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Building 'The World's Alternative Investment Marketplace' with Lawrence Calcano · Masters in Business

0:02
Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. This is Masters in
0:11
Speaker 1: Business with Barry Ritholts on Bloomberg Radio.
0:16
Speaker 2: This week on the podcast Wow. Another great conversation. Lawrence
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Speaker 2: Calcano really has built I Capital since twenty thirteen into
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Speaker 2: what's become the dominant financial technology platform for alternative investments,
0:32
Speaker 2: for wealth managers, for advisors, for banks. I found this
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Speaker 2: informative and really quite interesting, and I think you will also,
0:41
Speaker 2: with no further ado, my discussion with I Capital CEO
0:46
Speaker 2: Lawrence Calcano.
0:48
Speaker 3: Thanks, Berry, it's great to be here.
0:49
Speaker 2: It's great to have you. I've been looking forward to
0:51
Speaker 2: this for a while. Before we get into your time
0:56
Speaker 2: with I Capital, I want to sort of work back
0:59
Speaker 2: through your career, starting with you get a bachelor's from
1:03
Speaker 2: Holy Cross and an NBA from Dartmouth's talk. What was
1:07
Speaker 2: the original career plan?
1:09
Speaker 3: Boy, I don't know that I had one coming out
1:11
Speaker 3: of the gate. My you know, my dad was raised
1:14
Speaker 3: in an orphanage. His dad had died when he was two,
1:17
Speaker 3: and so he was in an orphanage, orphanage till he
1:20
Speaker 3: was eighteen. He went into the army and then he
1:22
Speaker 3: came out and he had to sort of put himself
1:25
Speaker 3: through school, and so he didn't have a regular sort
1:29
Speaker 3: of path that would sort of lead him to say
1:32
Speaker 3: to me as a as a teenager, here's the way
1:34
Speaker 3: to do it, you know. So we were he was
1:36
Speaker 3: learning and I was learning a little bit. I was
1:38
Speaker 3: a hockey player, and I did get recruited to holy
1:40
Speaker 3: Cross to play hockey. And when I was there, I
1:43
Speaker 3: was an economics major and a theater minor. Spent a
1:46
Speaker 3: lot of time doing theater there as well. And then
1:49
Speaker 3: I went off to Morgan Stanley. And that was a
1:53
Speaker 3: really interesting decision because I was in a professional play
1:57
Speaker 3: and had sort of been asked to be in a
1:59
Speaker 3: second play. I had a little bit of a career crisis,
2:02
Speaker 3: if you will, early on. And what was the first play?
2:05
Speaker 3: It was called The Murder Room James Sharky slapstick play,
2:11
Speaker 3: and I played a young Texas millionaire who was engaged
2:14
Speaker 3: to a wealthy British woman and we were The play
2:18
Speaker 3: takes place at her father's manor in the UK. Was
2:21
Speaker 3: full of site gags and jokes and so forth. On
2:24
Speaker 3: Broadway or off off Broadway anyway. It was a lot
2:27
Speaker 3: of fun. I was offered a role as payd in
2:30
Speaker 3: the Diary of Van Frank as a follow up, and
2:33
Speaker 3: I had also at that point gotten an offer to
2:35
Speaker 3: go to Morgan Stanley, and I was sort of in
2:38
Speaker 3: an early trade off mode and ultimately figured I needed
2:42
Speaker 3: to eat. I had a lot of student loans, and
2:45
Speaker 3: I decided to go off into the world of finance.
2:47
Speaker 2: So you spend a few years at Morgan Stanley. What
2:49
Speaker 2: were you focused on while you were there?
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Speaker 3: I was at mortgage finance, so we were both helping
2:54
Speaker 3: SNL's Race Capital do M and A and also structuring
2:58
Speaker 3: some of the new products. You know, some of the
3:01
Speaker 3: genim A securities, FANNYMA securities, remiics, cmos, things like that,
3:05
Speaker 3: a lot of the structured type investments. This is late
3:09
Speaker 3: eighties early and this is late eighties, yeah, eight eighty
3:12
Speaker 3: five to eighty eight. And then I put in one
3:16
Speaker 3: application to business school. A good friend of mine who
3:19
Speaker 3: was an analyst before me left and went off to Talk.
3:23
Speaker 3: I visited them. I had an offer to stay on
3:25
Speaker 3: it at Morgan as an associate, but decided that after
3:31
Speaker 3: my weekend at Talk that would be a good thing
3:34
Speaker 3: for me to kind of stop, reassess, figure out what
3:36
Speaker 3: I wanted to do, and I went off to talk.
3:38
Speaker 2: So I have to ask this obvious question. There's a
3:41
Speaker 2: whole industry helping students figure out which is the right
3:45
Speaker 2: schools for them, their first school, their safety schools, they're
3:48
Speaker 2: reach It's a whole slide industry. You apply to one
3:53
Speaker 2: NBA school.
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Speaker 3: I applied to one NBA school, and part of the
3:55
Speaker 3: reason for that is I had accepted the job to
3:57
Speaker 3: become an associate, and I went off to the visit,
4:01
Speaker 3: as I mentioned, and I just had this sort of
4:05
Speaker 3: feeling like I was making the wrong decision. M I
4:09
Speaker 3: just staying was the I loved Maria, it was a
4:12
Speaker 3: fantastic firm, but I just had this sort of sense
4:16
Speaker 3: that maybe that wasn't sort of the right thing to do,
4:18
Speaker 3: and going off to business school for two years would
4:20
Speaker 3: be the right decision. And I loved it. I mean,
4:22
Speaker 3: it was an incredible two years time. I'm on the
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Speaker 3: board of Talk Time.
4:25
Speaker 2: But Okay, but why just apply to one school if
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Speaker 2: you're deciding, hey, this path isn't exactly how I want
4:32
Speaker 2: to get an MBA. If you're applying to Dartmouth, you
4:36
Speaker 2: could apply to stern to Columbia, to wherever.
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Speaker 3: Yeah, why only one school? You know, I just was
4:44
Speaker 3: sort of wrapped with it. You know, I went up there.
4:46
Speaker 3: It's a small school. When I was there, there were
4:48
Speaker 3: one hundred and sixty or so in the class is
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Speaker 3: very focused on team you know, study groups and teamwork
4:55
Speaker 3: and so forth, and it's hard to say. I just
4:58
Speaker 3: felt really like it was the right place for me.
5:01
Speaker 3: And you know, I wasn't too worried about it. If
5:03
Speaker 3: I didn't get in. I was going to become an
5:05
Speaker 3: associate at Morgan Stanley, so it wasn't like I had
5:08
Speaker 3: you know, it was putting all your eggs in one basket.
5:11
Speaker 2: So it was me, huh, really really interesting. How did
5:14
Speaker 2: you end up at Goldman Sachs. Was that at while
5:17
Speaker 2: you were in business school or afterwards?
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Speaker 3: Yeah, So when I went to business school, I sort
5:21
Speaker 3: of said to myself, I'm going to think about all
5:23
Speaker 3: the different things I can do. And after about you know,
5:26
Speaker 3: two months, I said to myself, you know what, I
5:28
Speaker 3: really did like financial lot and I want to go
5:30
Speaker 3: back there. And so I applied for summer internships and
5:35
Speaker 3: had a few offers than one I did. I applied
5:38
Speaker 3: to all the summer internships and obviously coming out to
5:41
Speaker 3: Morgan Stanley was pretty helpful to my candidacy. I ended
5:45
Speaker 3: up getting an offer to be a summer associated at Goldman,
5:47
Speaker 3: which I took, and was fortunate and pleased to have
5:51
Speaker 3: an offer to come back on post graduation, which I
5:55
Speaker 3: did and spent obviously a long time there and and
5:58
Speaker 3: you know, had a very very good experience there.
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Speaker 2: So I'm really curious. They're such large and yet such
6:05
Speaker 2: different firms. What was the culture differences? Like, what did
6:09
Speaker 2: you learn from each?
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Speaker 3: Yeah, so they are different and both by the way,
6:14
Speaker 3: you know, there are a lot of different ways to
6:15
Speaker 3: skin the cat, right. You know, Golman had a very
6:19
Speaker 3: team oriented culture, and I think Morgan instantly does two.
6:22
Speaker 3: But Goleman, it's sort of right there in front of you.
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Speaker 3: You know, they've got fourteen business principles, the first of
6:28
Speaker 3: which is our clients come first. By the way you
6:31
Speaker 3: think about, what are the things you learned early on
6:33
Speaker 3: in your career. There were several things from that experience
6:37
Speaker 3: that really stuck with me, starting with business principal number one,
6:41
Speaker 3: your client's interests always come first. And then secondly, broadly,
6:45
Speaker 3: just the importance of working as a team. And you know,
6:49
Speaker 3: my wife used to make fun of me because I
6:51
Speaker 3: would be in the office early, and if there were
6:54
Speaker 3: a party or some social event, I was always the
6:57
Speaker 3: last to leave and she would say, dude, you don't
6:59
Speaker 3: have to act be there till the end. But it
7:01
Speaker 3: was just I was I just I loved it so
7:04
Speaker 3: much and it you know, I just thought that camaraderie
7:08
Speaker 3: was so it was powerful, you know, smart from a
7:12
Speaker 3: business perspective, but mostly as a person, it was just fun.
7:15
Speaker 3: I mean, it was really fun being in that group
7:17
Speaker 3: of folks.
7:18
Speaker 2: So you end up co leading Goldman's Global Technology Banking group.
7:24
Speaker 2: Was your focus on tech and financial technology deliberate or
7:28
Speaker 2: that just evolve organically or it just evolved.
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Speaker 3: I was a generalist in corporate finance. It was then
7:34
Speaker 3: called global finance actually, and my Morgan Stanly friends used
7:37
Speaker 3: to make fun of me and call it intergalactic finance,
7:40
Speaker 3: but it was global finance. And I did that as
7:43
Speaker 3: a generalist for a couple of years, and then I
7:45
Speaker 3: was asked to start the East Coast Tech Group, which
7:49
Speaker 3: I did.
7:50
Speaker 2: This is mid to late nineties.
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Speaker 3: This is early nineties. I really was a third year
7:54
Speaker 3: associate and I did it and it was great. It
7:58
Speaker 3: was sort of night late ninety two were three, and
8:02
Speaker 3: you know, we started to win some business, and as
8:05
Speaker 3: you recall, the Internet started to really kick in with
8:09
Speaker 3: Netscape's IPO in ninety five, and we went from having
8:15
Speaker 3: a really good business to being on fire and drinking,
8:18
Speaker 3: you know, from a fire hose. Given all that was
8:20
Speaker 3: going on with the Internet.
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Speaker 2: Really really fascinating. So you're there right through the dot
8:25
Speaker 2: com boom and bust, probably the most transformative technology of
8:31
Speaker 2: the last thirty years, at least before AI. What did
8:35
Speaker 2: that teach you about how capital markets operate, the way
8:38
Speaker 2: investors behave. That had to be a wildly instructive era.
8:42
Speaker 3: It was wildly abstructive, and you know, it was all
8:46
Speaker 3: going It was all happening so quickly, and as you recall,
8:49
Speaker 3: people were trying to figure out how do we even
8:51
Speaker 3: value these companies? You know, But there was one thing
8:54
Speaker 3: we used to We had a great team of folks,
8:58
Speaker 3: the research team, the sales people, the bankers. We all
9:01
Speaker 3: worked really well together, and we would go out and
9:03
Speaker 3: we'd sort of make presentations to potential clients and we'd
9:06
Speaker 3: always talk about where we saw the market going apart
9:11
Speaker 3: from valuation, So what did we think the adoption was
9:14
Speaker 3: going to look like. And we had these what what
9:17
Speaker 3: then was viewed as wild assumptions about Internet adoption. You know,
9:23
Speaker 3: at the time, people were afraid to put their card
9:26
Speaker 3: numbers in a computer, you know, to buy anything, right.
9:31
Speaker 3: But what happened was, for a while technology the valuations
9:37
Speaker 3: sort of kept pace and at times exceeded the sort
9:41
Speaker 3: of hysteria, if you will. But even though the valuations
9:44
Speaker 3: came back at the end of sort of middle one,
9:47
Speaker 3: the Internet evaluations came down middle to the contact valuations
9:51
Speaker 3: came down. The reality of what was happening was even wilder,
9:58
Speaker 3: if you will, than what our projections suggested, i e.
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Speaker 3: The adoption rate of the Internet and how it would
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Speaker 3: fundamentally change people's lives, the way they bought things, where
10:08
Speaker 3: they reviewed things, where they communicated with each other. It
10:11
Speaker 3: was so powerful. And you know, we saw that wave,
10:14
Speaker 3: you saw the communications equipment wave. Now we're obviously looking
10:16
Speaker 3: at a different wave. And and for me, there are
10:19
Speaker 3: several like massive lessons there, one of which is you're
10:23
Speaker 3: never safe. When I started, the big technology companies were
10:26
Speaker 3: called Deck and Wang. You remember those companies, sure, probably most.
10:32
Speaker 2: Computer not Wang who owned computer associates wearing computers.
10:36
Speaker 3: Wang Computers, not Charles Wang's right. So those companies all
10:41
Speaker 3: got replaced, you know, first by client server. Then a
10:45
Speaker 3: lot of the client server companies got displaced with the Internet.
10:49
Speaker 3: And now you're seeing another interesting potential risk of displacement.
10:54
Speaker 3: And and I think one of the big things is
10:56
Speaker 3: you cannot be afraid of new changes and technology waves.
11:03
Speaker 3: You've got to adopt it. You can't, by the way
11:05
Speaker 3: some companies if you remember back when when Amazon was growing,
11:09
Speaker 3: and you know many of the borders, the bookstores, the
11:13
Speaker 3: music stores, et cetera. You know, hope is not a strategy, right.
11:17
Speaker 3: You can't hope this is going to go away. You've
11:19
Speaker 3: got to adopt it, even if it means you've got
11:22
Speaker 3: to change your business, even if it means your business
11:25
Speaker 3: model has got to sort of change, and and maybe
11:28
Speaker 3: your margins aren't going to be the same as what
11:30
Speaker 3: they were. You've got to adopt to new technology. Now.
11:34
Speaker 3: The one thing I would say is this always takes
11:36
Speaker 3: a little longer than people think. You know, it's not
11:38
Speaker 3: like you snap your fingers that the hype is always
11:40
Speaker 3: ahead of the reality. I think there's a little of
11:43
Speaker 3: that right now. But AI is a massively important trend.
11:48
Speaker 3: We're spending a lot of money on it, as are
11:51
Speaker 3: lots of companies. But I think you've got to be
11:54
Speaker 3: willing to sort of adopt or run the risk of dying.
11:58
Speaker 2: You know, if there's any less to be drawn from
12:01
Speaker 2: Elon Musk and Tesla, it's either or or. Maybe the
12:06
Speaker 2: lesson comes from Amazon and Jeff Bezos that your margin
12:11
Speaker 2: is my opportunity and if you don't pivot hard, they're
12:15
Speaker 2: going to come along and eat your lunch. It happens
12:18
Speaker 2: so regularly. Yeah, the cycle never stops, never stops turning.
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Speaker 2: So at what point did you decide, hey, I could
12:28
Speaker 2: do a lot with this technology and various platforms. What
12:32
Speaker 2: led you to move from Goldman to helping to build
12:37
Speaker 2: and lead Eye Capital.
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Speaker 3: Well, the real story is I left in seven and
12:43
Speaker 3: with one of my former partners, we were going to
12:45
Speaker 3: start a technology buy outfund. You may remember there were
12:49
Speaker 3: some events in seven and eight that were not too pleasant,
12:53
Speaker 3: like TSA flurry. Oh that, yeah, it reminds me of
12:56
Speaker 3: the Leslie Nielsen joke an airplane. I picked a bad
12:59
Speaker 3: month to stop Steffan Glue, so it was a little
13:02
Speaker 3: of that. We went off to start a private equity
13:04
Speaker 3: fund in the middle of the GFC, so.
13:06
Speaker 2: You should have started a distressed asset fund.
13:09
Speaker 3: Probably we weren't smart enough to figure that out, but
13:12
Speaker 3: we uh so anyway, so we put that in pause.
13:15
Speaker 3: And you know, actually it was a little bit of
13:18
Speaker 3: an unplanned cleansing in a sense that I coached my
13:21
Speaker 3: kids football teams and lacrosse teams, and you know, I
13:24
Speaker 3: worked kind of from home, and and it was it
13:27
Speaker 3: was actually very exciting. Did a few entrepreneurial things. But
13:31
Speaker 3: then with with a great group of folks, we looked
13:34
Speaker 3: at what was happening in the independent space space you
13:39
Speaker 3: obviously know quite well. We saw a lot of firms,
13:42
Speaker 3: a lot of advisors sort of going off and starting
13:46
Speaker 3: their own firms, and and that trend was significant. There were,
13:50
Speaker 3: you know, hundreds of billions or early trillions of dollars
13:53
Speaker 3: that were now being managed by these independent rias. And
13:57
Speaker 3: one of the things that we looked at was almost
14:00
Speaker 3: by definition, the biggest firm. The firms who were leaving
14:04
Speaker 3: were the firms with the largest asset bases and generally
14:08
Speaker 3: speaking the largest clients, and those clients typically invested in alts.
14:13
Speaker 2: And so as we thought about it we thought, meaning
14:15
Speaker 2: like family offices, ultra high network.
14:18
Speaker 3: Yeah, like, think about some of your clients and what
14:20
Speaker 3: types of products they're interested in buying. So when you
14:23
Speaker 3: leave the wirehouses did a phenomenal job and still do
14:27
Speaker 3: of providing outstanding products, support services. They do a great job.
14:32
Speaker 3: And so when somebody leaves to be independent, they don't
14:35
Speaker 3: have a platform. So we felt like we could create
14:38
Speaker 3: a platform to help advisors have access to ALTS in
14:44
Speaker 3: the right way. And it's different because at that moment
14:47
Speaker 3: in time, there was no technology. Investing in alts was
14:51
Speaker 3: a highly manual process.
14:54
Speaker 2: To a large degree for a lot of firms. It
14:57
Speaker 2: still is that it doesn't seem like the various funds
15:01
Speaker 2: all play well together.
15:02
Speaker 3: Yeah, I think there's a big and we'll come back
15:05
Speaker 3: to this experience point. But we felt like firms that
15:09
Speaker 3: were independent really needed a technology chassis. They needed access
15:13
Speaker 3: to product, they needed education, diligence, and they needed a
15:18
Speaker 3: technology platform. We felt like we could build that, you know,
15:21
Speaker 3: end to end, not just the diligence or not just
15:25
Speaker 3: you know, fund sales or whatever. It was the whole
15:28
Speaker 3: end to end solution. And we started to build that
15:31
Speaker 3: out and we realized that, you know, it was something
15:34
Speaker 3: that clients really needed. The other really interesting thing that
15:38
Speaker 3: we found out along the way, and I would say
15:40
Speaker 3: this was not a pivot as much as an expansion.
15:43
Speaker 3: We had assumed that the wirehouses had absolutely everything they
15:47
Speaker 3: need because they knew every manager in the world, they
15:48
Speaker 3: had close relationships. What they didn't really have at the
15:52
Speaker 3: time was much technology. They had a lot of people
15:55
Speaker 3: who were doing a great job serving advisors, but they
15:57
Speaker 3: didn't have technology, and so we felt like we could
16:00
Speaker 3: offer them a full technology platform, and we basically sort
16:05
Speaker 3: of rethought our role, if you will, in the ecosystem
16:09
Speaker 3: to be one where you know, we were going to
16:11
Speaker 3: serve advisors wherever and however they choose to however they
16:15
Speaker 3: chose to practice. We wanted to be able to serve
16:18
Speaker 3: them and to end and that's allowed us, I think,
16:21
Speaker 3: to be able to serve advisors at the wirehouses, advisors
16:24
Speaker 3: who are rias or at IBDs, and really helped create
16:28
Speaker 3: a great experience for them and for their clients.
16:31
Speaker 2: Coming up, we continue our conversation with Lawrence Calcano, CEO
16:35
Speaker 2: and chairman of I Capital, discussing how he built the
16:38
Speaker 2: firm out to a trillion dollar platform. I'm Barry Results.
16:42
Speaker 2: You're listening to Masters in Business.
16:44
Speaker 3: On Bloomberg Radio.
16:56
Speaker 2: I'm Barry Redults. You're listening to Masters in Business on
17:00
Speaker 2: Bloomberg Radio. My extra special guest this week is Lawrence Calcano.
17:05
Speaker 2: He is the chairman and chief executive officer of I Capital,
17:10
Speaker 2: where he has been helping to build the firm since
17:12
Speaker 2: twenty thirteen. They now service over a trillion dollars in
17:17
Speaker 2: client assets on behalf of advisors and other professionals. So,
17:23
Speaker 2: how should a traditional sixty forty investor thinking about some
17:29
Speaker 2: allocation to private equity or private credit? How do they
17:33
Speaker 2: access your platform? Is it directly through their advisor?
17:38
Speaker 3: Tell us what the process is like, Yeah, it's really
17:42
Speaker 3: it's very much an advisor business. We are very focused
17:46
Speaker 3: on helping financial advisors serve their clients. It's not a
17:50
Speaker 3: B two C model, it's a B to B T
17:52
Speaker 3: C model. And so really all the clients at I
17:55
Speaker 3: Capital are advisors, you know, and or obviously the gps
17:59
Speaker 3: that are trying to those advisors. And so for financial advisors,
18:03
Speaker 3: if they're large, we can build a whole white label
18:07
Speaker 3: capability for them so they can in effact have an
18:10
Speaker 3: operating system to run their alts, structured investments or annuities business,
18:15
Speaker 3: as well as the data aggregation that they have to
18:17
Speaker 3: do for clients with information that's everywhere. For advisors that
18:22
Speaker 3: are maybe a little smaller, that don't have sort of
18:24
Speaker 3: a persistent need, they can come to our marketplace and
18:28
Speaker 3: see a menu of hundreds of funds where they can
18:31
Speaker 3: avail themselves of those funds for their clients.
18:34
Speaker 2: Really interesting. So I like the description of I Capital
18:39
Speaker 2: as the world's alternative investment marketplace for advisors and wealth managers.
18:46
Speaker 2: When you joined in twenty thirteen, what problem were you
18:50
Speaker 2: trying to solve?
18:51
Speaker 3: Yeah, we were trying to help the advisors who had left,
18:54
Speaker 3: as I mentioned, left their homes to start off their
19:00
Speaker 3: new businesses, and we felt like we could actually create
19:03
Speaker 3: for them an investment platform to allow them to be
19:06
Speaker 3: able to service their clients consistent with how they had
19:09
Speaker 3: previously served them.
19:11
Speaker 2: So the part of the problem we've seen with alternatives
19:15
Speaker 2: over the years, they all seem to be a slightly
19:18
Speaker 2: different widget. They don't all fit on a platform easily.
19:22
Speaker 2: Especially you have to onboard the assets and align the
19:27
Speaker 2: capital with it. You have to go through subscription documents
19:31
Speaker 2: and capital calls and custodian and performance reporting, and then
19:35
Speaker 2: all the analytics they all seem to be a little
19:39
Speaker 2: different and it's a big lift. How have you addressed
19:43
Speaker 2: this issue at I Capital?
19:45
Speaker 3: So we think technology is essential to actually creating an
19:48
Speaker 3: experience that allows you to deal with all of those
19:51
Speaker 3: things effectively and in a way that will be encouraging
19:56
Speaker 3: to you to do the business with your clients where
19:58
Speaker 3: it makes sense. So everything from what happens before you
20:02
Speaker 3: make any decisions. Education, maybe you as an advisor on
20:06
Speaker 3: the asset class, maybe education for your client, the tools
20:10
Speaker 3: to help you build a portfolio, research to help you
20:14
Speaker 3: learn about funds, and then once you've worked with the
20:17
Speaker 3: client and develop a portfolio perspective, tools to help you subscribe,
20:21
Speaker 3: and then automation to help you manage all the things
20:24
Speaker 3: that happen post investment, capital calls, distribution redemptions, transfers, reporting,
20:29
Speaker 3: et cetera. And help create an experience that as an advisor,
20:34
Speaker 3: will give you time back to serve the client and
20:38
Speaker 3: spend time with the client. We feel very strongly about
20:41
Speaker 3: going through advisors because we feel like, you know, there's
20:44
Speaker 3: so much about a client that an advisor will know
20:48
Speaker 3: that a platform will never really be able to know,
20:51
Speaker 3: you know, what is their real feeling towards you liquidity,
20:54
Speaker 3: And I think one of the issues the industry is
20:56
Speaker 3: dealing with today is the question of illiquidity and people's
20:59
Speaker 3: execs about that. Advisors have a better perspective and a
21:03
Speaker 3: deeper perspective on how a client really feels about that.
21:06
Speaker 3: So we want to make sure we're partnered with advisors
21:09
Speaker 3: in bringing the solution to that.
21:11
Speaker 2: So I'm glad you brought that up, because every time
21:14
Speaker 2: there's some issue with illiquidity, it seems that people don't
21:20
Speaker 2: seem to really understand what a lockup means. It should
21:24
Speaker 2: be fairly self explanatory. We saw this a couple of
21:27
Speaker 2: years ago with b Reate, where which part of seven
21:30
Speaker 2: year lockup was confusing to you? It's always and I
21:34
Speaker 2: know what happened in twenty twenty two, the FED raise
21:36
Speaker 2: rates and people thought, hey, let's get out of ill
21:39
Speaker 2: liquid real estate before the marks reflect the reality of
21:43
Speaker 2: pricing relative to rates. But that's not how private investments work.
21:49
Speaker 2: How do you educate investors and their advisors as to
21:54
Speaker 2: what illoquidity means?
21:56
Speaker 3: So, look, I think it is a journey it's not.
22:00
Speaker 3: There's no one answer to that question. And by the way,
22:03
Speaker 3: we do. We spend a ton of time and energy
22:05
Speaker 3: on education, and as do most of the GPS on
22:08
Speaker 3: our system. When you when you look at the documents
22:12
Speaker 3: around some of these funds, it isn't unpaid ninety eight
22:16
Speaker 3: in small print. The sort of liquidity rules, if you will,
22:21
Speaker 3: are on the front page, right, so it's you know,
22:25
Speaker 3: I think the reality is people want to hear what
22:29
Speaker 3: they want to hear, right. These are illiquid securities, whether
22:35
Speaker 3: in liquid investments, whether they're wrapped as a three C
22:39
Speaker 3: seven private fund which are clearly illiquid, or they're wrapped
22:44
Speaker 3: in an evergreen wrapper, you know, registered fund. The underlying
22:49
Speaker 3: investments are still a liquid now. Some are are are
22:53
Speaker 3: shorter duration and others. Private credit is shorter duration than
22:56
Speaker 3: private equity or real estate. But the fact is that
23:00
Speaker 3: private credit investment is still an I liquid investment. The problem,
23:04
Speaker 3: I think is when they get wrapped in a wrapper
23:09
Speaker 3: that says you can sell up to or redeem up
23:12
Speaker 3: to five percent. That confuses people. It confuses people, and
23:17
Speaker 3: I think when the industry uses terms like semi liquid,
23:22
Speaker 3: it's really I don't even know what that means semi liquid.
23:25
Speaker 2: I always think of that five percent gate as widows
23:29
Speaker 2: and orphans clause. If somebody is suddenly no longer a
23:33
Speaker 2: suitable investor for this due to the person made the
23:36
Speaker 2: investment passed away. Now the wife and kids can get
23:40
Speaker 2: out of it. It shouldn't be Oh, I could sell
23:42
Speaker 2: five percent a quarter for as long as I want.
23:45
Speaker 3: People should buy these make these investments because they think
23:49
Speaker 3: they're going to provide, you know, medium to long term
23:53
Speaker 3: positive impact in their portfolio. If you're buying it to
23:57
Speaker 3: get return this quarter or next court or it's probably
24:01
Speaker 3: not the right investment. You're a I'm not a financial advisor,
24:04
Speaker 3: but you need to buy these things with the right
24:07
Speaker 3: duration in your mind, and that's not a short one.
24:11
Speaker 3: The products do provide what I think of as liquidity features,
24:15
Speaker 3: opportunities if things change in your life to potentially either
24:20
Speaker 3: redeem all of it if there's not a big queue,
24:23
Speaker 3: or redeem up to five percent if you need to.
24:26
Speaker 3: I think that's a flexibility and a liquidity feature in
24:30
Speaker 3: the wrapper, But it doesn't mean that the product is liquid.
24:34
Speaker 3: And people should invest thinking that these products are going
24:38
Speaker 3: to solve an investment need. They have that's medium to
24:41
Speaker 3: long term, not short term.
24:43
Speaker 2: So let's talk a little bit about the demand for
24:46
Speaker 2: this product. We've seen, at least on the institutional side,
24:50
Speaker 2: flows into alts now exceeding a trillion dollars a year.
24:54
Speaker 2: As that scales, what do you think are some of
24:57
Speaker 2: the challenges and bottlenecks for advisor to allocate more to privates.
25:02
Speaker 3: So I think education is still a very important issue
25:06
Speaker 3: for advisors, and if you think about where we are,
25:09
Speaker 3: a lot of the advisors in the mix have been
25:12
Speaker 3: doing it for a while. There's still a lot of
25:15
Speaker 3: advisors who haven't really gotten into these products yet, and
25:20
Speaker 3: so they're going to need more education. Point one point two.
25:25
Speaker 3: How they invest is probably going to be different. So,
25:28
Speaker 3: for example, a lot of advisors use models with respect
25:32
Speaker 3: to their liquid portfolios. We believe that that models will
25:37
Speaker 3: be a very important way in which people invest in alternatives,
25:40
Speaker 3: and that might mean models of just alternatives that get
25:44
Speaker 3: married to an otherwise liquid portfolio, or models that include
25:48
Speaker 3: both liquid and liquid investments together. We have brought both
25:53
Speaker 3: those types of products in partnerships with some managers into
25:56
Speaker 3: the market, as well as partnerships with the infrastructure players.
26:00
Speaker 3: But I think models will represent an important way in
26:03
Speaker 3: which advisors allocate client assets to alternatives.
26:06
Speaker 2: So I've been hearing more and more about interest overseas
26:11
Speaker 2: in a global alternative platform. What do you think is
26:15
Speaker 2: driving the demand internationally versus what's driving the demand here?
26:19
Speaker 2: Is the same thing or is it a sort of
26:21
Speaker 2: different approach.
26:22
Speaker 3: I think it's the same thing there. You know, the
26:24
Speaker 3: the adoptions a little bit behind the US adoption on
26:27
Speaker 3: our platform. You know, in the all space, we have
26:31
Speaker 3: over sixty five billion dollars of alternatives allocated from investors
26:36
Speaker 3: who live outside of the United States. Half of our
26:39
Speaker 3: twenty offices are outside the United States. We think it's
26:42
Speaker 3: a really important growth area for the market and our business.
26:47
Speaker 3: But I think a lot of the same things that
26:49
Speaker 3: drive advisors to introduce these products to clients, potential for
26:53
Speaker 3: incremental return, portfolio diversification, etc. Are the same types of
26:58
Speaker 3: things that drive international interest does well.
27:01
Speaker 2: So let's talk a little bit about end to end technology.
27:05
Speaker 2: I know this is more than just a menu, leve al,
27:08
Speaker 2: tournament of funds. Tell us a little bit about your
27:11
Speaker 2: whole tech stack and what it provides for any of
27:15
Speaker 2: your clients.
27:16
Speaker 3: So I think a lot of you know, a lot
27:18
Speaker 3: of what people want to help with out of the
27:21
Speaker 3: gate is just how do you build these portfolios? And
27:24
Speaker 3: we talked about education, but how do you build the portfolio?
27:28
Speaker 3: How do you construct portfolios that help match what an
27:31
Speaker 3: advisor's what a client's goals and objectives are. So we've
27:35
Speaker 3: built technology to do that which include all structured investments annuities,
27:39
Speaker 3: along with all the liquid products that they might need,
27:42
Speaker 3: and then the ability, you know, one of the things
27:45
Speaker 3: we've tried to do as an organization is not only
27:48
Speaker 3: build an end to end solution out for alls, but
27:51
Speaker 3: do the same thing for structured investments because those are
27:54
Speaker 3: important products for advisors and clients as well as annuities
27:58
Speaker 3: and insurance. And what's happened in the market today, which
28:01
Speaker 3: I think is a really interesting and ongoing trend, is
28:04
Speaker 3: people are sort of looking at the different types of
28:08
Speaker 3: rappers they could be etf wrappers, insurance wrappers, etc. You know,
28:13
Speaker 3: wrapped around things like hedge funds or private equity funds,
28:16
Speaker 3: credit funds, etc. And so being able to help advisors
28:20
Speaker 3: think about how the products should be structured, how could
28:24
Speaker 3: they address client needs is a really important part of
28:27
Speaker 3: what we're doing and then, as I mentioned earlier, just
28:30
Speaker 3: being able to automate the whole workflow is really critical.
28:34
Speaker 3: I'll make one other point as it relates to tech,
28:37
Speaker 3: and that is I think one of the issues for
28:40
Speaker 3: the industry is around data management. When you think about
28:45
Speaker 3: we live in an ecosystem. When we first started the company,
28:49
Speaker 3: people used to say to me, oh, you guys are
28:51
Speaker 3: so disruptive, and I would always sort of very politely
28:53
Speaker 3: correct them and say, We're not trying to be disruptive,
28:56
Speaker 3: We're trying to be enabling. You know, there are a
28:58
Speaker 3: lot of infrastructure players out there that we're trying to
29:01
Speaker 3: help sort of achieve their goals. We're not trying to
29:05
Speaker 3: like Amazon did to borders. We're not trying to push
29:07
Speaker 3: them out of business. We're trying to enable them to participate.
29:10
Speaker 3: And I think one of the things that has to
29:13
Speaker 3: happen now in the industry is all the different big
29:15
Speaker 3: constituents have to work together to help support clients. That
29:19
Speaker 3: means administrators, transfer agents, custodians, firms like Capital Advisors, GPS,
29:26
Speaker 3: we all work together, and I think if we can
29:29
Speaker 3: get all of our systems to be better connected, things
29:32
Speaker 3: like tokenization and blockchain will help with that, it'll end
29:36
Speaker 3: up paying huge dividends for the advisor and for the
29:39
Speaker 3: end client.
29:40
Speaker 2: So it's funny you mentioned disruptive. In twenty thirteen, there
29:44
Speaker 2: was nothing to disrupt. It was just a series of
29:47
Speaker 2: private offerings and nothing really, no umbrella, no platform that
29:53
Speaker 2: really pulled everything together.
29:56
Speaker 3: That's right. It was really a green field, which is
29:59
Speaker 3: why I say we're sort of enabling, not disruptive. And
30:03
Speaker 3: the truth is that, you know, we're still scratching the surface.
30:06
Speaker 3: I mean, you know, BCG does a report every year
30:08
Speaker 3: and they look at global wealth. So last year, late
30:12
Speaker 3: in December, they put out a report that said there's
30:14
Speaker 3: one hundred and fifty three trillion dollars in wealth owned
30:19
Speaker 3: by individuals. Okay, that's a huge number. It rivals the
30:24
Speaker 3: size of the institutional market. So there is a massive
30:28
Speaker 3: number of dollars that today. You know, in the US,
30:31
Speaker 3: I think the estimates are something like two two and
30:33
Speaker 3: a half percent allocated to alts. Outside the United States,
30:36
Speaker 3: it's even less. There's a significant amount of wealth that
30:40
Speaker 3: is going to be looking to build even more sophisticated portfolios.
30:44
Speaker 3: So tools, technology, AI, tokenization, all of these things have
30:49
Speaker 3: to evolve to create a great experience for advisors and
30:54
Speaker 3: clients to make the best decisions they can in the
30:57
Speaker 3: asset allocation world.
30:58
Speaker 2: Huh really interesting. So let's stay with technology and innovation.
31:03
Speaker 2: You guys have built a number of fairly innovative technologies.
31:08
Speaker 2: You've bought, you've partnered. What is the calculus like, how
31:11
Speaker 2: do you decide whether you're going to buy something, build something,
31:15
Speaker 2: or just partner with a provider in the space to
31:17
Speaker 2: build out the platform.
31:19
Speaker 3: It's a combination of things. It's time to market, it's culture.
31:23
Speaker 3: You know, everything that we have purchased, we've made twenty
31:27
Speaker 3: four acquisitions. Everything that we've purchased, we've integrated. And to me,
31:33
Speaker 3: that's really important because if the goal is to provide
31:36
Speaker 3: an integrated solution for advisors and GPS, if you don't
31:39
Speaker 3: integrate the things you buy, you're not really doing that
31:43
Speaker 3: point one and point two. If the people who join
31:48
Speaker 3: aren't integrated, then it doesn't work either. Right, It's not
31:52
Speaker 3: just about technology, it's actually more about the people, and
31:55
Speaker 3: so spending a lot of time on culture and trying
31:58
Speaker 3: to figure out how do you things together, how do
32:01
Speaker 3: you create what I often refer to as one eye
32:04
Speaker 3: capital is really critical, and I would say as time
32:08
Speaker 3: has evolved. You know, I was always very focused on
32:13
Speaker 3: culture from the very start when we were a couple
32:16
Speaker 3: of people. It's even more important than ever, and it
32:19
Speaker 3: probably continues to occupy a very significant percentage of my time.
32:24
Speaker 3: And trying to get people working together, put people in
32:27
Speaker 3: the right seats for them to be successful, and creating
32:32
Speaker 3: simple ideas that people can rally around. I mentioned this earlier.
32:37
Speaker 3: Clients come first. What is it we need to do
32:40
Speaker 3: to help our clients succeed? And everything we do we
32:43
Speaker 3: have to do together. Those two things are really unifying
32:47
Speaker 3: to our culture.
32:48
Speaker 2: So you guys did a big capital raise in twenty
32:51
Speaker 2: twenty five that valued you at a pretty substantial multi
32:55
Speaker 2: billion dollar level. What are you looking at for further raises?
33:01
Speaker 2: How you're deploying that sort of capital? Is it just
33:04
Speaker 2: build bill build, and eventually you become the biggest player
33:08
Speaker 2: in the space.
33:09
Speaker 3: So we've made we've we've announced a couple of acquisitions
33:12
Speaker 3: since then. We were about to close our acquisition of Hecksher.
33:16
Speaker 3: Hecksher provides an e app for annuities, so, as I
33:19
Speaker 3: mentioned before, kind of the complete verticals, so that helps
33:22
Speaker 3: us complete our annuities vertical, so M and A will
33:26
Speaker 3: continue to be you know, important sort of use of cash,
33:29
Speaker 3: and we continue to sort of actively look at what's
33:32
Speaker 3: out there. We continue to grow organically, but the model
33:36
Speaker 3: is self financing, so we don't need outside capital to
33:39
Speaker 3: run our business. I'm a believer though, when you think
33:43
Speaker 3: about we talked about the duration of these assets. When
33:46
Speaker 3: we talk to financial advisors, financial advisors have to know
33:49
Speaker 3: that we're financed to be around for a long a
33:52
Speaker 3: long time, and so we've tried to finance ourselves in
33:55
Speaker 3: a way that our partners can look at us and
33:57
Speaker 3: say they're going to be here to support me. And
34:00
Speaker 3: so a lot of it is just making sure we
34:02
Speaker 3: have a strong balance sheet to support our clients.
34:05
Speaker 2: It's always interesting when we see these big private entities
34:10
Speaker 2: go public in the alternative and private space. How do
34:14
Speaker 2: you think about that? How do you think about you know,
34:17
Speaker 2: the Blackstones and Carlisles of the world and Apollos and
34:23
Speaker 2: whoever else.
34:24
Speaker 3: Well, look, I think, you know, going public allows firms
34:29
Speaker 3: to have access to capital to have you know, growth,
34:32
Speaker 3: you know, leverage their growth, provide sort of secondary markets,
34:37
Speaker 3: if you will, for employees and other investors. You know,
34:41
Speaker 3: I think you know, for us, we spend very little
34:45
Speaker 3: time actually thinking about that other than wanting to make
34:49
Speaker 3: sure we run the company with a discipline of a
34:52
Speaker 3: public company. We get our quarterly reports turned around, our
34:57
Speaker 3: monthly reports by the second day of every month, quarterly
35:00
Speaker 3: reports by the third day of the new quarter, and
35:04
Speaker 3: we turned the year end results in a fast period
35:08
Speaker 3: of time as well. And so, you know, public the
35:12
Speaker 3: process of being public creates some disciplines that we want
35:15
Speaker 3: to make sure we have. But but it's not you know,
35:18
Speaker 3: it's it's not something we're that focused on it. There's
35:22
Speaker 3: two sides to every coin. You know, when you go
35:25
Speaker 3: public and the stock is going up, everyone's really excited,
35:29
Speaker 3: everyone's really happy. When you go public and you have
35:33
Speaker 3: massive corrections, which we lived through pretty regularly, i'd say,
35:36
Speaker 3: and the stock goes down. Now you've got to deal
35:40
Speaker 3: with the opposite of motivation. There's concern and so forth,
35:44
Speaker 3: and so you've got to make sure your employees aren't
35:47
Speaker 3: staring at the I was gonna say Quotron, but only
35:50
Speaker 3: you and I would know what that means.
35:51
Speaker 2: You know, it's so funny. I had a buddy who's
35:53
Speaker 2: firm got both by Yahoo in ninety six, and he
35:58
Speaker 2: was telling me in ninety nine people just refreshing the
36:01
Speaker 2: screen constant, it's all they did.
36:02
Speaker 3: It's so I think there's an element to it that's
36:05
Speaker 3: super unproductive. So that's why we're in no rush to
36:08
Speaker 3: do that. You know, we want to make sure, as
36:10
Speaker 3: I said, we have a strong balance sheet, strong capital structure.
36:14
Speaker 3: You know, equity is an important part of our compensation
36:17
Speaker 3: for everybody. You know, one hundred percent of the employees
36:19
Speaker 3: have stock at I Capital. To me, that's a big
36:23
Speaker 3: cultural point in terms of bringing people together. But you
36:27
Speaker 3: need to if you're going to provide that as part
36:29
Speaker 3: of someone's compensation, there needs to be some opportunity for
36:32
Speaker 3: people to get some liquidity. So over our history we've
36:36
Speaker 3: provided four such opportunities for people to get a little liquidity,
36:39
Speaker 3: and as long as we stay private, we'll continue to
36:41
Speaker 3: try to find a way. It's it's limited, of course,
36:45
Speaker 3: but we try to find way for people to get
36:47
Speaker 3: to get some liquidity from their from their equity holding.
36:50
Speaker 2: Really interesting coming up, we continue our conversation with Lawrence Calcano,
36:54
Speaker 2: CEO and chairman of I Capital, discussing how he built
36:58
Speaker 2: the firm out to a true billion dollar platform. I'm
37:01
Speaker 2: Barry Ritolts. You're listening to Masters in Business on Bloomberg Radio.
37:20
Speaker 2: I'm Barry Redults. You're listening to Masters in Business on
37:23
Speaker 2: Bloomberg Radio. My extra special guest this week is Lawrence Calcano.
37:29
Speaker 2: He is the chairman and chief executive officer of I Capital,
37:33
Speaker 2: where he has been helping to build the firm since
37:36
Speaker 2: twenty thirteen. They now service over a trillion dollars in
37:40
Speaker 2: client assets on behalf of advisors and other professionals. So
37:47
Speaker 2: let's talk about what's going on today. Obviously, alts have
37:50
Speaker 2: been very hot for the past ten years or so.
37:54
Speaker 2: Increasingly so they've been in the news for other reasons
37:58
Speaker 2: the past few months. But let's talk about the underlying
38:02
Speaker 2: structural shift before we get to any of the noisy
38:05
Speaker 2: stuff that's going on. How are advisors and individuals changing
38:10
Speaker 2: the way they access alternative structured investments, annuities, any of
38:16
Speaker 2: the products on your platform.
38:17
Speaker 3: Sure, so, I think for the if I can maybe
38:21
Speaker 3: make some divisions by wealth, the wealthier clients have tended to,
38:25
Speaker 3: you know, buy the private funds. You know that perhaps
38:28
Speaker 3: they'll invest either directly if they can make a twenty
38:31
Speaker 3: million dollar investment or if not, you know, if they're
38:34
Speaker 3: a million, five million or whatever, they usually come through
38:36
Speaker 3: a vehicle that will set up for them to access
38:40
Speaker 3: and then we aggregate that capital and we look like
38:43
Speaker 3: one large investor to the institution to the GP. So
38:48
Speaker 3: the wealthier clients tend to invest through those private vehicles
38:52
Speaker 3: across the board. And we think from a platform perspective,
38:56
Speaker 3: the way you've got to build these portfolios. You know,
38:59
Speaker 3: if you have a credit inequity portfolio, debt and equity
39:03
Speaker 3: portfolio and you want to build them or rebalance them,
39:06
Speaker 3: you can do that with a few mouse clicks, right
39:09
Speaker 3: with all if you target an allocation it's ten or
39:12
Speaker 3: fifteen or twenty percent, you've got to build that. So
39:14
Speaker 3: it's really important.
39:15
Speaker 2: That takes time. In other words, it takes time.
39:18
Speaker 3: You need to make sure that you have sort of
39:20
Speaker 3: persistent access to quality product across all the strategies, so equity, credit,
39:25
Speaker 3: real estate, infrastructure, et cetera, hedge funds, and so our
39:30
Speaker 3: platform tries to provide that, but that wealthy individual will
39:34
Speaker 3: probably use private funds to build it. For the accredited investor,
39:38
Speaker 3: they'll probably use the registered funds to be able to
39:41
Speaker 3: build that and they will either buy individual registered funds
39:46
Speaker 3: or they might buy registered funds wrapped together. That's something
39:51
Speaker 3: that we're seeing a lot of the market do today,
39:53
Speaker 3: where they'll wrap three or four or five different funds
39:56
Speaker 3: together to give people an exposure to Maybe it's equity,
40:01
Speaker 3: maybe it's a growth oriented product where there's sort of
40:05
Speaker 3: a buyout a growth a venture kind of component. Or
40:09
Speaker 3: maybe it's an income oriented product where you've got credit
40:12
Speaker 3: in real estate, or maybe it's multi asset where you've
40:15
Speaker 3: got all of that sort of wrapped together. We think
40:17
Speaker 3: there's lots of different ways. Every individual has a different
40:20
Speaker 3: set of needs and objectives, and so we think it's
40:23
Speaker 3: really important that there's a lot of flexibility in the
40:25
Speaker 3: system so people can allocate precisely what's important to a
40:28
Speaker 3: given client.
40:29
Speaker 2: So what you're describing sounds fundamentally different from how portfolios
40:34
Speaker 2: used to be constructed. How significant are these changes compared
40:39
Speaker 2: to I won't even mention the nineties, but the twenty Tenso.
40:44
Speaker 3: I think what's happened, which is a good thing, is
40:48
Speaker 3: clients have access to more products to potentially meet their needs.
40:53
Speaker 3: Doesn't mean these products, by the way I write for
40:55
Speaker 3: everybody They're probably not right for a lot of people,
40:58
Speaker 3: but for those that have have the ability to make
41:02
Speaker 3: these investments, the willingness to tolerate the illiquidity we talked
41:05
Speaker 3: about before, these products provide more opportunities to build the
41:10
Speaker 3: right portfolio. If you think about the public markets, I
41:12
Speaker 3: mean you spend a lot of time thinking about them.
41:15
Speaker 3: I know, you know, there are probably one hundred and
41:21
Speaker 3: fifty thousand private companies with sort of EBITDAH or revenues
41:26
Speaker 3: greater than one hundred million dollars, and there are five thousand,
41:29
Speaker 3: four thousand public companies. Are the private markets are so
41:34
Speaker 3: much larger than the public markets. As you know, the
41:37
Speaker 3: public markets are increasingly dominated by a small number of stocks,
41:43
Speaker 3: and so accessing the private markets gives you access to
41:47
Speaker 3: a much broader set of possible investments. Again, not right
41:50
Speaker 3: for everybody, but for those who are looking to build
41:54
Speaker 3: you know, more involved portfolios, there's an opportunity that the
41:59
Speaker 3: private markets enable you to pursue that you just don't
42:02
Speaker 3: get by buying to stocks and body.
42:04
Speaker 2: So that's one compelling reason you can access companies you
42:08
Speaker 2: wouldn't get otherwise. What are some of sell us on
42:12
Speaker 2: the other reasons why else should an investor and an
42:15
Speaker 2: advisor who is alt curious, why should they explore this space.
42:20
Speaker 3: Well, look, I am decidedly not trying to sell anybody
42:23
Speaker 3: on anything is to be clear, But I think you know,
42:28
Speaker 3: it's like anything else in life. You know, when we're
42:31
Speaker 3: all better off when we have some more choices. Now,
42:33
Speaker 3: by the way, there's a way in which those choices
42:36
Speaker 3: can be bucketed to make it easier for you to
42:38
Speaker 3: go through that decision making process. But I think if
42:41
Speaker 3: you have more choices to build a portfolio where you're
42:44
Speaker 3: seeking you know, longer dated returns, you're seeking more portfolio diversification.
42:50
Speaker 3: These products provide you with more flexibility to create a
42:54
Speaker 3: diverse portfolio potentially have a higher returning portfolio. But ultimately,
42:59
Speaker 3: you know, every person's got to make a decision that
43:03
Speaker 3: they can live with the products.
43:06
Speaker 2: So during the twenty tens, we had zero percent interest rate,
43:10
Speaker 2: ZERP and QE and all that fun fed stuff, And
43:14
Speaker 2: I think that's where private credit really caught the attention
43:19
Speaker 2: of a lot of investors and a lot of advisors.
43:22
Speaker 2: What do you mean my bond portfolio is yielding three
43:25
Speaker 2: percent when all right, you're trading off a little liquidity
43:28
Speaker 2: and you get five six, seven, eight percent. That's pretty
43:31
Speaker 2: attractive relative to the alternatives. Okay, you got to deal
43:36
Speaker 2: with the K one, which nobody likes, but still your
43:40
Speaker 2: accountant will deal with it for double the yield you're
43:45
Speaker 2: getting in traditional treasuries or corporates. How has that moved
43:52
Speaker 2: from just straight up credit to private infrastructure, private equity,
43:57
Speaker 2: private real estate. It seems like that whole world has
44:01
Speaker 2: opened up dramatically.
44:02
Speaker 3: It has. And you know, I would say that a
44:04
Speaker 3: lot of the private credit investments you could look at
44:08
Speaker 3: our floating rate, and so they still can provide opportunities
44:11
Speaker 3: for you know, for excess return, real alpha because of
44:15
Speaker 3: the way they float. In fact, it was interesting in
44:18
Speaker 3: you know, in the early part of the center, coming
44:20
Speaker 3: out of COVID of this decade, you know, you had
44:24
Speaker 3: people to your point, very actively buying private credit, and
44:28
Speaker 3: then when interest rates went up to like five percent,
44:31
Speaker 3: some people were earning like ten to twelve percent on
44:34
Speaker 3: their private credit investments, and so they were then looking
44:39
Speaker 3: not about private credit versus public credit. They were looking
44:42
Speaker 3: at private credit at ten or twelve percent versus private equity.
44:45
Speaker 3: And it being short duration, was that the right you know,
44:49
Speaker 3: mixed for them, and then you know, right now we're
44:53
Speaker 3: seeing a lot more people focusing on equity as well.
44:56
Speaker 3: But but you definitely had a period of time where
45:00
Speaker 3: private credit was was very, very attractive, and I think
45:04
Speaker 3: where we sit today, I think a lot of people
45:07
Speaker 3: are very anxious to understand what the underlying credit quality
45:12
Speaker 3: is in these products. And I think, you know, there's
45:14
Speaker 3: certainly disruptive forces from AI that that we've talked about,
45:17
Speaker 3: the industry talks about every single day. It's not clear
45:21
Speaker 3: to me that it's the existing portfolios are are are
45:28
Speaker 3: really in bad shape. I actually think the portfolios are
45:32
Speaker 3: likely in better shape than people think. I've spent a
45:35
Speaker 3: lot of time trying to talk to various managers of
45:38
Speaker 3: both equity and credit as to what they're seeing in
45:41
Speaker 3: terms of adoption. And while everybody is working on how
45:45
Speaker 3: to implement AI, it's not like existing software vendors are
45:50
Speaker 3: seeing their businesses dry up. That's not happening. And a
45:53
Speaker 3: lot of those are the borrowers of these private credit assets.
45:57
Speaker 3: So we will will need to get more information over
46:01
Speaker 3: the next several quarters on where we are at private credit.
46:04
Speaker 3: But my guess is the portfolios are in a lot
46:06
Speaker 3: better shape than people think.
46:07
Speaker 2: So we could talk about navigating some of the headlines.
46:12
Speaker 2: But you mentioned AI, and now I'm legally obligated to
46:15
Speaker 2: ask you a question. What are the most meaningful near
46:20
Speaker 2: term applications of artificial intelligence within the alternative space? Is
46:25
Speaker 2: it administration and workflow? Is it identifying better or less
46:30
Speaker 2: great funds? Is it all of the back office? How
46:35
Speaker 2: is I capital using AI in your business?
46:39
Speaker 3: We're actually we have pilots going on across what we do.
46:43
Speaker 3: So if you take our tech stack, there are really
46:45
Speaker 3: two ways to think about it, one of which is
46:48
Speaker 3: the tech we use to empower clients and the technology
46:52
Speaker 3: that clients engage with, and the second is the technology
46:56
Speaker 3: we use to run our business. And there are big
46:59
Speaker 3: applications in both. And to give a couple of applications,
47:02
Speaker 3: when a manager comes to capital to raise a fund,
47:06
Speaker 3: we sort of build a subdoc. AI can build that
47:09
Speaker 3: subdec subdoc for us very very quickly. When a client
47:13
Speaker 3: comes to the site and wants to they come to
47:16
Speaker 3: our marketplace and they want to describe to us what
47:20
Speaker 3: they're interested in, and they hit toggles, you know, et cetera.
47:24
Speaker 3: They go through a few steps to kind of inform
47:27
Speaker 3: us what they're interested in. AI can do that really
47:30
Speaker 3: really quickly. There are a number of ways the way
47:33
Speaker 3: we collect data. One of the services we provide to
47:36
Speaker 3: clients is we help advisors aggregate client data because a
47:41
Speaker 3: client might have held away data, you know, in lots
47:43
Speaker 3: of different places that you want to aggregate so you
47:46
Speaker 3: can present a holistic picture to your client. How we
47:49
Speaker 3: get that data, how we retrieve the data, how we
47:52
Speaker 3: extract data from documents, and then how we reassemble AI
47:56
Speaker 3: can help drive a lot of that. So the applications
47:59
Speaker 3: of AI I are sort of significant across our entire.
48:04
Speaker 2: Platform, really really interesting, and we've been dancing around some
48:10
Speaker 2: of the negative headlines, how are you helping advisors navigate that?
48:15
Speaker 2: These days? For the most part, it's a relatively small
48:19
Speaker 2: handful of companies. Everybody knows their names. But the cockroach
48:25
Speaker 2: theory has people waiting for the next GFC to unroll.
48:28
Speaker 2: We haven't really seen much like that.
48:30
Speaker 3: Well, I think this is such a smaller magnitude than
48:36
Speaker 3: the CFC. I don't think that we're anywhere near those
48:41
Speaker 3: types of concerns. You know, we're big believers in communications.
48:44
Speaker 3: I made a point earlier about how the ecosystem needs
48:47
Speaker 3: to work together. It really needs to work together now
48:51
Speaker 3: in terms of helping people, you know, understand what's happening.
48:54
Speaker 3: I think generally speaking that the industry, and when I
48:57
Speaker 3: see the industry, I mean the asset management industry has
49:00
Speaker 3: to be even more transparent today than ever before, and
49:04
Speaker 3: I think, by the way, that's a good thing going forward.
49:06
Speaker 3: I think the alternative asset managers probably need to be
49:10
Speaker 3: more more disclosive, more transparent to clients over time. But
49:17
Speaker 3: I think the being out in front of clients helping
49:20
Speaker 3: them understand, you know, the landscape and what's going on,
49:24
Speaker 3: has been a big part of how we've spent a
49:26
Speaker 3: lot of time. And one of the things we're doing
49:27
Speaker 3: now is to help is trying to bring them, to
49:30
Speaker 3: organize the industry, to get people on the GP side
49:34
Speaker 3: working together. I talked about transparency, getting information, educational material,
49:40
Speaker 3: not promotional material, but educational material to try to help
49:44
Speaker 3: create again a better and deeper level of understanding about
49:47
Speaker 3: these products.
49:48
Speaker 2: So I've been hearing a little bit about convergence lately
49:51
Speaker 2: between public and private markets. Yep, you're known as dealing
49:56
Speaker 2: with the private side. Do you ever see a day
49:58
Speaker 2: where private and public both ends up on your platform
50:04
Speaker 2: completely full wallet share, et cetera.
50:06
Speaker 3: I think for us, you know, we're really focused on
50:10
Speaker 3: helping people have very successful journeys with their private investments,
50:14
Speaker 3: their structured nodes and nuities, et cetera. And so I
50:17
Speaker 3: think the way in which we will interact with the
50:20
Speaker 3: public markets will be more around these model portfolios I
50:24
Speaker 3: talked about, and collaborating and partnering with the GPS and
50:29
Speaker 3: other sort of more of the public company people who
50:31
Speaker 3: either provide models or have public company public investments, and
50:36
Speaker 3: helping to create these model packages for investors to be
50:41
Speaker 3: able to invest holistically in a portfolio. I think that's
50:45
Speaker 3: probably how we'll play the public space, in partnership and
50:49
Speaker 3: in concert with people who are experts in that area.
50:52
Speaker 2: It makes a lot of sense. Last question before our
50:54
Speaker 2: speed round give, Given all of these major technological shifts,
50:58
Speaker 2: what do you think is going to help you define
51:00
Speaker 2: asset management going forward? We talked about you mentioned tokenization,
51:05
Speaker 2: We hear about blockchain, AI, data analytics. What's the next
51:10
Speaker 2: big thing?
51:11
Speaker 3: Boy? The way I think the next biggest thing is
51:13
Speaker 3: the is the deep implementation of those technologies we're still
51:19
Speaker 3: scratching the surface. Tokenization hasn't even hit private markets in
51:23
Speaker 3: any meaningful way yet. AI same, So I think there
51:27
Speaker 3: is significant application of those technologies that will be meaningful.
51:32
Speaker 3: And I think really for the financial advisors, this reminds me.
51:37
Speaker 3: You know, ten years ago when all the robos were
51:40
Speaker 3: coming out, you really did, and there was this big
51:42
Speaker 3: debate robo advisors versus human advisors, and I always thought
51:46
Speaker 3: that was a false choice. I always thought the best
51:49
Speaker 3: answer for clients was a great financial advisor who leveraged
51:54
Speaker 3: technology to create an incredible experience for their clients. And
51:58
Speaker 3: I think the same is true today. The best financial
52:01
Speaker 3: advisors are going to not be afraid of technology. They're
52:04
Speaker 3: going to adopt it, and they're going to embrace it
52:06
Speaker 3: to create an incredible client experience. And that's sort of
52:10
Speaker 3: how I think the market will evolve in a constructive
52:14
Speaker 3: and positive way.
52:15
Speaker 2: All right, so let's jump into our speed round. These
52:18
Speaker 2: are really just quick answers, so people kind of get
52:21
Speaker 2: a flavor of who you are starting with who your mentors,
52:24
Speaker 2: who helped shape your career.
52:26
Speaker 3: Well, I had a lot of mentors growing up, you know,
52:29
Speaker 3: and I think I always try to watch people and
52:32
Speaker 3: see what they did. There were several senior people at
52:35
Speaker 3: Goldman Sachs that I learned learned things from. I remember
52:38
Speaker 3: the head of investment banking once told me when I
52:42
Speaker 3: was like a young associate. He said, the loneliest job
52:45
Speaker 3: on the planet is the CEO's job. So if you
52:47
Speaker 3: want to be a successful investment banker, make a friend
52:50
Speaker 3: of the CEO and be a sounding board and you'll
52:52
Speaker 3: have a good career. That was pretty good advice. But
52:56
Speaker 3: I remember the other piece of advice I got from
53:00
Speaker 3: another senior partner in in banking was you always have
53:05
Speaker 3: to be intellectually honest. And a lot of people are
53:08
Speaker 3: afraid to be intellectually honest because they they're they're calculating
53:11
Speaker 3: what's happening in the room versus, you know, being true
53:16
Speaker 3: to what you think and saying it and and and
53:19
Speaker 3: not being afraid to do that. And and I've tried
53:21
Speaker 3: to to to really do that, and and and all
53:24
Speaker 3: the things that I've done as I've as I've grown
53:26
Speaker 3: in my career.
53:26
Speaker 2: Really really interesting. Uh, what are you reading these days?
53:29
Speaker 2: What are some of your favorite books?
53:31
Speaker 3: I'm overwhelmed with with work reading right now, between you know,
53:35
Speaker 3: what we're doing in our business and and client and
53:39
Speaker 3: client stuff. I'm reading a lot of stuff on AI
53:41
Speaker 3: that sort of if I were to admit to the
53:44
Speaker 3: honest thing is is I keep reading new AI books
53:47
Speaker 3: about you know, AI and technology AI in general. There
53:51
Speaker 3: are a lot of incredibly positive things about AI. There
53:56
Speaker 3: are a lot of risks with AI, and and a
53:59
Speaker 3: couple of books I've read recently, we're really focusing on
54:02
Speaker 3: the risks around unemployment, around control and governance, and when
54:08
Speaker 3: you get to natural intelligence, when AI reaches sort of
54:13
Speaker 3: human intelligence, what happens then. So there's there's a really
54:17
Speaker 3: exciting and bright side, and there's really a dark side
54:19
Speaker 3: that's going to need a lot of governance to protect all.
54:21
Speaker 2: Of us, a lot of guardrails. So if you don't
54:24
Speaker 2: have time to read, you have time to listen to
54:26
Speaker 2: podcasts or watch anything. What do you stream?
54:29
Speaker 3: One of the so that I married thirty three years
54:31
Speaker 3: and say, and honestly, you know the my wife and
54:35
Speaker 3: I are just binge watching a series of shows. We've
54:38
Speaker 3: we've gone through the whole Yellowstone saga.
54:40
Speaker 2: You know, the prequels, and did you get to Landman
54:42
Speaker 2: yet finished?
54:44
Speaker 3: Landman Love? Landman? Looking forward to watching the Peaky Blinders movie,
54:47
Speaker 3: which we haven't seen, but probably you know, when I
54:51
Speaker 3: get home, when i'm sort of when I put the
54:53
Speaker 3: work down, my wife and I tend to watch shows
54:55
Speaker 3: together that sounds fun.
54:58
Speaker 2: Our final two questions, what sort of advice would you
55:01
Speaker 2: give to a recent college grad interested in a career
55:04
Speaker 2: in alternatives or investing.
55:07
Speaker 3: I would say, you know, the world owes you nothing.
55:11
Speaker 3: This is, by the way, what I have several kids,
55:13
Speaker 3: you know, who have graduated college, and what I said
55:17
Speaker 3: to them, And I'd say to anyone at I Capital, generally,
55:20
Speaker 3: the world owes you nothing. And what you get in
55:24
Speaker 3: this life is a function of what you work for.
55:27
Speaker 3: And I think that people need to be flexible, they
55:31
Speaker 3: need to have an open attitude, and that to me,
55:35
Speaker 3: you know, at a given level of intelligence, you know,
55:39
Speaker 3: that's what attitude makes the difference.
55:42
Speaker 1: You know.
55:42
Speaker 3: It's funny we all went through this work from home
55:45
Speaker 3: during COVID, and now you know, some people want to
55:47
Speaker 3: continue to work remotely. And I when you asked about mentors,
55:52
Speaker 3: like a lot of the mentorship that I got, probably
55:56
Speaker 3: a lot of people got, was just being in the office,
55:59
Speaker 3: watching people, listening to people. How do they act, how
56:02
Speaker 3: do they treat other people? You know, how do they
56:05
Speaker 3: behave in meetings? Like that? Stuff that's super valuable osmosis learning.
56:11
Speaker 3: You don't get when you're sitting in your apartment on
56:13
Speaker 3: a zoom screen. There's zoom screen is one dimensional. Life
56:18
Speaker 3: is multi dimensional. And so I'm a huge Some people
56:22
Speaker 3: in the company love this, some people don't. But I'm
56:24
Speaker 3: a huge work from the office person because I believe
56:27
Speaker 3: that that multi dimensional experience is much more powerful and
56:31
Speaker 3: it's better for every individual from a learning perspective.
56:34
Speaker 2: Yeah, I couldn't agree more, although I do love those
56:37
Speaker 2: fridays from home. And final question, what do you know
56:43
Speaker 2: about the world of alternatives and investing in technology today?
56:47
Speaker 2: Might have been useful back in the mid nineteen eighties
56:51
Speaker 2: when you were first getting started.
56:52
Speaker 3: I think I think probably I'll generalize that a little
56:57
Speaker 3: bit is patience. You know, I was sort of young
57:02
Speaker 3: and just you know, hard charging and so forth, and
57:06
Speaker 3: as a lot of us are, but you just you
57:09
Speaker 3: have to be patient. You know. It's funny. We sponsor
57:12
Speaker 3: golfers and I watch golf. I love golf, and you
57:17
Speaker 3: see people they bogey holes. John Rahm won the Masters
57:21
Speaker 3: a few years ago he double bogie the first hole.
57:23
Speaker 3: I remember I was standing there watching it and I
57:25
Speaker 3: was like, it's over. It wasn't over. It was one hole.
57:28
Speaker 3: And it reminds me my youngest daughter graduated Dartmouth a
57:32
Speaker 3: few years ago and Roger Feederer was the speaker.
57:34
Speaker 2: I recall that that speech and it was really amazing
57:40
Speaker 2: coming from him.
57:40
Speaker 3: It was an amazing speech. And one of the things
57:43
Speaker 3: he said is in his career, he's won and I
57:48
Speaker 3: may get the number slightly off, eighty percent of his
57:50
Speaker 3: matches and fifty four percent of his points. And his
57:55
Speaker 3: point was, it's just the point, right, you know. And
57:58
Speaker 3: I think that's a huge last and it's just a point.
58:01
Speaker 3: It happened, you lost it, you won it, you lost it,
58:04
Speaker 3: you move on. I think that's great advice and advice
58:07
Speaker 3: I wish I had had when I was younger.
58:09
Speaker 2: Lawrence, this has been absolutely fabulous. Thank you for being
58:12
Speaker 2: so generous with your time. We have been speaking with
58:15
Speaker 2: Lawrence Calcano, CEO and Chairman of I Capital. If you
58:20
Speaker 2: enjoy this conversation, well check out any of the six
58:23
Speaker 2: hundred and fifty we've done over the past twelve years.
58:26
Speaker 2: You can find those at iTunes, Apple, Spotify, Bloomberg, wherever
58:31
Speaker 2: you get your favorite podcasts. I would be remiss if
58:34
Speaker 2: I thank the Crack team that helps put these conversations
58:37
Speaker 2: together each week. Alexis Noriega is my video producer. Sean
58:42
Speaker 2: Russo is my researcher. Anna Luke is my podcast producer.
58:47
Speaker 2: I'm Batrihulse. You've been watching Masters of Business on Bloomberg Radio.