, their breadth, etcetera.
And so, it's it's a very exciting market, and,you know, I I think, we're gonna see, as we
talked about earlier, a a a growing amount ofallocation to this asset class.
I think every top 100 private equity firm willhave a head of private wealth within the next 5
(24:02):
years is
my sense.
Or most already do, and and it's and it'scoming down the line.
What you know, one of the really interestingthings in the earlier days is that, you know,
as people started to embrace this channel, theythey asked some of their institutional
fundraisers to kinda manage the channel off theside of their desk, And and that's not the
(24:22):
right way to do it, and you don't have focus.
This channel needs focus just like any otherchannel.
How does that scale?
How does focus scale in the Wealth Channel?
So it's building relationships, you know, withwith certainly, the wires create lots of scale
because, they represent banks to JPMorgan Yes.
JP Goldman Sachs, UBS, Morgan Stanley, BofA.
(24:43):
They represent very large pools of money.
And over the years, the banks have done a lotto educate advisers on how these assets fit
into the portfolio, so they represent veryattractive places for the GPs to invest.
But as we were just discussing, the RA channelis is also quite attractive, particularly as
(25:06):
we've seen the m and a trend that has createdlarger and larger entities, which now therefore
represent more money and have thesophistication and the interest.
Economics are very attractive in rolling upthese RIAs.
They pay for themselves very quickly.
It's a great trade.
Yeah.
That's the thought, and and they continue togrow.
And and I think the more m and a we see in theRIA space, the more integration and automation
(25:32):
we're also gonna need to see because they needto take, you know, disparate platforms and
integrate them so that not only do they haveasset growth, but they also have margin growth.
And and by the way, the the private equityspace is investing very actively in this trend.
So it's it's really interesting how theseworlds are coming together Very meta.
(25:56):
In a powerful way.
Exactly.
So how do you invest your portfolio?
You know, somewhat conservatively, you know, II have a significant allocation to
alternatives, you know, both in terms of thefunds I have as well as, you know, I Capital is
a is a private company, and I own privateequity, if you will, in my equity in in I
Capital.
(26:16):
You own essentially a small piece of each fundthrough your ownership of a parent company?
No.
The I Capital doesn't own its funds.
Right?
And so there are a handful of funds that I haveinvested in, and then, obviously, you know, I
Capital is a is a big position.
And then a lot of what else I do is invest in,you know, in municipal bonds, private credit,
(26:39):
and so I have a bit of a barbell.
And what are some mistakes that you made earlyon in your investing career that drive how you
are as an investor today?
Probably the biggest thing is investing inthings I didn't understand.
And in my life growing up in investmentbanking, we had a number of chances to invest
in certain things.
And in some cases, they sounded good, and I dida cursory review and invested, and didn't
(27:06):
really understand how it was gonna performunder different market environments.
And so I would say probably the biggestmistakes was was investing in things I I hadn't
fully taken the time to really dig into, whichis why, frankly, with I Capital, we're so
focused on making sure people are understandingwhat they're doing.
Not everything works out the way you expect.
(27:28):
But if you really understand, then when ratesgo way up, you'll have an expectation of what's
gonna happen to your portfolio.
If they go down, the market goes up, it goesdown.
You should have a set of expectations forwhat's gonna happen to your investments.
I think that's one of the things that makes,Warren Buffett so good, his buy box.
He's one of the most disciplined investorsever, and I've had a lot of people that
(27:50):
complain about this and say you can't move himfrom his buy box.
Yep.
So you've been building Icapital, but alongsideit, you've been building a large organization.
What are the lessons learned from building sucha large organization?
The most important thing is creating a cohesiveculture.
You know, I grew up at Goldman Sachs, andculture was really important there.
(28:12):
And and it was something that was very obviousand, I would say, sort of one of the most
significant unifying principles in that culturewas that our clients' interests always come
first.
And I would say here at I Capital, you know, Iwrite a letter to the company every weekend.
I've been doing that for nearly a decade, andit's so that people understand what we're
(28:36):
trying to do and why we're trying to do it, andthey get a readout or report on what's
happening.
And in in every one of those, I I make twoobservations, which is that, you know,
everything we do has to help our clientssucceed.
And the second thing is everything we do, wehave to do to do together as a team.
We're we're offering a, I think, a veryvaluable and complex service, and you need to
(29:02):
work together.
Lots of different, you know, people withdifferent skills coming together to provide
that service, and or technology to help ourclients meet their objectives.
And I would say that culture is adifferentiating thing in companies, because
(29:23):
companies
for for retention, for recruiting?
Yes.
Where where
does it help the most?
Everywhere.
Everywhere.
Everywhere.
I mean And does that mean you have to be antisomething to be pro something in your culture?
No.
No.
You you need to be you need to be pro team.
You need to understand that that your successis a function of the whole team's success.
(29:46):
And if you are the type of person that thatneeds to do things on your own, this may not be
the right, you know, the right place.
We have incredibly talented people here whounderstand that by working with other
incredibly talented people, they'll get a lotmore done.
And so, I think that that desire to worktogether as a team is a really important thing,
(30:10):
and I think always understanding that the onlyreason any companies exist is so they can
deliver something of value that somebody elsewill will buy and use to to achieve a goal.
And keeping that sort of end customer in mind,I think, is really critical in everything you
do.
It's like a road map.
You know, as you get bigger and and, you know,when you're small and you you can have line of
(30:34):
sight manage, you can see what everybody'sdoing and everybody can hear everybody and you
know what's happening.
As you get to be 1700 people and beyond, youknow, people have to know what are the things
that are important to the company so that whilethey're making the 100 or more decisions they
make every day on their own, they're guided bythese two things.
(30:58):
I've read a lot of leaders of organization.
The bigger the the organization, the more pithythe sayings and the fewer there are.
They go around and say kind of the same 2, 3, 4things.
How do you make your your culture stick?
I I think it's it's it's a 1,000 little things.
Right?
It's how you compensate people.
It's how you promote people.
(31:19):
It's your behavior more than what you say.
What you say is interesting, but what you dobut I do think that, there's value in
consistency and repetitiveness.
Right?
So if, I I remember, you know, at Golden, wehad 14 business principles, and they were all
(31:39):
incredibly powerful.
When we were smaller, the first thing thatoccurred to me is that's a lot of things for
people to remember.
At least as we thought about it, you know, whatare the handful of what are the most important
things that we never want anybody to forget?
And so what what's happened, you know, is wewe've we've really distilled what we're doing
(32:04):
to those two things for as the root of ourculture.
I mean, excellence is important.
Integrity is important.
But the way I look at it is if you're focusedon your client success, then you're gonna be
excellent.
You're gonna have integrity in terms of how youdeal with your your colleagues and your
clients.
And so, repeating the same things over and overagain, it just reinforces what matters to the
(32:29):
company.
If you're successful, what will iCapital looklike in 2030?
I think iCapital is going to be a a companythat has really built out the infrastructure
for the global wealth managers and assetmanagers to scale very large businesses, either
(32:51):
as consumers of or or managers of these privateassets across all the different strategies.
And what we're really trying to do is createthat operating system just like a major stock
exchange creates a a platform and a mechanismfor people to buy and sell, you know, stocks,
for example, very efficiently and easily, wewanna create a a platform for people to be able
(33:14):
to learn about, buy, and and sell and managealternative assets of all different strategies.
What do you think the biggest challenge isfacing the alternatives industry and I Capital?
I would say probably the biggest thing today issort of education.
Right?
You've got a lot of advisors who are newer tothe asset class.
(33:35):
We've talked about the allocation rates beinglow.
Yeah.
And so, you know, that next wave of advisors,which is a really big wave, by the way, is just
by definition less familiar with the assetclass, And so making sure that they're educated
in a way they really understand the product andcan represent it and and and show it to their
clients, kinda 1 by 1.
(33:57):
And I think this is frankly a multiyear journeythat everybody needs to be involved with.
And and I would say that, you know, when whenthere's a lot of excitement around something,
you know, there's often a tendency to to rush,move move quickly, etcetera.
And I think this is one where the opportunityis so large in terms of what alternatives can
(34:22):
become relative to these client portfolios thateverybody is better off just making sure that,
you know, the investment is made in theeducation.
All the GPs are doing, you know, what they canto help educate advisors and clients.
We certainly need to be doing that and othersso that people invest in a really thoughtful
and knowledgeable way.
(34:43):
You guys are investing heavily into technology.
What are the problems you're solving with yourtechnology for your clients?
Sure.
So, you know, we're looking at, you know, a acouple of different things that are important.
1 is around decision making.
Right?
2 is around data collection.
How do you as as you grow your business, as youmake more alternate investments, as you do more
(35:04):
m and a, you've got data in lots of places.
How do you bring that all together and turn itinto useful information?
3 is how do you connect the ecosystem?
Right?
So you've got managers, administrators, taxpreparers, you know, iCapital, wealth managers.
You've got lots of different people that aredealing with information often, you know, with
(35:27):
an old or different version.
Gonna be getting our k ones before September?
That's a harder question.
That's a hard
that's a hard one.
A harder question, but a very
good 20, 30.
I do think that, you know, using technologyusing technology like AI to help automate how
information is collected, extracted, aggregatedis really important.
(35:51):
Using AI to help people get to the types ofproducts and strategies they want to get to
more quickly is really important.
Using this the distributed ledger to be able toconnect the ecosystem in in a really powerful
and automated way so that people aren'treconciling.
(36:11):
I'll give you an example.
In a typical private fund, all of theconstituents, 6 different constituents in that
private fund, are going to reconcile everytransaction that happens.
So there's an onboarding.
There's a subscription.
There's a capital call, a distribution, aredemption, a report.
Every you know, the GP, the wealth managers,the administrators, the taxpayers repetitive
(36:35):
work.
A lot of repetitive work in different systems.
And so what we're trying to do is leverage thedistributed ledger and have people connect into
the APIs so that whenever there's a change inthe main system so maybe an administrator has
an update.
Everybody's system can consume that updateimmediately, and you don't have people keying
(36:56):
in that information in separate systems, whichobviously leads to to some mistakes.
And so bringing the industry together is apowerful part of where we're investing and how
we think we can improve the experience for thewhole ecosystem.
Yeah.
People like Christopher Zook and Tony Robbinslobbying congress to allow more people to
(37:16):
become accredited investors through creditinvestor rule.
What are your thoughts on this?
So we we had a rewrite or expansion of therule, you know, a handful years ago where
people who, you know, may not have met thewealth test can meet the test with experience,
their place of business, etcetera.
I think that was a smart thing to do because itit it it allowed people who were truly
(37:41):
qualified to invest to have a chance to investeven if they they weren't, you know, at at a
certain wealth level.
I do think that, you know, it's about peopleunderstanding what they're doing.
Right?
And you can have some very wealthy people whodon't fully understand these investments, and
you can have some people who aren't as wealthywho understand them really, you know,
(38:04):
thoroughly.
And so I think that behind that definitionneeds to be an understanding a true
understanding of the products and how they workso people can make thoughtful decisions.
You could have a university professor that isnot an accredited investor, maybe even a
university professor in finance.
Right.
Exactly.
And you could
have a 3rd generation wealthy person that'snever, you know, that's doesn't even know what
(38:30):
an alternative is, that is a credit.
Yeah.
Exactly.
And so I think, you know, whatever the rules,however they evolve, they, I think, should be
based substantively and fundamentally on, youknow, on what people understand about what
they're investing in.
Absolutely.
Well, Lawrence, I've really enjoyed thepodcast.
Thanks for jumping on.
Thank you.
Thanks.
Great to be here.
Well, so Bain did a study.
Every year, they do a study of the wealthmarket, and the 23 study had an estimate of
about a $145,000,000,000,000 that was owned byretail on a global basis.
So if you think about that 145 trillion.
145 trillion.
It really rivals the size of the institutionalmarket.
And if you think about some percentage of thatbeing allocated to alts, it's a fairly large
(00:24):
addressable market for the community.
If you're successful, what will I Capital looklike in 2030?
So what is the mission of I Capital?
Give me a sense for the scale of the businesstoday.
Sure.
So the mission of I Capital is to createopportunities and access for financial advisers
to be able to invest in the highest qualityalternative products, the same types of
(00:49):
products, for example, that institutions wouldhave access to.
And at the same time, it's to help GPs accessthe very fragmented wealth management market.
Today, the business is about 205,000,000,000 inassets on the platform and alternatives.
We have about a 170,000,000,000 in structurednotes that we manage in their life cycle and
(01:10):
nearly a half a $1,000,000,000,000 of dataassets that we report on.
So walk me through going from Goldman Sachs tothe founding story of I Capital in 2013.
Sure.
So at Goldman, I ran tech banking, and we spenta lot of time taking companies public, doing m
and a, and making a lot of investments.
And, you know, so fast forward to I Capital,there's a a great group of people that had the
(01:33):
same idea around bringing automation into thisalternative space to provide both that access I
talked about, but not just access itself, I e,I can now have a chance to buy the product.
Importantly, my whole experience would be basedin technology and would be automated.
A lot of the early advisors that we you that weserved at I Capital, they were managing a lot
(02:00):
of money but were fundamentally still smallbusinesses, and so they didn't have the
capability or the desire, frankly, to hire lotsof operational people, administrative people,
etcetera.
So they needed to be able to leveragetechnology to sort of manage the life cycle
from learning about funds to, subscribing tofunds through all of the post subscription
(02:22):
activities like capital calls, distributions,reporting, etcetera.
And and being able to rely on a tech platformwas critical for them to be able to really,
implement the technology or the the product intheir platforms.
I've spoken to some of the top private equityfunds in the world, and they're all focused on
this wealth channel.
(02:43):
Why is that?
Well, so Bain did a study.
Every year, they do a study of the wealthmarket, and, the 23 study had, an estimate of
about a $145,000,000,000,000 that was owned byretail on a global basis.
So if you think about that 145,000,000,000,000.
145,000,000,000,000.
(03:03):
It really rivals the size of the institutionalmarket, And if you think about some percentage
of that being allocated to alts, it's a fairlylarge addressable market for the community.
And I will tell you when we started thebusiness, you know, most of the GPs that we
talked to, not all but most, were not reallyfocused on this channel.
(03:24):
Historically, they raised all their money frominstitutions.
And so over time, as it's become very obviousthat the channel is large, it is also stickier
than I think a lot of people assumed when theyfirst started thinking about the channel.
They realized that they could build a afoundational part of their fundraising strategy
(03:46):
within this channel, and so that's reallywhat's evolved over the last, you know, decade.
Was it difficult when you started?
You had this contrarian thesis.
You saw the world differently.
Was it difficult to build something that a lotof people didn't think should exist?
Well, I don't know that they thought itshouldn't exist versus they just didn't think
(04:07):
about the question, you know.
And I think, the the hard thing was the classicchicken or the egg problem.
Right?
So if you would go to independent, financialadvisors and say we're gonna bring you a
platform that will provide access toalternatives, the first question is, well,
which managers are on the platform?
And if you go to the managers and you say,we've built a platform that's gonna give you
(04:32):
access to this massive and distributed wealthmanagement channel, they're gonna say, well
well, how much money is on the platform, whichadvisers are on the platform, etcetera.
And so building that or managing that chickenor the egg problem so both sides of the of the
equation, if you will, sort of grow over timewas really the critical challenge that we were
(04:52):
able to overcome, throughout the last decade.
And what surprised you the most about theinterest of high net worth investors versus
traditional institutional investors?
You know, I think probably the biggestthreshold issue for a lot of individual
investors is illiquidity.
Institutions are very used to that.
(05:13):
Right?
They're investing in these assets to fundlonger term liabilities, whereas individuals,
you know, illiquidity is a less natural and orcomfortable topic.
Yeah.
And so managing their perception ofilliquidity, and thinking about how do they
properly incorporate these types of productsinto their portfolio, you know, has been and
(05:37):
continues to be a really important challengefor
the industry.
Which if you think about the market as beingefficient, efficient market hypothesis, one of
the only true ways to outperform is withilliquidity, the illiquidity premium.
So not being able to take advantage of thatreally disadvantages high net worth
(05:57):
investment.
And I'll tell you, I say this a lot.
You know, the illiquidity is not a bug.
It's a feature.
Right?
And if you think about how these asset managersgenerate, you know, returns for their
shareholders, that period of illiquidity isfundamental to what they do.
If you think of private equity, for example,it's it's probably the ultimate active asset
(06:20):
class, where they're not just investing andfollowing a company.
They're investing in the company.
They're taking a seat or several seats on theboard.
They may control the company.
They're hiring management.
Maybe they're firing management.
They're buying divisions, selling divisions,launching new products, changing prices,
growing geographically.
There's a lot of really fundamental activitiesthat this, you know, these asset managers are
(06:46):
undertaking.
And as we think about the asset class and as wethink about how do we evaluate the individual
managers, probably one of the most importantthings we think about is what impact do they
have on their portfolio during this sort ofactive management period?
What are they actually doing to improve therevenues and profitability of a company?
And while they can generate some return maybewith leverage or multiple expansion, the the
(07:11):
real value and the differentiator, the alpha,if you will, is in what they do with the
companies and how those companies grow andimprove their financial characteristics over
time.
So when you're looking at high net worthinvestors today, q 1 2025, what are they
looking for?
So right now, people are beginning to shifttheir interest back to equity.
(07:37):
Over the last 2 years, I would say credit hasreally dominated the the calendar.
And what's been behind this credit interest andcredit?
Yeah.
So if you go back to 22 it's a great question.
If you go back to 22, the the markets were werein a bad place.
People were expecting the Fed to raise interestrates.
(07:58):
And in a rising rate environment, people arelooking to be hedged.
Right?
So they tend to be more risk off.
They want shorter shorter duration.
And with respect to private credit, most of theprivate credit structures are floating rate.
So if you think the Fed's gonna raise rates, itit creates a hedge for you.
And and over time, as the Fed did in fact raiserates, at at one point rates were maybe 4 or
(08:22):
5%, the absolute return to private credit was10 to 12%.
So even the absolute return was attractive.
Now that we're seeing rates begin to come backdown, we're seeing, more of a sort of
reopening, if you will, of private equity intothe market.
Right now, if I look at this year to date, if,actually, if you go back to the first half of
(08:48):
the year, private credit was roughly 45% of theflows and equity about 35% of the flows.
That reversed in the Q3, and we had, equity atclose to 50% of the flows and private credit in
the low thirties.
So we're already seeing that shift inextension, into the private equity strategies,
(09:10):
which we expect to continue.
To double click on the equity dispersion, whatasset classes are we talking about?
So it's, you know, growth equity, bioequity.
You know, technology is one of the themes thatpeople are very interested in, but it really is
across the board.
I think one of the important things about ourplatform is all of the different strategies and
(09:32):
underlying sort of industrial focuses are onthe platform.
So you can get private equity, private credit,private real estate, private infrastructure,
all the hedge funds.
You can get funds that are focused on financialinstitutions or technology or energy or health
care, etcetera.
And so the important thing about the platformis that any adviser can build a a portfolio for
(09:57):
their clients irrespective of the marketenvironment.
So if we're back in 22 and people are risk offand they expect rates to go up to go up, they
can buy a a full cadre of of private creditproducts.
If the market's rallying and rates are comingdown and people are focused on equity, there's
a full menu of equity products they can buy.
(10:18):
And being able to provide that, over time isreally critical for advisers to serve their
whole client base.
You've made a bet on The Wealth Channel.
You've also made a
bet on alternatives.
Tell me about the future of the alternativesindustry.
We think it's a good bet.
I mean, if you look today, and you do a surveyof where the wealth manager CIOs are suggesting
(10:42):
allocating to alts, you'll find ranges from 15to as high as 40% suggested allocation to alts.
If you then look empirically and and see wherepeople are actually allocated, what you'll find
is, you know, mid low to mid single digitallocations.
So we think there's a very substantial amountof room to grow into the allocations.
(11:06):
In fact, I I I like to think about 2 phenomenaas a a way to think about where we are in the
market cycle.
The first is the participation rate, and thatspeaks to how many financial advisers are
actually doing the business.
Right?
And today, you probably have 20% of theadvisers driving close to 80% of the volume, so
(11:28):
the participation rate is still quite low.
If you then look at the allocation rate as Iwas just describing, it too is way below that
sort of targeted allocation suggestions by theCIOs.
So I think both those dynamics as theparticipation rate grows and as the allocation
rate grows, you've got significant potentialflows into the asset class.
(11:52):
I think you could also look at it from what isthe efficient what what should you be
efficiently allocated to alts versus what's thereality.
And if you look at what is efficient, you haveto look at the endowment world.
Right?
Probably some of the sharpest investors in theworld, the Yale model, specifically a David
Swensen model, most endowments are roughly 35to 40% and sometimes up to 50% of their entire
(12:17):
portfolio.
And then you go to the to the wealth channelsand you see the the low single digits.
What's the reason for that dispersion?
So first of all, I played golf over the summerwith the CIO of a Ivy League school that has a
60% allocation to Alts.
Okay.
So your your point is exactly right, though.
(12:37):
And I think the issue that there's multiplereasons, and I think probably to start, the
most significant is just access.
You know, institutions have been buying theseassets or investing in these assets for 45, 50
years when the industry first really started,and individuals except for the wealthiest
(12:58):
family offices, you
know Talk about $1,000,000,000 plus families.
Yeah.
Real family offices that frankly are just likefoundations and endowments in many respects.
Many others, however, haven't really had thatsystematic access I was talking about to
alternatives.
And so that that has changed a lot, and nowpeople do have access.
(13:19):
But what what's needed is the automation Italked about and also the tools and education.
And I would say probably today, if you lookedat one of the biggest reasons for the alts
allocation where it is broadly, education isstill really what's needed.
There's still a lot of advisors that are newerto the asset class, and, obviously, most
(13:44):
responsible advisors aren't going to suggestproducts that they first don't totally
understand Tom.
And understand the applicability of thoseproducts for their clients.
And so as that education process happens and asadvisors get more comfortable with the asset
class and it's it's really happening, I thinkyou'll see those numbers start to grow.
Whether they get to, you know, 40, 50, 60%, I'mnot sure they're gonna get that high.
(14:09):
Yeah.
But but, fundamentally, the reasons whyinstitutions invest in these assets are are
every bit as germane to individuals.
Right?
They have long dated liabilities.
Retirement is a long dated liability that youhave to save for.
They have other events in their life they haveto save for.
They wanna protect their portfolio.
They want diversification, and assets thataren't totally correlated with their liquid
(14:33):
assets.
So all of the things that drive institutions toinvest are are the same types of things that
are attractive from an individual's perspectiveas to why they should invest as well.
How do you know that the the wealth channelsare not being adversely selected when it comes
to these funds?
You have a large fund.
They wanna go to endowment or pension fund.
(14:54):
Why would they want to allocate to a wealthchannel?
So it's a it's a super question, and I'm gonnabefore I answer that, I'm gonna make one
observation that strengthens the questionfurther, which is to say, within alternatives
you take private equity again.
The difference between the top performingmanager and the 4th quartile could be over a
(15:15):
1000 basis points, 10 plus percent.
You're in a totally different asset class ifyou're not in the right managers.
We'll be right back, but first, a word from oursponsor.
Innovation is a driving force in the world andruns through everything that Reed Smith does.
Reed Smith is a law firm that combinespioneering technology with industry expertise
(15:36):
in order to solve their clients' mostchallenging matters.
Their approach is grounded in collaborationwith a focus on growth, efficiency, and
customization because every client's challengesare unique and their solutions should be too.
I'm proud to partner with Reed Smith, a firmthat continually adapts to meet their clients'
needs.
Some say venture capital is the best assetclass, but also is the worst depending on which
(15:58):
portfolio
you're with.
Right?
If you're with the top in in venture, the thethe, pool is even smaller, I would argue.
But, you know, with respect to really all ofthese alternative strategies, you've gotta be
with the best managers, and part of what we'retrying to deliver as a platform is access to
those managers.
I think, historically, when people haven'treally had robust access, you really have the
(16:23):
adverse selection problem because they have afriend who's running a real estate fund or
they, you know, they they know someone who's ina private equity fund.
If you don't have robust access and you don'thave robust information to understand how any
given fund performs, it's hard to make arelative decision about who the top performer
is and who's not.
And so information
(16:44):
Is that also the standardization ofinformation?
Because I think that's one of the difficultthings is, you know, some are not even RIAs.
I'm assuming you you work you work mostly withRIAs, but but talk talk to sometimes it's hard
to even standardize and and look at differentasset classes.
Yeah.
I think access and standardization, knowingthat you have all the relevant material, is
(17:06):
really important.
We we try to provide that.
We try to provide due diligence for, you know,many of the funds on the platform, so there's
the an another lens, another analysis for anadviser to talk about with their clients.
You know, I talked about how the best managersgenerate returns.
That's one of the things, for example, in ourdiligence reports, we're really focused on
(17:28):
which of the managers are driving underlyingportfolio company growth and improvement.
Again, the alpha Where's the value add?
Where's the value add?
Exactly.
ICapital has both the platform, but, also, youhave a curated set of managers.
Talk to me about that.
The underlying thought as we were building thiscompany is we needed to build the full
(17:50):
automated platform.
I talked about that in terms of how importantthat was for people to be able to really drive
and grow the business, but there was also, aswe're discussing now, a lot of importance
around making sure you have access to the rightmanagers.
One of the things as we go to market is that wedon't require people to use all of what we
(18:12):
offer.
We we simply say, here's what we have to offer,an end to end technology platform, access to
great managers, research around great managers,and you choose what components of the offering
is most valuable or important to you to achieveyour goals and objectives.
For many of the independent RAs, they use boththe full platform from an automation
(18:34):
perspective, and they also use the productsthat we've curated and made available to them.
Many of the large banks, for example, that havetheir own historic access and incredible set of
relationships might just use the technology orsome of the services that we offer around
managing the business, same for the GPs.
And that's part of, you know, sort of meet thecustomer base where they are in terms of
(18:59):
providing the solutions they need and notrequiring people to take things they don't.
There's a saying in private equity andalternatives that nothing takes more time to
manage than a $25,000 check.
You make an exception for for a friend andfamily, and you end up spending more time than
the $25,000,000 check.
How do you obfuscate the investor relations,you know, pains of dealing with small check
(19:23):
writers, and how does iCapital help?
Good question.
And this really speaks to one
of the important services that we provide forGPs in addition to technology is this
aggregation.
And so if you look at the infrastructures ofmost general partners, because of where they
they've always raised money, they're tuned togetting a very small number of really large
(19:46):
commitments.
Okay?
The high net worth space, however, is the exactopposite, a really large number of smaller
commitments.
And so their infrastructures aren't tuned forthat new reality.
So we step in, and we aggregate in lots ofdifferent ways all of these smaller tickets.
(20:06):
And so we look to a GP like one largeinstitution.
And so we can interact and and connect to theirinfrastructure a lot more seamlessly than 2
1,000, 50,000, or a $100,000 investors.
And and that's a big part of the serviceoffering to the GPs as well as helping to
(20:27):
create access to this fragmented group ofpeople in the first place.
You mentioned earlier in the interviewsomething that surprised me that the wealth
channel is sticky.
A lot of managers would look at high net worthindividuals as the last one on the boat, first
one off.
Why is The Wealth Channel sticky?
Well, I think it's like anything else in life.
If people are having a good experience, youknow, with a manager, and and the manager is
(20:52):
delivering what they've promised.
And and what they promise beyond just, I'mgonna invest in this in in these strategies in
this way, and it's gonna generate x returns,It's also, and I'm gonna report to you.
I'm gonna, you know, have transparent support.
Experience matters as much as the objective.
Yes.
And I and I think in a lot of cases, there's arelationship that forms with the manager, and
(21:17):
delivering, you know, consistent returns, beingtransparent about your your your investments,
your reporting, your fees, etcetera, is how yougo about building that relationship because it
develops trust.
And just like institutions that, you know, havegood experiences with some managers and they
and they grow their relationship, and maybewith others they don't and they probably shrink
(21:41):
or eliminate those relationships, this channelis the same way.
And I think it represents an incredibly longterm channel for GPs.
And and I'll tell you going back to 2014,running around talking to GPs and having many
GPs say, you know, why would I ever need to bein that channel as we talked about.
Today, I would say almost every GP that we talkto understands my my comment from the Bain
(22:08):
report, the size of the market, and now they'reall very focused on figuring out what is the
right way for them to access this channel.
It's also the final frontier.
A lot of the top institutional investors havemade their allocations, have made their bets on
their horses, and, they don't typically changethat often.
So you almost have to if you're an emergingmanager, you almost have to go after that
(22:30):
channel.
Yeah.
I I I think you're right.
I think a lot of the the the newer managerstend to have sort of a friends and family sort
of origin to their capital base.
And and then as they create track record andthey have demonstrated success, then they tend
to go out and raise more institutional money.
(22:51):
But but I I will tell you the decision making,having spent a lot of time with these advisers
whether they're, you know, on a bank platformor independent RIAs or IBDs, they're very smart
and they're very discerning.
And, you know, what no manager should think isthat that this channel is any less discerning,
(23:14):
any less shrewd and and thoughtful as theinstitutional channel.
And as you see, you know, one of the big trendsin wealth management is this sort of growing
aggregation.
The RIAs are combining, creating much largerentities.
And as they do, they represent more dollars.
They've got, you know, mature, built outstaffs, and and they will look to the GPs like
(23:41):
the banks look to GPs today in terms of theirsize, their reach, their breadth, etcetera.
And so, it's it's a very exciting market, and,you know, I I think, we're gonna see, as we
talked about earlier, a a a growing amount ofallocation to this asset class.
I think every top 100 private equity firm willhave a head of private wealth within the next 5
(24:02):
years is
my sense.
Or most already do, and and it's and it'scoming down the line.
What you know, one of the really interestingthings in the earlier days is that, you know,
as people started to embrace this channel, theythey asked some of their institutional
fundraisers to kinda manage the channel off theside of their desk, And and that's not the
(24:22):
right way to do it, and you don't have focus.
This channel needs focus just like any otherchannel.
How does that scale?
How does focus scale in the Wealth Channel?
So it's building relationships, you know, withwith certainly, the wires create lots of scale
because, they represent banks to JPMorgan Yes.
JP Goldman Sachs, UBS, Morgan Stanley, BofA.
(24:43):
They represent very large pools of money.
And over the years, the banks have done a lotto educate advisers on how these assets fit
into the portfolio, so they represent veryattractive places for the GPs to invest.
But as we were just discussing, the RA channelis is also quite attractive, particularly as
(25:06):
we've seen the m and a trend that has createdlarger and larger entities, which now therefore
represent more money and have thesophistication and the interest.
Economics are very attractive in rolling upthese RIAs.
They pay for themselves very quickly.
It's a great trade.
Yeah.
That's the thought, and and they continue togrow.
And and I think the more m and a we see in theRIA space, the more integration and automation
(25:32):
we're also gonna need to see because they needto take, you know, disparate platforms and
integrate them so that not only do they haveasset growth, but they also have margin growth.
And and by the way, the the private equityspace is investing very actively in this trend.
So it's it's really interesting how theseworlds are coming together Very meta.
(25:56):
In a powerful way.
Exactly.
So how do you invest your portfolio?
You know, somewhat conservatively, you know, II have a significant allocation to
alternatives, you know, both in terms of thefunds I have as well as, you know, I Capital is
a is a private company, and I own privateequity, if you will, in my equity in in I
Capital.
(26:16):
You own essentially a small piece of each fundthrough your ownership of a parent company?
No.
The I Capital doesn't own its funds.
Right?
And so there are a handful of funds that I haveinvested in, and then, obviously, you know, I
Capital is a is a big position.
And then a lot of what else I do is invest in,you know, in municipal bonds, private credit,
(26:39):
and so I have a bit of a barbell.
And what are some mistakes that you made earlyon in your investing career that drive how you
are as an investor today?
Probably the biggest thing is investing inthings I didn't understand.
And in my life growing up in investmentbanking, we had a number of chances to invest
in certain things.
And in some cases, they sounded good, and I dida cursory review and invested, and didn't
(27:06):
really understand how it was gonna performunder different market environments.
And so I would say probably the biggestmistakes was was investing in things I I hadn't
fully taken the time to really dig into, whichis why, frankly, with I Capital, we're so
focused on making sure people are understandingwhat they're doing.
Not everything works out the way you expect.
(27:28):
But if you really understand, then when ratesgo way up, you'll have an expectation of what's
gonna happen to your portfolio.
If they go down, the market goes up, it goesdown.
You should have a set of expectations forwhat's gonna happen to your investments.
I think that's one of the things that makes,Warren Buffett so good, his buy box.
He's one of the most disciplined investorsever, and I've had a lot of people that
(27:50):
complain about this and say you can't move himfrom his buy box.
Yep.
So you've been building Icapital, but alongsideit, you've been building a large organization.
What are the lessons learned from building sucha large organization?
The most important thing is creating a cohesiveculture.
You know, I grew up at Goldman Sachs, andculture was really important there.
(28:12):
And and it was something that was very obviousand, I would say, sort of one of the most
significant unifying principles in that culturewas that our clients' interests always come
first.
And I would say here at I Capital, you know, Iwrite a letter to the company every weekend.
I've been doing that for nearly a decade, andit's so that people understand what we're
(28:36):
trying to do and why we're trying to do it, andthey get a readout or report on what's
happening.
And in in every one of those, I I make twoobservations, which is that, you know,
everything we do has to help our clientssucceed.
And the second thing is everything we do, wehave to do to do together as a team.
We're we're offering a, I think, a veryvaluable and complex service, and you need to
(29:02):
work together.
Lots of different, you know, people withdifferent skills coming together to provide
that service, and or technology to help ourclients meet their objectives.
And I would say that culture is adifferentiating thing in companies, because
(29:23):
companies
for for retention, for recruiting?
Yes.
Where where
does it help the most?
Everywhere.
Everywhere.
Everywhere.
I mean And does that mean you have to be antisomething to be pro something in your culture?
No.
No.
You you need to be you need to be pro team.
You need to understand that that your successis a function of the whole team's success.
(29:46):
And if you are the type of person that thatneeds to do things on your own, this may not be
the right, you know, the right place.
We have incredibly talented people here whounderstand that by working with other
incredibly talented people, they'll get a lotmore done.
And so, I think that that desire to worktogether as a team is a really important thing,
(30:10):
and I think always understanding that the onlyreason any companies exist is so they can
deliver something of value that somebody elsewill will buy and use to to achieve a goal.
And keeping that sort of end customer in mind,I think, is really critical in everything you
do.
It's like a road map.
You know, as you get bigger and and, you know,when you're small and you you can have line of
(30:34):
sight manage, you can see what everybody'sdoing and everybody can hear everybody and you
know what's happening.
As you get to be 1700 people and beyond, youknow, people have to know what are the things
that are important to the company so that whilethey're making the 100 or more decisions they
make every day on their own, they're guided bythese two things.
(30:58):
I've read a lot of leaders of organization.
The bigger the the organization, the more pithythe sayings and the fewer there are.
They go around and say kind of the same 2, 3, 4things.
How do you make your your culture stick?
I I think it's it's it's a 1,000 little things.
Right?
It's how you compensate people.
It's how you promote people.
(31:19):
It's your behavior more than what you say.
What you say is interesting, but what you dobut I do think that, there's value in
consistency and repetitiveness.
Right?
So if, I I remember, you know, at Golden, wehad 14 business principles, and they were all
(31:39):
incredibly powerful.
When we were smaller, the first thing thatoccurred to me is that's a lot of things for
people to remember.
At least as we thought about it, you know, whatare the handful of what are the most important
things that we never want anybody to forget?
And so what what's happened, you know, is wewe've we've really distilled what we're doing
(32:04):
to those two things for as the root of ourculture.
I mean, excellence is important.
Integrity is important.
But the way I look at it is if you're focusedon your client success, then you're gonna be
excellent.
You're gonna have integrity in terms of how youdeal with your your colleagues and your
clients.
And so, repeating the same things over and overagain, it just reinforces what matters to the
(32:29):
company.
If you're successful, what will iCapital looklike in 2030?
I think iCapital is going to be a a companythat has really built out the infrastructure
for the global wealth managers and assetmanagers to scale very large businesses, either
(32:51):
as consumers of or or managers of these privateassets across all the different strategies.
And what we're really trying to do is createthat operating system just like a major stock
exchange creates a a platform and a mechanismfor people to buy and sell, you know, stocks,
for example, very efficiently and easily, wewanna create a a platform for people to be able
(33:14):
to learn about, buy, and and sell and managealternative assets of all different strategies.
What do you think the biggest challenge isfacing the alternatives industry and I Capital?
I would say probably the biggest thing today issort of education.
Right?
You've got a lot of advisors who are newer tothe asset class.
(33:35):
We've talked about the allocation rates beinglow.
Yeah.
And so, you know, that next wave of advisors,which is a really big wave, by the way, is just
by definition less familiar with the assetclass, And so making sure that they're educated
in a way they really understand the product andcan represent it and and and show it to their
clients, kinda 1 by 1.
(33:57):
And I think this is frankly a multiyear journeythat everybody needs to be involved with.
And and I would say that, you know, when whenthere's a lot of excitement around something,
you know, there's often a tendency to to rush,move move quickly, etcetera.
And I think this is one where the opportunityis so large in terms of what alternatives can
(34:22):
become relative to these client portfolios thateverybody is better off just making sure that,
you know, the investment is made in theeducation.
All the GPs are doing, you know, what they canto help educate advisors and clients.
We certainly need to be doing that and othersso that people invest in a really thoughtful
and knowledgeable way.
(34:43):
You guys are investing heavily into technology.
What are the problems you're solving with yourtechnology for your clients?
Sure.
So, you know, we're looking at, you know, a acouple of different things that are important.
1 is around decision making.
Right?
2 is around data collection.
How do you as as you grow your business, as youmake more alternate investments, as you do more
(35:04):
m and a, you've got data in lots of places.
How do you bring that all together and turn itinto useful information?
3 is how do you connect the ecosystem?
Right?
So you've got managers, administrators, taxpreparers, you know, iCapital, wealth managers.
You've got lots of different people that aredealing with information often, you know, with
(35:27):
an old or different version.
Gonna be getting our k ones before September?
That's a harder question.
That's a hard
that's a hard one.
A harder question, but a very
good 20, 30.
I do think that, you know, using technologyusing technology like AI to help automate how
information is collected, extracted, aggregatedis really important.
(35:51):
Using AI to help people get to the types ofproducts and strategies they want to get to
more quickly is really important.
Using this the distributed ledger to be able toconnect the ecosystem in in a really powerful
and automated way so that people aren'treconciling.
(36:11):
I'll give you an example.
In a typical private fund, all of theconstituents, 6 different constituents in that
private fund, are going to reconcile everytransaction that happens.
So there's an onboarding.
There's a subscription.
There's a capital call, a distribution, aredemption, a report.
Every you know, the GP, the wealth managers,the administrators, the taxpayers repetitive
(36:35):
work.
A lot of repetitive work in different systems.
And so what we're trying to do is leverage thedistributed ledger and have people connect into
the APIs so that whenever there's a change inthe main system so maybe an administrator has
an update.
Everybody's system can consume that updateimmediately, and you don't have people keying
(36:56):
in that information in separate systems, whichobviously leads to to some mistakes.
And so bringing the industry together is apowerful part of where we're investing and how
we think we can improve the experience for thewhole ecosystem.
Yeah.
People like Christopher Zook and Tony Robbinslobbying congress to allow more people to
(37:16):
become accredited investors through creditinvestor rule.
What are your thoughts on this?
So we we had a rewrite or expansion of therule, you know, a handful years ago where
people who, you know, may not have met thewealth test can meet the test with experience,
their place of business, etcetera.
I think that was a smart thing to do because itit it it allowed people who were truly
(37:41):
qualified to invest to have a chance to investeven if they they weren't, you know, at at a
certain wealth level.
I do think that, you know, it's about peopleunderstanding what they're doing.
Right?
And you can have some very wealthy people whodon't fully understand these investments, and
you can have some people who aren't as wealthywho understand them really, you know,
(38:04):
thoroughly.
And so I think that behind that definitionneeds to be an understanding a true
understanding of the products and how they workso people can make thoughtful decisions.
You could have a university professor that isnot an accredited investor, maybe even a
university professor in finance.
Right.
Exactly.
And you could
have a 3rd generation wealthy person that'snever, you know, that's doesn't even know what
(38:30):
an alternative is, that is a credit.
Yeah.
Exactly.
And so I think, you know, whatever the rules,however they evolve, they, I think, should be
based substantively and fundamentally on, youknow, on what people understand about what
they're investing in.
Absolutely.
Well, Lawrence, I've really enjoyed thepodcast.
Thanks for jumping on.
Thank you.
Thanks.
Great to be here.
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