In this panel from Alts Expo 2021, a trio of experts discusses the surge of interest in alternative investments and tips for investors looking to navigate the various opportunities.
Click the play button above to listen to our conversation.
- The shift underway from traditional assets to alts, driven by a need for income in an inflationary environment and diversification.
- A review of the alternative asset classes and product wrappers that have momentum heading into 2022.
- The potential for increased investments in tax-advantaged operating businesses, interval funds, BDCs, and other alternatives.
- Adoption trends for crypto, both among individual investors and more “sophisticated” family office and institutional investors.
- The potential impact of Build Back Better and other proposals on the table on the alternatives industry.
- Live Q&A with conference attendees.
- Predictions for the future of the alternatives industry.
Featured On This Episode
Industry Spotlight: Alts Expo 2021
Hosted by AltsDb.com, the Alts Expo was a live showcase of alternative investments that took place online on December 8, 2021, featuring a keynote address on the bull case for alts, a panel on alternative investment trends, and six alternative investment product presentations.
About The Alternative Investment Podcast
The Alternative Investment Podcast covers new trends in the alternate investment landscape. Hosts Jimmy Atkinson and Andy Hagans discuss diversification opportunities in the alts universe, including direct investments, DSTs, opportunity zones, private equity and more.
Jimmy: The panel today is Alternative Investment Trends for 2022. We’re coming up toward the end of the year. What are some alternative investment trends that investors should have an eye on as we head into the new year? So I’ll quickly introduce our three panelists today, and I’ll moderate the panel, but I’ll mostly be in the background and I’ll let our industry-leading panelists shine here. So Megan Gavin is joining us from the Institute for Portfolio Alternatives. She’s the Director of Strategic Partnerships there. IPA is a trade organization representing the non-traded alternative investment Industry and they do a great job of educating and advocating on behalf of that industry of portfolio diversifying investments. Reid Thomas is joining us today from JTC Americas, formerly known as NES Financial. He’s the Executive Vice President of Sales and Marketing there. And they are leading fund administration platform for alternative investment products. And finally, last but not least, is my partner at OZ Pros, Ashley Tyson. OZ Pros is a strategic advisory firm for Opportunity Zone investors, developers, and fund sponsors. So quickly, just to kind of go around the horn here, I’d like to get, maybe a slightly more in-depth introduction, and a little bit more about everyone’s organization, if you could just spend, you know, another 30 to 60 seconds, saying hello. And we’ll make sure at that time that your microphones working alright as well. So Megan, if you could tell us a little bit more about yourself and IPA, before we get underway, please, thank you.
Megan: Sure. Happy to. Thank you so much for having us. My name is Megan Gavin, Director of Strategic Partnerships. I joined the IPA about a year ago, but I’ve been in the alternative investment industry for over 15 years, hitting close to 18 now. I’ve been working with a bunch of asset managers that have brought out really incredible alternative investments, ranging from non-traded REITs, BDCs, private placements, preferred stock offerings. But now at the IPA, I work with our membership. The IPA has been instrumental and advocating for our industry. It’s no shock that our industry is highly regulated. So we’re very busy when it comes to government affairs and being in D.C. We also provide a great networking opportunities for our members and conferences. And we ultimately wanna educate the end-user, the investors on the benefits of alternative investments.
Jimmy: Tremendous. well, very happy to have you here today, Megan. Reid, tell us a little bit about JTC Americas and the types of funds that you have on your platform, the types of alternative investment products that are using your fund administration platform.
Reid: Sure, yeah. JTC group is a global company. We operate in 23 countries. We’re publicly listed on the London Stock Exchange with a market cap of over a billion dollars. We have about $130 billion in funds under administration at the moment. And 50% of our businesses, private client, private wealth, the other 50% is administrative services. In the United States, I run that business and we grew up focusing on very specialized niche funds, tax-advantaged funds, DSTS, OZs, but also, traditional private equity funds. And we do that by, you know, having a technology platform which we can configure to be purpose-built for the investment types that were involved. So Opportunity Zones, we’ve done extremely well. You know, we have over 200 funds that we’re currently servicing, and we do not just the traditional fund accounting, but we also do the Opportunity Zone compliance tracking, as well as impact tracking.
Jimmy: Great. Thanks for joining us today, Reid. And Ashley, how are you doing? And tell us a little bit more about yourself and OZ Pros?
Ashley: Well, Jimmy, it’s always a pleasure to be on with you, and love your events, and love what you’re doing here with Alts as well, as what you’ve done for the Opportunity Zone industry. So it’s been a wild ride in the Opportunity Zone space. OZ Pros is a full-service advisory firm, where our passion is the democratization of Opportunity Zones. So getting, probably, the most powerful legislative tax incentive that’s ever been created in the hands of Main Street America and into the hands of the folks that can actually make a difference in the communities that it was designed to positively impact. And we do that through kind of a variety of measures, but we’ve really tried to focus on productization, so making it really simple for people to get their Opportunity Zone funds done, to learn about Opportunity Zones through some educational products, to see if their deal will work through strategy calls, and then ultimately getting them up and running, and helping them through kind of an ongoing compliance interactive experience. And so, we’ve had over 600 strategy calls and we’ve set up over 750 entities at this point. And it’s been a wild ride. So, excited to talk about that. And I think that were Opportunities Zones, and obviously, I’m a huge advocate for that, but you know inside of that, Opportunity Zones become an excellent planning tool and an excellent opportunity to incorporate some other alternative investments into folks portfolios, in order to help them save taxes, in addition to what the Opportunity Zone allows them to do. So it gives us a lot of flexibility to postpone when the taxes are due. And then to utilize that time in order to look at some other alternative investment classes. So it’s been really neat to kind of expand into that, as we’ve come through the rush of folks getting their Opportunity Zone funds set up.
Jimmy: Fantastic. Thank you, Ashley. Just before we continue here, just a reminder, if you have any questions for me, or our panelists here today, please do use the Q&A tool in your Zoom toolbar. For those of you just joining us, that Q&A icon can typically be found in your Zoom toolbar, toward the bottom of your screen. You can submit a question, and we’ll save some time for some Q&A toward the end of the panel today. First question I’ll pose to Megan first, and then if Ashley and Reid wanna chime in, please feel free. But Megan are Alts becoming more popular? Is there a shift underway from traditional assets to alternatives?
Megan: The answer is absolutely. I can see it and just our membership, how it has evolved over the last five years, and even just in the last probably 12, 24 months to see how our membership has evolved. New sponsors coming in, asset managers popping into our space, ones that we traditionally would not have seen or thought about. So it’s been very refreshing to see that. But, you know, I think there’s been a great alignment of investors, advisors, and asset managers. And not that the alignment wasn’t there previously, but I think it’s now a little bit more of a well-oiled machine. Investors looking for yield, you have financial advisors, registered investment advisors, that are able to distribute these a little bit more easily. You have evolution of fintech, and then you also have asset managers that have now really kind of cracked the code on what it is and what that structure needs to look like. And there’s really just this really nice alignment that you see a lot of the newer players coming in have been able to kind of bring a new fresh air to the space and bringing new type of product structures that benefit both the financial advisors and the investors. And that alignment, I think, is really allowing a lot of new players to come into the market. You see, you know, clients are looking for yield, they’re starved for yield. I think the 10-year treasury was at like 1.4, the 30-year bond was at 1.7. Moody’s AAA I think it was barely at two. So people need some sort of products that are providing income. We need to…
Jimmy: And especially after taxes, and after inflation.
Ashley: Because inflation running 6%, yeah.
Megan: Right. Right. And, you know, they need diversification. There’s the saying that, “In crisis, correlation always goes to one.” And even when we’re not in a crisis market, we see correlation getting closer and closer to one. So that along with tax advantage that y’all are bringing to the table, it’s just right for the picking I feel for investors to look at these types of investments.
Jimmy: Excellent. Ashley or Reid, I don’t know if you would like to chime in. Do you believe there’s a shift underway from traditional to Alts? And why? If you guys wanna chime in with a couple other insights.
Reid: Yeah. I would just say definitely the popularity of Alts is increasing. We’re seeing tremendous momentum there. Agree with everything Megan said. I would just add to that, that there is a degree of specialization that’s coming in, as well. So when you get to Alts as a category, certainly, there’s momentum, but within that, there’s all kinds of interesting specializations and types of funds, and types of asset classes being set up. Be it for tax advantage purposes, for ESG, for impact, what have you. And that I find to be very, very interesting what’s going on there.
Ashley: So, Jimmy, I think that it’s kind of…it’s illustrated by this whole, you know, significant movement inside of crypto relative to kind of the decentralization of things. And that we’re seeing that ripple effect through everything. So from Uber disrupting…it’s all about disruption. And there’s Uber disrupting the taxi cab industry, tokenization disrupting kind of some of the traditional stock marketplace, crypto coming in and disrupting a lot of the more traditional asset classes relative to being kind of considered stores of wealth. And I think that that same thing is happening here inside of the Alt space, is that you’re getting groups that are really good at figuring out how to disrupt the traditional mechanisms by which wealth gets invested and distributed. And so, as we see more and more of those players come to the table with along the lines of what Megan was saying, and then coupled in with the explosion of crypto through FinTech and through other avenues, and I think that when we see the net effect of tokenization, and as people get more comfortable with that, I think we’re gonna see this thing even advanced further.
Jimmy: Fantastic. Well, I think that’s a good segue to my next question for everyone. And Reid, I’ll turn to you on this one first, and then Megan and Ashley, of course, feel free to chime in, but Reid, kind of thinking about the different product sponsors that you have on your platform, what alternative asset classes and product wrappers, you know, talking about Reid’s DSTs, QOFs, et cetera, which asset class and product wrappers have the most momentum heading into 2022?
Reid: Well, it’s interesting, I think real estate generally, is the one that has the momentum we see. Within that it’s housing-related is where we see the bulk of the activity. You know, we look across our QOF that we administer, it’s typically multifamily housing that we see, about 80% of that is market rate, 20% is affordable, the affordable component we see growing as part of most portfolios, so we do see momentum in that area. I think, you know, we talk a lot in the QOF space about operating businesses, and what’s going on in investments in that asset class. And we have…while we’ve seen a lot of funds being formed for investments into operating businesses, we haven’t seen kind of the cash flow into those funds like we have into the real estate side. So what we’re seeing emerge is these hybrid kind of investment opportunities where you might have a real estate play built around an operating business infrastructure, right? So maybe an energy kind of investment, or you might have a retail kind of investment, or an incubator kind of investment structure built, which has a strong real estate component to it.
Jimmy: Yeah. Megan or Ashley, would you like chime in? What other alternative asset class and product wrappers do you think have the most momentum heading into the new year?
Ashley: You know, to reach point and kind of where we came off of that last question. You know, the challenge is that you have…and I think we’re kind of…I think we’re on the cusp of being able to crest this inflection point. But that we’re not quite there yet, is it traditional real estate investors are used to traditional real estate. And they’re used to those kinds of returns that have that kind of risk. And then when you couple in operating businesses, operating businesses are a whole different investor category. And they’re not used to typically, having tax-advantaged mechanisms to go in.
So inside of the Opportunity Zone space, it’s been hard to get access to the real estate capital, because they’re not comfortable with the risk of operating companies. But they also, they don’t understand the potential reward as well. And that there could be significant upside of that. And so, it’s kind of this damned if you do, damned if you don’t type deal, because if you do a fund with an operating business, but you throw real estate into it, it’s like a sea anchor on the return. Whereas if you add operating businesses to the mix, it juices the return, but it also increases the risk. And so, I think we’re literally almost at the inflection point where people are realizing that there is value to having that operational risk associated with a real estate play, because it juices the return. You’re involved in the real estate, you’re involved in it locally, so why not get the upside of the deal.
And so, I think that what we’ll see… This is me putting my prognosticator hat on, right? Is I think we’re gonna see a tipping point with respect to those types of hybrid funds and or more funds that are focused on kind of traditional private equity roll-up strategies. I’m certainly seeing that in my space with conversations that I’m having on these strategy calls about a lot of people that are looking to do roll-ups, and they’re looking to consolidate operating businesses in order to get that alpha.
Jimmy: Sure. And Megan, thinking about your members at IPA, what asset classes and product wrappers do you feel have the most momentum heading into the new year?
Megan: Sure. You know, we’ve seen a lot of growth in the interval fund space, the unlisted closed in fun space. I think there’s a lot of benefits where, you know, you don’t have to worry about blue sky, you’re kind of in between two different acts, the 40 Act world. It’s a little bit lower leverage. So there’s a lot of things that I think are attracting asset managers to come out with those investments. So interval funds has been something I’ve seen a lot of growth in. Something that’s interesting and I think we’ll see kind of a reemergence of the BDCs. Apollo recently just announced that they’re gonna be doing a BDC. And I think that gives that space, maybe a little bit of a push, kind of like the what Blackstone did with the Navarre’s. So it’ll be, I think, the thing to be mindful of is with BDCs, they’re gonna really need to work on the performance, they have a tough story to sell. But I think that the structure in and of itself is pretty powerful.
1031s, you know, every time I am talking to one of our 1031 member, it seems like they’re constantly selling out of their 1031s before they can even hit the market with it. And I think it’s just going to show you people are looking for some tax advantages out there. And then Navarre’s, you know, those are still continuing to kind of be the darling of the space.
And in May of this year, I wrote a little list here. Invesco, they became effective with a Navarrete. Prudential PGIM they registered in August of this year. KKR, they were effective in May of this year with a REIT. And then Brookfield, they’re now in the space, and Aries. So, I mean, those are massive names. It’s kind of mind-blowing to me that we’re seeing these folks enter into the space, and they’re all coming in with these Navarres. So I think that’s gonna be a structure that we continue to see a lot of growth in. But, you know, I really do feel there’s people looking for that income, but there’s also people looking for the tax advantages. And I think what we’ll also see, maybe a little bit further on, and that kind of hits to what the other gentleman were speaking of is, I think we’re gonna see a real democratisation of private equity. And I think that’s gonna be that next evolution. And that might be, you know, not the next year, but I think that’s what we’ll see in the next three to five years.
Jimmy: Very good. Yeah. Good. Those are some big institutional names that you dropped there getting into Navarre, that’s interesting. When you were talking about 1031s a moment earlier, those are mostly wrapped as Delaware Statutory Trust, DSTs, I believe, is that right?
Megan: Correct. Yeah.
Jimmy: Good. Good. So, well, let me turn to Ashley now with this next question. I wanna ask, what about crypto? Well, I know you’re a big crypto fan, Ashley, but how do you think a high net worth investors could incorporate crypto into their portfolios? And what trends do you see in crypto heading into the new year? You know, we don’t have any crypto presenters on today’s event. I’m hoping that we get some for our next event. We actually did…actually, our other platform OZWorks group did host a crypto event yesterday. Tell us what do you think about crypto?
Ashley: So I think that crypto, you know, and traditionally, as viewed by kind of the more traditional, you know, asset managers and asset capital allocators is been viewed as kind of like the…it’s almost like the dark web still, right? And that there’s something nefarious about it, like, don’t get involved in crypto because you might lose all your money. And I think that that is rapidly beginning to turn. And I think it’s particularly rapidly beginning to turn as people see how much money is being made inside of the crypto run-ups. Now, I think that there’s still a lot of concern about that relative to kind of the wagering component to this, right? That there’s, you know, it’s almost like day trading penny stocks in a lot of ways.
Jimmy: It’s a very speculative instrument still, right?
Ashley: And so, in some forms it is. And then you’ve got other, you know, other folks that view Bitcoin as the new digital gold. You know, Senators included in that and a lot of, you know, significant institutions that are now allocating a portion of their cash reserves into Bitcoin, namely, because if it’s sitting in cash, it’s going down 6% right now. And so, there’s a lot of folks that are incorporating it into their treasury management strategies as a store of wealth. But I think that the real value inside of crypto, and I think that the real kind of smart money in this space is gonna be looking for ways that they can utilize blockchain technology, and they can utilize the existing folks that are utilizing blockchain technology as part of their business or as, you know, the disruptors in their spaces via some kind of blockchain technology.
Now, most blockchain technologies also have a corresponding token to them. And so, inside of that, to the extent that you’re able to establish your use case, you’re able to utilize the blockchain technology in the context of being that disrupter, then there’s also that associated value of run-up with putting a certain amount of cash inside of that crypto asset. And I think that that’s where we’re gonna see a lot of institutions really start to gain and to start to allocate and resources and money into that program.
And we’re already seeing it with Bank of America. We’re seeing it with Cardano, and Algorand, you know, teaming up with, you know, with major institutions and with governments themselves, in order to start laying the foundation for what is kinda gonna be the next wave of crypto type stuff. And so, I think that as that starts to happen, I think we will see a significantly more adoption of crypto inside of kind of, you know, the significant players that are out there in their portfolio strategies. It’s already starting to happen within the ultra-high net worth in the family offices. They’re already thinking that they’re late to the game. And so, they’re rapidly coming into the space right now, which is one of the reasons why we’ve seen the run-ups that we have inside of the, you know, Bitcoin price and Cardano and Algorand, and all the other ones that are out there. I’m curious about Megan’s take on crypto…
Jimmy: I wanna get to Megan’s take too. But let me turn to Reid, let me turn to Reid first. Reid, are any of your clients on your platform doing anything with crypto, or do you have any thoughts on crypto?
Reid: Yeah. When I think about it, I think about the operational elements of these kinds of things and what that means for fund managers and investors. You know, we’re passionate about helping these kinds of unique investments ultimately be successful. And a big part of that is, you know, the compliance reporting, the tracking, the monitoring, all of that type of thing. And so, it gets to be what Ashley was talking about, and Megan a little bit that there’s a FinTech component to these things. You know, certainly, crypto fund is different than a 1031 DST, or an EB-5 or, an OZ, right? So it’s not one size fits all, in terms of how you’re gonna set yourself up to operationalize these things. And so, you know, for us, we’re really focused on how do we configure and adapt our technology to be able to deal with the unique characteristics and requirements of those things? And that’s gonna be a big deal, because without transparency at a reporting level, and without a good tool to administer these things, it just increases the risk exponentially on what’s already hard to understand asset class.
Jimmy: Right. Okay. Let’s turn to Megan now. We had a question in from one of our attendees. Do IPA members consider crypto a valid alternative asset class? What do they think of it?
Megan: Sure. You know, we had a conference in New York, two months ago, a month ago, two months ago, and it was focused on interval funds. However, during a lot of the panels at the end when we opened it up to Q&A, most of the questions or quite a few of the questions ended up being about crypto. And we had some great thought leaders and executives from large institutional firms on these panels. And they were kinda able to devolve what they’re doing with crypto in their portfolios, and they’re working with crypto. This is kind of a little bit more antidotal, but, you know, I feel like the progression is this, when you’re at a conference, maybe you’ll have some people talking about it at cocktail reception. And then maybe the next year you’re gonna have someone actually raise their hand and ask a question about it. And then the next year you’re gonna see someone show up with a product that is focused on crypto.
So, you know, I’m looking forward to seeing maybe a member come to market with something a little bit more substantial. But the larger institutions they’re working with them, are they working with them in a sense of it’s a huge strategy? Probably not. But from what it sounded like, there’s a lot of them that are…it’s part of another component of their organization and they’re keeping an eye on it, and they’re starting to invest in it, and start to understand it. So, it’s real, it’s out there, and I expect, you know, in a couple of years it’s gonna be maybe old news.
Jimmy: Sure, sure. I kind of feel like crypto is maybe at the same stage that the internet was at in the mid to late 90s. Like it’s 1997 Internet, and people are just starting to get online and figure out what it is, and it’s kind of ugly, and it’s, you know, maybe there’s a crash coming in a couple years that we can’t see. I don’t wanna make any predictions like that. I’m just gazing into my crystal ball for a minute, but it almost kinda has that same sense about it.
Megan: I’ve heard someone mention that same sentiment. And at the end of the day, what their conclusion was, is there’s gonna be some really big winners, and there’s gonna be some really big losers. And that’s what we saw with the Internet and we’ll probably see that again with crypto. So I think it’s just making sure you’re mindful of what you’re actually investing in.
Jimmy: Yep. Yep. Very good. Well, let’s shift gears for a minute. And actually, Megan, I’m gonna turn to you again to give us our first answer this one, because I know that your organization, the Institute for Portfolio Alternatives, really has an ear to the ground, what’s going on in Capitol Hill, and you do great advocacy work there in Washington D.C. What legislative and regulatory issues do you feel like investors should keep their mind on as they consider their portfolios heading into 2022?
Megan: Sure. You know, some of the bigger issues that are on the horizon for us. And this is kind of broadly speaking, one is President Biden’s Build Back Better in the Reconciliation Bill. They’re gonna continue to find ways to fund the government. And with the Build Back Better, we want to make sure that programs like 1031 exchanges are not gonna be affected. The IRA provision that popped up a few months ago, that was huge. You know, we did a lot of advocacy. And maybe I could take a minute for those that aren’t super familiar with what recently happened.
Jimmy: Yeah, please do.
Megan: So, with the Build Back Better framework, they were considering the House Ways and Means Committee, they were considering really affecting the retiree. And they wanted to prohibit certain alternative investments in IRAs. It would have been a huge hit to our business. So much of the alternative investments are put into IRAs. I would say probably when I’ve worked with asset managers, we would see about 60% of our business being held in IRA.
So, upon learning this development, the IPA, we ended up sending a letter. This was around September, I think it was the 15th. The announcement came out maybe the day before, and we hopped on it, we sent a letter to the House Ways and Means Committee, the Chairman Neal, to let them know our concern and the ramifications that this could have. And we were partnered up with a couple of different coalition members in sending that letter. After about a month or two of continual work with senior staffers working with the Senate Finance Committee, we were happy to see that at the end of October, they decided to pull that from the framework. It was a huge victory. It took a lot of grassroots efforts. We had over 5,000 letters that were written to congressmen and women. A lot of our coalition partners stepped up as well as organizations and firms that this would affect. So, it was a huge…It was teamwork, but, you know, that’s one of the benefits with the IPA. We’re able to bring people together to meet these legislative and regulatory issues, hopefully, feel a little less overwhelming. So that…
Jimmy: That’s great.
Megan: Yeah. So that was a big thing that we’ve been working on. We have elections coming up in 2022. Redistricting is gonna be big. And we’ll start to see kind of politicking start in April and May. So that’s always gonna add a little bit of spice to, you know, going up onto the hill and lobbying and providing advocacy. We’ll start to see more activity on the regulatory and stateside next year. We have NASAA that they’re gonna be coming out with a model state fiduciary airy rule. And we are working very hard to make sure that this does not catch on. And that will have actually some data to go out and combat what they’re trying to do with the judiciary rule. And we’re also gonna be working with our coalition partners to counter kinda this biased approach that they’re looking at.
We have the DOL rule, that’s gonna be something that I don’t think ever goes away, but it’s sure not industry-friendly right now. And so, we’ll be working heavily on advocating for a more friendly rule. ESG is really big, and, you know, any sort of tax incentives that can go along with ESG, we see that being something that policy will be written around. And I’ll take a breath there. I mean, there’s a lot, you know, like I said, this is a highly regulated industry. And I would like to, you know, like to say that it would change, but I don’t think that’s gonna be the case.
Jimmy: No, it absolutely is a highly regulated industry. And thank you for all the advocacy work that you and your organization at IPA does on behalf of the alternatives industry. I know we all appreciate it. Reid or Ashley, I don’t know if you had any thoughts. Megan did a great job summarizing, I think, but if you wanna chime in briefly on any other legislative or regulatory issues in regards to Alts?
Reid: I think there is, just real quick. I think that there was a question asked about the government spending in these plans. And from what I understand, yeah, there’s gonna be quite a few buckets of capital that are intended for investment in things that do qualify as alternatives and there’s gonna be some great opportunities in there. I think as part of that, there’s obviously a lot of infrastructure work going on that creates opportunities. Regulatory-wise, I think ESG, we’re gonna see that sort of more rigor around ESG reporting coming down the pipe. And so, that’s something to pay attention to. I think for major funds, they’re gonna have to deal with that in a much more traditional way I would think, meaning it’s gonna be more of an accounting-driven responsibility, I think, for reporting and compliance, so that’s to watch. And I continue to worry about 1031, that continues to be bantered around to something on the chopping block, which would be pretty dramatic. So hopefully, the government keeps it together on that one.
Jimmy: Agreed. Ashley, how about you? Any additional thoughts there?
Ashley: Yeah. I think that the key and, you know, this is fantastic that Megan is on here. Because I think that we need more organizations like Megan’s similar to, you know, what Shay Hawkins is doing within the Opportunity Zone space, of really doing a great job of getting on the front end of communicating with regulators and legislators to try and get them educated about it on the front end. And I think that this is necessary for all Alts, let alone for the crypto space and for some of the other ones that are more kind of gets outside of the box and outside of the mainstream. But to the extent that we can educate our legislators first, but then to have them communicate to the regulators that these things are good, and they’re good for the economy, and here’s the reason why. I think that as, you know, kind of leaders in this space and everybody that’s on this conference, right? Don’t be misconstrued. You are a leader in this space, if you’re on this conference. If you’re a participant, but also if you’re, you know, in the audience as well.
And so, it’s incumbent on all of us to take the opportunity to reach out to our legislators, to interact with folks, so that that way, it’s not this big, scary thing, right? It’s like, “Oh, I don’t know anything about that so I’m scared of it and I wanna kill it, right?” And I think that the more that we do that as individuals the more it paves the momentum for being able to make sure that this doesn’t get legislated out or even more concerning is regulated out. And I think that that’s where, you know, we as kind of a collective organization, particularly with groups like Megan’s that we need to be on top of it, because the regulators have an immense ability to stifle things by doing stuff that’s, you know, counter to the legislation that’s out there, and we just got to be really careful about that, and try to stay on top of it to the greatest extent we can. And when it happens, to be willing to actually take action. And it’s tough, because we all got busy lives. We all got stuff that’s going on. It’s really hard to write letters to our congressmen, to our, you know, our senators and that kind of thing. But it is incumbent upon us to take action, because if we do nothing, then, you know, it’s like the whole…and I’m not gonna say that they’re evil, but if we do nothing, things that we don’t want to happen will happen. So…
Jimmy: Well said, Ashley. I agree. So, just a pause for a second here just to tell everybody what’s coming up on the agenda. We’ve got a few more minutes here for this panel and then we’re gonna take a brief 5 to 10-minute break. We’ll resume at 12:10 p.m. Eastern Time with Urban Catalyst and then we’ll continue with a few other product sponsors legacy group, harvest returns, and then finally, rounding up the day with Grubb Properties, before we head into our post-event happy hour. So, but let’s get to a few questions here in the remaining time we have. We’ll spend a few more minutes here. We had a question about Build Back Better, actually. So I’ll pose this one to Megan. Megan, do you feel like Build Back Better is gonna create any opportunities for enterprising sponsors to take advantage of a new source of chaotic, boondoggle style, government spending is the way that this person words to her question?
Megan: It really could. I think that our industry is always evolving. I think our industry it’s very…they like to create things, right? And they like to find opportunities. So I don’t think that with the brain trust that we have in our industry that we wouldn’t see people take advantage of new legislation, new rules. And what that’s actually gonna look like? That’s a good question. But, you know, we saw Opportunity Zone funds, you know, from some sort of legislation that’s coming out. We now see a whole industry around that. So I wouldn’t be surprised if we see something evolve from the Build Back Better. It’s interesting to think about, you know, if you’re gonna have roads being built, something as simple as that, is that gonna be done by public companies? And if so, are we gonna be able to start investing in some of that infrastructure building? So just little things like that. But I would suspect that the ingenuity of our industry will take full advantage of anything that they can.
Jimmy: Yeah, right, right on there. And, Ashley, I know you’ve got some thoughts on this. I’m sure. What do you think?
Ashley: Yeah. It’s interesting, because in conversations that we’ve had with a kind of a career person at HUD, and with what Trump did… I hate to even bring up his name on a deal, you know, because I can either be really good or really bad, just depending on which side you are. But there was a focus put on Opportunity Zones as a kind of rallying point. And in Opportunity Zones have become a rallying point for local government officials, private capital, and other sources. And I think that the new administration is going to utilize that, because they’ve seen the result of that, and they’re going to utilize Opportunity Zones, and the what they created with kind of local municipalities creating, like this own kind of separate standalone institution, that’s there, that’s a mix of private capital, with public, you know, servants, so that that way, we can be collaborating with that, that they’re gonna utilize that as part of the way that they get the money out from the Build Back Better, you know, funding.
And so the communication that we had is that that’s gonna come down in the form of kind of these local funding of point people. And I think that those point people are gonna be working very closely with opportunity funds in the area, and also with the folks that are familiar with Opportunity Zone legislation because they’ve got a roadmap to the private capital. So I think that that’s kind of a takeaway that we can all have inside of this is, you know, these get-togethers that we had and that’s one of the great things about the opportunity zone legislation did, is that it created this kinda gathering. All across America, people were having these seminars and these workshops and that kind of thing, and we have another chance to do that, to go ahead and take that infrastructure and take the things that we’ve already done, take that momentum and build upon it with this massive amount of capital that’s coming down the pipe. And let’s take that in order to take that governmental money and put it into places that’s actually gonna get something done, it’s gonna be managed effectively, and it’s gonna actually have measurable impact. So if, you know, if you’re out there listening, go find your Opportunity Zone czar that’s in your neck of the woods and start talking with them right now. Because more than likely, they’re gonna be the point of contact, and the conduit for the cash that’s coming from the Build Back Better, you know, allocations.
Jimmy: Reid, I think you’ve touched upon this already a few minutes ago. I’m not sure if you have any other thoughts or not?
Reid: Well, I think that it’s, you know, fortunately, I think the narrative about Opportunity Zones has been changing. You know, early on, it was all about another tax paying for the rich, there was the book that was put out by the Brookings Institute on this topic. And, you know, so our focus has really been on the media trying to stop this narrative, because, you know, look, the kinds of change we’re trying to make, sort of the idea behind Opportunity Zones, the kind of change it’s trying to drive will take decades to ultimately achieve, right? We’re trying to lift these sort of communities out of poverty. Essentially, this doesn’t happen in two years or five years. We only measure what census every 10 years in this country is an example, right? So this is going to take a long time. The early indicators are that it’s working. We’re seeing capital flow. We’re seeing projects being created in the middle of the country. We’re seeing this happen. So I think it’s really about continuing to promote the good things this initiative is doing to quell the media is looking for this as another disaster. And folks like Megan, and other groups that are doing the lobbying, are doing a great job. And so, we’ve put our money in those efforts lobbying-wise and really applied our money directly towards the media and getting the narrative right.
Jimmy: That’s fantastic. Okay. One more question here. And this one, I think is probably for Megan. Megan, one more here for you. We got a few questions in about interval funds. People don’t know what they are. They wanna learn more. Can you elaborate a little bit on what interval funds are and the bull case for them?
Megan: Sure. So, you know, with the interval funds, I’ve seen, whether it’s investors, asset managers, they’re drawn towards them. They’re kind of a bit of a hybrid sort of investment, where you have some low correlation, but you do have a little bit more liquidity. And because of that, we’ve seen them become quite popular. Right now I know one of our members, Griffin, they have an interval fund, some of the top ones, SilverBay is, I think they’re probably top capital raising right now for interval funds. But really, they’re providing this income stream, I wanna say on average, the last numbers that I looked at, and I think it was as of August, when you take all the interval funds, and are averaging together, their total return, you’re sitting at 5% or 6%. So you’re getting decent returns, but you’re having a little bit more liquidity than what you would have in say a traditional non-traded REIT. And that kinda gives an investor the best of both worlds.
Jimmy: Excellent. Real quick now before we head to our break, which is slowly dwindling, but that’s okay. We can just keep things moving along. Rapid fire, all three of you, what predictions can you make for 2022 and beyond across the alternatives landscape? Thirty seconds or less if you could. Megan, I’ll start with you.
Megan: Okay. I have three. One, regulatory and legislative issues will continue to increase. I hate… It’s kind of like the Charles Dickens quote, “It’s the best of times and the worst of times.” And I hate to be…sounds a little dire. But, you know, we do have all of these issues that will continue to pop up. However, the best of times part, this is what I’m excited about. I think we’re gonna see in our space, looking at non-traded REITs, BDCs, interval funds, some private deals. We’re probably gonna be sitting at around $70 billion in capital raised for 2021, which far exceeds what we saw pre-COVID. And I think that probably in five years, we’re gonna see this industry sitting up probably around a quarter of a billion dollars in capital raise a year. So I think we have a tremendous roadmap ahead of us that’s gonna allow everyone to partake and, you know, raise capital, provide returns for investors. And then the last thing is, I think we’re only just gonna see a more elevated space because of the larger institutions that are coming in. So those are my predictions.
Jimmy: Perfect. Reid?
Reid: Well, I think funds will flow in continue to accelerate the investments into the space, think regulatory will continue to climb in the space as well, more compliance reporting, and more complexity. And I think as a result of that, we’ll see more and more fund managers move to a more institutional model of outsourcing to third-party administrators like us. I think that’s what will happen.
Jimmy: Excellent. I hope you’re right. And Ashley, we’ll finish with you.
Ashley: Yeah. I think that there’s gonna be a significant move into Alts as a whole, right? Because I think that there’s more and more adoption, both from the institutional side of the house and also to the individual broker-dealers, RAS, and that kind of thing, that everybody’s getting more comfortable with them, and then we’ve seen a massive movement through blockchain, through crypto, through different kind of crowdfunding and crowdsourced opportunities that we’re seeing individuals get into play. And I think we’re going to see a significant spike in that. And whenever that happens, it drives even further the institutional involvement, and the RAS, and the broker-dealers, because they have to have an answer to those individual retail things. So I think we’re gonna see an explosion in the space, you know, more funds go flowing into it, because everybody’s chasing alpha. And alpha is, you know, is dwindling in the more standard places where capital has traditionally gone.
Jimmy: Tremendous. Well, we have run out of time, officially. We’ve got our next presentation in one minute. So, I’m gonna cut all of you loose there. Megan Gavin from IPA, Reid Thomas from JTC Americas, and Ashley Tyson from OZ Pros. Thank you so much for joining me today. Take care.
Reid: Thanks, everybody.
Ashley: Thanks, Jimmy.
Reid: Bye, bye.