The big idea and why it matters: Alternative investment structures have continued their positive evolution over the past four years. Evergreen funds are making private market strategies more accessible to many more investors, which can help them add diversifying characteristics unavailable in traditional/public markets.
“Whatever you do, always give 100%. Unless you’re donating blood.” -Bill Murray
The moment you’ve been anxiously awaiting for months is finally here! No, I’m not talking about the US presidential election or the October 2024 Jelly of the Month to arrive. I’m referring to the – wait for it – 100th edition of Alt Blend! Looking at the original October 14, 2020, posting date of that first entry, I see that this also qualifies as the 4th-anniversary edition. Who knew my fingertips could spew such a prolific amount of dad jokes, unnecessary ‘90s references, and (hopefully) Alts insights? Not me (a Paul Rudd appearance never hurts)!
Per Google, “In many cultures, 100 is seen as a completion, milestone, or achievement. The numeral “0” is a full circle, and the word “one hundred” suggests a sense of completion.” Some would also say that 100 is unique because of things like water boiling at 100 degrees Celsius, but who uses Celsius, anyway? Why would it make sense for water to freeze at 0 degrees and boil at 100 degrees when it could freeze at 32 degrees and boil at 212 degrees? Units of measure shouldn’t be straightforward and easy. Give me 12 inches in a foot, a nice round number like 5280 feet in a mile, and let me wash down my 212-degree piping hot coffee with some Bud Light (please don’t). We’ll really celebrate when we hit Alt Blend #212, like real Americans. Sarcasm thick enough yet? Okay. Moving on, then.
Those things are all just made up by humans. But, as a former engineer and lifelong fan of math, “100” is special in that it represents a move from 2-digit numbers to 3-digit numbers – an event horizon, if you will, at which something new needs to be added to the methodology. “100” is a new frontier for novice mathematicians honing their counting skills in kindergarten and first grade. With that in mind, let’s take a look back to reflect on the 2-digit road we’ve traveled to get here and consider what may lie ahead in this brave new world beyond edition #99. Thanks to all of you for reading, and thank you in advance for bearing with me in the future. Here we go!
Our world then
2020 was…umm…special. At the outset of Alt Blend, it was October of a US Presidential election year, so, of course, that came with the usual political banter and pre-election investor tension. But, we were also living through the depths of a global pandemic – an existence for many that involved extended work-from-home stints and (painful for both parents and kids) virtual education, aka “Zoom school.” Global supply chains were SLOW. Formerly simple tasks, like finding groceries, were challenging.
That sounds like plenty of excitement, but 2020 had more to give! There were impeachment trials of Donald Trump, flaring tensions between the US and Iran (sound familiar?), and massive global racial protests following the murder of George Floyd (as the final straw following the deaths of Trayvon Martin, Tamir Rice, and Breonna Taylor). We saw the worst volatility in the history of oil markets, with the price falling below zero. And – as an added bonus – Mother Nature played along, bringing record wildfires out West and some hurricane-induced oil refinery shutdowns to the party.
Personally, 2020 was a year of merging my previous advisory business into The Bahnsen Group (TBG), officially starting February 1st. When I joined TBG, we were a team of 25 people managing about $2 billion or less, and the New York office was the first to open outside of our Newport Beach headquarters.
Covid shuttered NYC only a couple of weeks after we moved into our new offices, and I have distinctly uncomfortable memories of attempting to reallocate hundreds of accounts during long, cold, dark days from my attic office while markets moved +/- 10% between the open and close. Everything was a moving target.
Alts then
When I began utilizing more Alts for clients, I advocated for the development of open-ended structures in many conversations and meetings with many managers, which I’m sure amounted to sounding like a broken record. I deeply believed that many of the strategies packaged as highly illiquid drawdown funds could be restructured into more investor-friendly formats. That format would take in client capital quickly and be evergreen (open for investment on an ongoing basis).
In other words, instead of a fund where the manager slowly called capital (the “drawdown”) over several years, then invested for several years, and then returned all the money to investors, they could have kept investing in perpetuity. If investors were happy with a strategy, why would they want their money back? And why would the manager want to give their money back, only to waste an incredible amount of time and effort trying to get those same investors to commit capital to the manager’s subsequent fund?
I felt managers could attract more investors with lower minimums and reduced qualifications (like accredited or qualified client instead of qualified purchaser status). I also dreamt of constructing funds for private credit investments and income-producing Alts so clients could easily access a diversified mix of strategies without numerous sets of onerous subscription documents, K-1s for each fund, and tedious performance reporting for all of it.
Our world now
First, reflecting on 2020 invokes an enormous amount of gratitude for me. I understand that genuine suffering is occurring in 2024, and I don’t want to downplay that for anyone affected. However, I think we can say most of the developed world is at least “normal” again. Perhaps I have continuously tuned out more noise over the years, as the constant media hyperbole (aka lies?) is exhausting, but I find the world much quieter now.
With TBG in mind, it isn’t easy to put into words how incredibly different and better our team has become since the advent of Alt Blend. On the surface, being a team of about 70 people across nine offices and managing over $6 billion of assets obviously indicates substantial growth. But – FAR more importantly – the level of resources our current team represents is unrecognizable vs. 2020. We now have robust financial planning, family office, risk, and tax teams that didn’t exist back then. Our organizational, operational, and succession structure is entirely different. I hope our clients see and feel the difference, but the contrast couldn’t be more stark from where I sit, and every aspect I can think of is better. At the core of all that is David Bahnsen, but it’s taken the collective effort of many others in the TBG family working diligently day in and day out to make it what it has become today.
Alts now
For starters, the friendlier structures I dreamt of have become widespread. It probably wasn’t out of the kindness of managers’ hearts, but rather them seeing how much traction the more simplified structures (interval funds) were getting across wealth management channels that led them to jump on the bandwagon. A select few managers pioneered the approach many years ago, and it has caught on for good reason. As this article from March 2024 states (via Preqin), “The number of evergreen funds has doubled in the last five years to 520 vehicles,” and iCapital makes the bold statement that “The future is evergreen,” (so you don’t have to take my word for it). TBG has even created a fund-of-funds exclusively for our clients (I had absolutely nothing to do with this), and its operational efficiency could bring a tear to my eye. Along with the convenience of these newer structures has come the feasibility for many more investors to utilize them.
If I can give myself a good grade for any of the Alt Blend topics over the past four years, it would be for the 5-part series I did in late 2021 on Portfolio Longevity (which also happened to include one of my favorite titles, “Marky (to) Market and the Unfree Lunch”). Here’s a link to Part 1, for reference. In that series, I made the case that the traditional 60/40 portfolio would be challenged going forward – primarily because it would be tough to generate returns from conventional high–quality bonds for the foreseeable future. Instead, I argued, investors could look at less traditional fixed–income and private-market approaches to help bolster their portfolios.
What happened next? In 2022, high-quality bonds fell 15.76% – almost as much as the S&P 500 (down -18.11%). The protective nature wasn’t there. That same index remains negative going back to the start of 2022 (-4.83% cumulatively) (Bond returns based on the Bloomberg US Corp Investment Grade Index; Source: Tamarac). I can’t speak to specific returns, but I assure you that our clients were much happier with what was provided by alternative solutions, like private credit, over that same timeframe.
Now that the interest-rate cycle has peaked, the outlook for bonds is far different (better) than in 2021, but I still think other fixed-income solutions offer better long-term risk/reward potential. I think the pain of that recent cycle will also lead to the further embrace of such solutions for more investors in the future.
Happy 100
And there you have it: Alt Blend #100. Not to disagree with Bill Murray, but we haven’t given 100% because we aren’t done yet. I’ll at least make sure there’s a 101st edition coming your way soon. Who knows what we’ll cover (probably some Alts) or where it all goes from here, but I’m very grateful that we can look back and say definitively that the world, TBG, and (most importantly ) Alts, are in a better place than they were four years ago.
Until next time, this is the end of alt.Blend.
Thanks for reading,
Steve
