Alts See Record Inflows, Biden’s Inflation Plan Underwhelms – June 2022 Round-Up

Alternative investments are seeing continued inflows, and President Biden has penned an op-ed describing his anti-inflation plans.

Listen in as AltsDb co-founders Andy Hagans and Jimmy Atkinson discuss these stories and more in the June 2022 Round-up.

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Episode Highlights

  • A 2022 update on inflows in the alternatives industry, including one type of REIT that is seeing incredible growth.
  • Jimmy’s take on the “anti-inflation plan” detailed in President Joe Biden’s recent Wall Street Journal op-ed.
  • A few reasons why Andy and Jimmy really appreciate the IPA (and why sponsors and asset managers should consider joining the organization).
  • What family office event Jimmy will be attending next (plus, a way for listeners to get a special discount code to attend).

Today’s Guests: Jimmy Atkinson & Andy Hagans, AltsDb

About The Alternative Investment Podcast

The Alternative Investment Podcast covers new trends in the alternate investment landscape. Hosts Jimmy Atkinson and Andy Hagans discuss tax-advantaged investment strategies to help you grow your wealth.

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Show Transcript

Andy: Welcome to The Alternative Investment Podcast. I’m Andy Hagans. And today we’re doing something a little bit different. We’re going to be talking about the top five most important stories for alternative investments right now in the month of June, 2022.

And joining me today, I have my illustrious co-founder Jimmy Atkinson here. Jimmy, how you doing today?

Jimmy: Hey, Andy. Doing great. Pleased to be with you. Thanks for having me back.

Andy: Excellent. And, you know, as we were reviewing these five stories that we’re going to cover for June, it really just occurred to me how fortunate, how blessed I am to even be working in this industry because we’re in a period of tremendous upheaval, economic uncertainty, all these sorts of kind of bad news, frankly, happening in the financial markets.

But for the alts industry, it just seems like one win after another. And this is coming off a couple of incredibly successful years already. What do you think, Jimmy?

Jimmy: No. I think you’re exactly right, Andy. It seems like more and more momentum is gaining for the alternative investments industry. That’s kind of what we had our eye on after our success within the opportunity zones industry, right, Andy? We looked to see, “Well, what’s next? What about alts at large? What about multi-family?” More specifically, I think those are two of the niches that we’ve focused our business on over the past 6 to 12 months.

And I don’t know. I think maybe we’ve been fortunate. We happen to be landing in the right place at the right time. So, I’m looking forward to what will unfold for our businesses moving forward. But I think that’s the general theme of at least the first couple of articles that we’re going to point to today, is the growth of alts.

Andy: Yeah. And, Jimmy, I think this is a case where the structural trends that are favoring alternatives right now are outweighing any of this macro-financial news. And so, you know, despite these headwinds, for instance, let’s go to the first article now, non-traded REITs are continuing to grab record capital inflows.

And again, this was on the heels of an excellent 2021 for the industry. So this is on wealthmanagement.com. And by the way, for those of us who are following the show on a podcasting platform, this is now a video podcast.

So we release “The Alternative Investment Podcast” simultaneously on video as well as on the audio platforms. So if you’re watching this on video, you can kind of follow along with these articles, but we will also post all of these links in our show notes at altsdb.com/podcast. So you can refer to those if you’re listening and you like to read some of these links. But right now, we are at wealthmanagement.com.

And this story is reporting on a recent report from Robert A. Stanger & Company about these non-traded REITs. And so, last year, the inflows were already a record high of $36.5 billion. With a B, Jimmy, $36 billion.

So, I would’ve thought that last year’s inflows would be a sort of high water mark for non-traded REITs. I mean, they were a record-setting year, but you think about, “Well, we’re going into another year where the financial markets hit some turmoil, have a pretty significant draw-down.”

So, you might think that all of these other types of products would cool down a little bit, but that hasn’t been the case, has it, Jimmy?”

Jimmy: No, it hasn’t. You know, the first paragraph here throws out some really big numbers, the 36.5 billion U.S. dollars raised last year by non-traded REITs. The other interesting thing is this quarter is off to a huge start, $12.2 billion in new capital raised during first score.

I’m just looking at my screen over here on this side of my desk. And that’s already… Just in Q1 alone of this year, already more capital raised by non-traded REITs than in all of 2020 according to this new data from Robert A. Stanger & Company. Maybe we’ll get to this throughout the course of the episode today, Andy, but I think it’s a function of two larger trends, two larger structural trends.

One, the product types are just getting better and they’re getting better at marketing to accredited retail investors. And then on the other side, investors, retail and institutional, just probably both, a little bit more likely to want to invest in this product type at this point in time.

Andy: Yeah. And, Jimmy, to your point about the product, the product is just getting better. And so I remember that you and I were… This was a while back, we were on a call with Tony Chereso of the IPA, the Institute of Portfolio Alternatives. And he was ahead of the curve talking about NAV REITs and how hot they were.

And looking back, he was totally right, the NAV REITs have really driven a lot of the growth, a lot of the inflows in this sector, because, you know, traditionally you think non-trad REIT product, you think, “this is an illiquid product,” but with a NAV REIT, you get a little bit of that liquidity of a publicly-traded REIT.

So, I think that’s an example of just a structural change in this industry that just makes alternatives more appealing for investors.

Jimmy: No. I think that’s exactly right, Andy. And the article goes to point that out here as I think you’re highlighting right now, right?

Andy: Yeah. And the thing is with publicly-traded REITs, I’ve heard a lot of advisors, and investors, and frankly, even internal industry people sort of off the record question, “What’s even the point right now with valuations, where they are…”

I guess maybe that’s a rhetorical question because, well, the point is, is that a lot of investors need to get out of the bond market and into something else, right? They’re trying to flee to somewhere to park their money to get some sort of yield. But the premium in valuations with these publicly-traded real estate products is just too high. In my opinion, it’s just a better place to be in a private real estate market because even in private market, we’ve seen cap rates compressed, we’ve seen valuations get frothier and frothier, but they are still relatively attractive to the publicly-traded real estate products.

And I think what NAV REITs are trying to be, and what I think they are, frankly, is this sweet spot where you get some of the advantages of this non-traded product while also getting a little bit more liquidity than what you typically get in a private real estate fund. So, Jimmy, another trend that the wealthmanagement.com article brings up is that really the market penetration of this product type is still pretty small right now.

So, the article quotes that we might be seeing 30% penetration where the adoption rate among financial advisors who utilize these non-traded REITs in client portfolios is probably only around 30%, maybe even a little less than 30%.

So, Jimmy, if you think about it, you know, things could triple from here, right? If that 30% adoption rate was 90%, then you could see triple the amount of inflows from that capital source. So, you know, it’s amazing to see how much growth there’s been to think that there may even be huge growth ahead in the next few years as adoption picks up amongst advisors.

Jimmy: No. I think that’s exactly right, Andy. And it kind of echoes a point that we’ve been hearing anecdotally over and over again over the past few months, which is a lot of RIAs and other financial advisors really aren’t focused on the alts world as much as maybe they should be right now.

I think a lot of RAs just kind of like to stay in their lane and do traditional-type of assets for their clients’ portfolios and they’re kind of missing the boat. Reminds me of a conversation, Andy, that you and I had with someone who’s inside the DST industry. He mentioned that there are…I think he mentioned there are several hundred thousand licensed advisors in this country, but only about 1,000 of them are actually doing any Delaware Statutory Trust transactions, DST transactions.

And if you think about that, and I know we’re talking about non-traded REITs here, but it’s kind of similar in nature. Just think of that huge gap that there is in terms of what is out there and what RIAs or other types of financial advisors are actually putting their clients into, it’s incredible to think that a lot of these financial experts or financial advisors may oftentimes not really know about these products.

And a lot of these products are new and they are growing in popularity. And so a lot of it, I’m not even necessarily blaming the financial advisors or the RIA community on not knowing what’s out there, but just to drive the point home that there is a large gap in knowledge, not just with retail investors, but also their advisor.

And I think that gap is going to close a lot over the next 1, 2, 5, 10 years and I think it’s just going to further drive the growth of alternative investments.

Andy: Absolutely. And to sort of follow on that thought, Jimmy, Nuveen, from this article again, they’re anticipating strong opportunity for growth across RIAs. And, by the way, when we say that RIAs and a lot of wealth managers and financial advisors, I think we need to get the word out and we need to grow awareness of these products and the fact that the costs are lower, they are more accessible, they are more transparent, frankly, they’re probably better run, better operated than these types of products were a decade or two ago.

But, Jimmy, it must be said, I think anyone who’s listening to this podcast, any RIA who is listening to “The Alternative Investment Podcast” is obviously ahead of the curve. So, I think this is also a nice way for wealth managers to sort of stay ahead of the curve and differentiate themselves by being comfortable with a lot of these alternative products that, frankly, I think more and more clients are going to be asking for in the years ahead.

Jimmy: I think that’s right, Andy. And just one more point I’d like to make and then maybe we can move on to the next article, which is actually related in many ways to the last section of this article is I think you and I were both surprised by how many people who are opting into our alternative investments email newsletter and into our podcast are financial advisors.

We ask users, when they first sign up, you know, who are you? Are you an individual investor? Are you a product sponsor? Are you a financial advisor, a family officer? We’ve got a few other options in there. And I think early on we were surprised how many financial advisors were opting in with us. And I think that just kind of further drives that point home that it’s not just retail investors who need to learn about these products, but it’s the advisors who, you know, oftentimes will have $100 million or more in assets under management and really have a lot of influence over…or they have a lot of money, I should say, that they have influence over.

The direction where they get invested in really need to kind of catch up to what is new in alts and what type of product types are out there.

Andy: Yeah. And ultimately, whether you’re a self-directed investor like myself or Jimmy, or an RIA, or wealth manager, I think we we’re all facing the same challenges, right? Number one, we want to have a solid portfolio, a solid investment strategy to generate alpha, especially maximizing triple net returns over our investment time horizon.

But, secondly, we’re time-limited, right? And so, that’s a big part of what AltsDB and the show is all about, is getting information out there, helping bring awareness. So, to just kind of cut that factor, Jimmy, that intimidation factor when we’re looking at new products and realizing, “Okay, we know who the trusted sponsors are, we know how this product type works.”

And it just kind of reduces the friction, whether you’re an RIA or an accredited investor to make that first vestment. And with that, Jimmy, I’m going to bring up our second link from “The Wall Street Journal,” “Wealthy investors pile into private equity to escape stock volatility.” And this is what we were talking about, right, at the beginning of the show, Jimmy, is, you know, we’ve seen stock and bond, mutual funds, they’ve had outflows of tens of billions of dollars a week this year as the markets have been very dicey.

But meanwhile, private fund managers, they say that the inflows are increasing this year. Which, again, to me, this is amazing because we’re coming off of two years of incredible growth in alts.

So you know what… And it’s funny, Jimmy, you know, you hear that with alternative investments, you want alts that are going to zig when the stock market zags. But sometimes it doesn’t seem to work out that way. This time, Jimmy, it seems like it really is different. There really are investors, whether we’re talking to credited investors or institutional banks, pension funds, a lot of investors are breaking up with the bond market or at least trimming down their holdings, and rightfully so.

And regardless, they are plowing a lot of that money into alternatives.

Jimmy: Yeah. Well, bonds are always the ballast when stocks are going down, right? That turns out to have not been the case over the past few months though. So you kind of look around and you think, “Well, where can I hide, right? Where can I hide my money? And if I stuff it in my mattress, I’m automatically losing 8% per year to inflation.”

So maybe that’s not a hot idea anymore either. And so then you kind of turn to alts. And actually, Andy, one thing I want to talk with you about and maybe get your take on is the illiquidity premium and what that term means. And for a long time, I think we’ve kind of been thinking about illiquidity premium in terms of, you know, you put your money into an investment product that is not very illiquid.

Sometimes it’s tied up for six months, or a year, or five years, or even, you know, in the case of a qualified opportunity fund, it’s 10 years or more. And so, in exchange for that, I want a higher return. And now I’m kind of thinking maybe I want to park my money into an illiquid product because it’s illiquid, right?

Because it’s not going to change in price and be so volatile. And the principles who have say in which assets go into or out of the fund actually have a little bit less control over, you know, what gets bought and sold daily. Maybe that’s a good thing. I don’t know. What are your thoughts there, Andy?

Andy: Well, Jimmy, I think you hit the nail on the head. And this is a type of risk that I think almost everyone, almost everyone in the whole world. And when I say almost everyone, I’m talking about advisors and wealth managers, I’m talking about retail investors, accredited investors, institutional investors, sponsors, everyone underestimates behavioral risk, right?

And especially, I tend to underestimate it when I’m looking at the man in the mirror, right? So when you go illiquid, when you invest in a product with a 5-year, or 7-year, or 10-year life cycle like a QOF, you are mitigating your own behavioral risk. And I think, you know, if you look at how individual investors tend to trail market returns, because they tend to buy high and sell low, when you look at the effect that behavior has on actual real-world returns as opposed to the pretty chart of the S&P where it just goes up, and up, and up over the long term, right, you just buy and hold, you’re going to do fine, when you look at investors’ actual returns, it’s significantly lower than just that index, Jimmy.

So, that’s because of behavioral risk. That’s because of, you know, if you could distill it, it’s because people buy high and sell low.

Jimmy: Yeah. “Oh, stock market’s been going down for a while. I guess I should get out now.” And then, you know, a year later, “Oh, the stock market’s been going up for a while, time to buy.” Right?

Andy: Right. So if you think about the rapper, just conceptually, if you could buy the S&P with the QOF and just… Forget about the tax benefits or whatever, just in terms of the life cycle where you were buying an index fund that was tracking the S&P but you were locked in for 10 years, that investor would probably outperform another investor who could buy or sell at any point over those 10 years simply because of that behavioral risk mitigation of the 10-year life cycle.

So I think there’s a little bit of that psychological aspect here, but I also think, Jimmy, that in the alternatives world, you know, with some of these assets, like think of multi-family like a stabilized multi-family asset, these are generally stable assets anyway that are cash flowing on a monthly basis, generating income on a monthly basis and capital gains over the long run.

So I also think psychologically when an investor ties up, allocates some capital into a private real estate fund, generally, I think in some ways, you can rest easier, again, depending on that asset type, if it’s a stabilized asset that’s generating income, it’s like that apartment building isn’t worth 18% less than it was a month ago, right? Whereas with Mr.

Market, with the S&P, you can look up what the S&P is doing compared to a month ago and it’s totally out of your control.

Jimmy: Right. I think that’s exactly right, Andy. And you see your brokerage account at TD Ameritrade, or Fidelity, or Schwab, or Vanguard, wherever it may be. And you’ve got a lot of red numbers there if you’re looking over the trailing 30 days or trailing 60 days, but your real estate investment across town or across the country, it doesn’t really have a number floating over it every single day.

You can’t turn on CNBC and see what that particular building is doing, right? I know I’ve shared that story with you a few times, but I think it’s true, right? I think there is some truth to that idea that maybe illiquidity may be favorable for the investor who would otherwise be prone to behavioral risk. And I kind of like your idea of having an S&P 500.

I guess it’s kind of like an interval fund, is what you described there, an S&P 500 interval fund.

Andy: With a long 10-year interval, Jimmy.

Jimmy: That would be an interesting product type to introduce. I don’t know what we would call it, save your money from yourself fund or something like that. I don’t know.

Andy: Yeah. If it would have the same expense ratio and same structure as just a normal, like SPY-type index fund, but you just have to lock your money up for 10 years.

Jimmy: SPYI with the I standing for illiquid. Maybe.

Andy: Our motto can be, “You’ll thank us later.”

Jimmy: Right? Exactly.

Andy: So check out this graph, Jimmy. If you look at pensions versus endowments versus individual investors, so individual investors traditionally have just been a smaller capital source for all of these private funds. But as we know, that is changing, right? So with AltsDb, with OpportunityDb, our sister business, our sister site, we work with a lot of these 506C funds who are really bringing these self-directed accredited investors or even an accredited investor with a wealth manager, they’re bringing them into the fold by creating that demand among individual investors.

And so, frankly, this ecosystem, I really would say it’s only really in the last five years, but definitely in the last 10 years that it’s even been possible. Right, Jimmy?

Jimmy: Yeah. That’s right. I guess when you’re talking about direct to retail investors, those types of private offerings that are offered directly to retail investors, they’ve really only been around for 10 years since the Jobs Act was passed under the Obama administration back in 2012. That’s when rule 506C of Regulation D of the SEC… That’s a big alphabet soup there.

We’ll have some links in the show notes page, but that was when that type of SEC exemption was first made available. So prior to that, it was really difficult for the everyday main street retail investor to participate in private equity-type funds, private funds that are being talked about here.

And as I think that’s why only 1% to 2% of the estimated $80 trillion held by individual investors is allocated to alternative investments. Because really prior to 10 years ago, you didn’t really have much of an option if you were a main street type of investor.

Certainly, you know, these types of funds have been around for much larger players, pension funds, and other institutional investors, and Ultra High Net Worth families or family offices had access to these products but only within the last 10 years have they really been democratized partially by this Jobs Act. But even then, I would say, you know, it takes a few years for something like this to get snowballing.

So, I think you’re right, Andy, to say really only in the last five years or so, and continuously every year since then, it’s gotten a little bit better and better. I mean, go back to that Stanger report we were talking about a few minutes ago, Andy, how the records seem to be getting shattered here over the last few quarters.

Andy: And I think that’s structural, Jimmy, right? That’s not just, oh, the real estate market’s up 1% or 2% this month, or the stock market did this or that. These are big macro-structural trends.

Jimmy: Yeah. That’s exactly right. Yeah. Big structural trends. But then on top of that, now we also have macroeconomic trends, current market conditions which are making these products more favorable, which kind of amplifies those structural trends, right?

Andy: Yeah. And, Jimmy, you know, that brings me to our next article today in our roundup, if I could, these macro trends. So, I saw in the journal today. Oh, was it today or yesterday? I think it was today.

Jimmy: I think this was today. It looks like it was posted last night, but I think you and I both read it just this morning, right?

Andy: Right. So not the normal name you would see on the opinion op-ed editorial page of “The Wall Street Journal.” President Joe Biden wrote an editorial and op-ed for “The Wall Street Journal,” “My plan for fighting inflation.” And I think, you know, whether you love him, hate him, feel neutral.

Not too many people feel neutral, but regardless, I think this is important reading for investors, especially institutional investors and advisors who are trying to keep their finger on the pulse of where things are going in the next 12 months. So this is president Biden’s, basically his three-step plan to fight inflation, Jimmy.

So, what did you think?

Jimmy: Well, truthfully, I read about half of it this morning and then I kind of got tired of it, frankly. I came back and read it again later today once you told me that we were going to be talking about it, but I kind of… You know, I hate to say it, kind of thought it was a little bit sleepy as I was reading it.

Well, what was interesting about it or not interesting about it was he’s more or less just cherry-picking stats here and there to show the country or to show the readers of “The Wall Street Journal,” at least, what he’s doing to fight inflation and how despite inflation, things are going really good in this country, according to him. I mean, one of them is he is pointing to the job market being the strongest since the post-World War II. You’ve got that highlight right now.

I see. Yeah. You’re highlighting the same thing I’m thinking of, Andy. The job market strongest since the post-World War II era, 8.3 million new jobs, the fastest decline in unemployment on record. You know, it’s easy to have that happen when we shut down our nation’s economy for several months or a year or more in some locations.

Unemployment rate skyrocketed and the number of jobs, you know, plummeted in, what was it? About March, April or so, 2020 through the end of 2020. So yeah, it was no surprise that we’ve rebounded since then. And, you know, that’s one example of cherry-picking. And then the other thing with unemployment numbers as our listeners and viewers know, I’m sure, it’s really easy to game the unemployment numbers.

I mean, the denominator can be easily gamed. And by that, I mean it’s really the labor participation rate that matters here. And the fact of the matter is the labor participation rate… I’m actually pulling up a chart at bls.gov right now, Andy. Maybe I’ll share this with you so we can put in the show notes later, it hasn’t come back up to pre-pandemic levels yet.

And actually even before the pandemic, it had been steadily trending downward for several years. So, you know, we’ve got a pretty low labor force participation rate if you compare it over the course, the last one or two decades. Andy, I don’t know. What did you think of the article?

Andy: Well, yeah. And, Jimmy, just one note on the labor participation rate, some aspects of that could be a good thing in some ways for different people’s lifestyle decisions, and family decisions, and so on and so forth. But the fact of the matter is, is when you look at the big picture right now, there’s a huge labor shortage, a huge labor shortage.

So the unemployment rate being so low is generally good for workers, but then the fact that we have a labor shortage means that a lot of businesses are struggling. They’re literally struggling to stay open because they can’t find workers at almost any wage. So then when those businesses struggle, the overall economy, then it seems like we’re sort of setting the stage for the overall economy to struggle because those individual businesses are struggling.

The other thing is even if the unemployment rate is lower, you also need to look at wages, wage growth, and real wages because if wage growth is not keeping pace with inflation or rent, then that low unemployment rate which theoretically should help give workers more bargaining power isn’t actually paying off in their bottom line, right?

If their living costs are increasing faster, then their wages, right? Isn’t that some sort of a wage-price spiral? Am I remembering ECON 2001? You know, but I agree with you on the cherry-picking, by the way. One other point of cherry-picking here, President Biden refers to the fact that a higher percentage of Americans reported feeling financially comfortable at the end of 2021 than at any time since this survey began.

Well, we’re talking now in June of 2022, and a lot has happened since October 2021, which is when this survey occurred, and specifically, inflation has spiked, right? So this to me is sort of an odd data point to refer to, the fact that in October of 2021 a lot of Americans reported feeling financially comfortable and then, oh, by the way, let’s not mention that inflation has totally spiked since then.

Jimmy: Oh, man. And oh, by the way, the survey only began in 2013 also. So it’s not even drawing from 10 years’ worth of data. But go on, Andy.

Andy: Sure. So, okay. So I think we kind of agree the beginning of this… And by the way, it’s an op-ed. So I’m going to cut President Biden a little bit of slack, right? The point of an op-ed is not to report the facts in an objective manner, right? He’s trying to cheerlead for his plans and his policies. So I think any kind of op-ed like this, you kind of have to take it with a big grain of salt.

So let’s move on to the actual plan here. So President Biden mentions his plan to fight inflation. First, he mentions the federal reserve has the primary responsibility to control inflation. He references President Trump here and how President Trump interacted with the federal reserve and basically says, “I’m not going to do that. I’m not going to take an adversarial stance with the federal reserve.”

Second, President Biden says, “We need to take every practical step we can to make things more affordable for families.” And he mentions energy, including clean energy, tax credits. I’m a little confused by this one, Jimmy.

We can come back to this. I just want to cover the plan first, but so, second, we’re taking practical steps to make things more affordable for families. And third, we need to keep reducing the federal deficit which will help ease price pressures. And again, Jimmy, I think you kind of mentioned that rubber band effect of unemployment.

I think it is true that the federal deficit is decreasing right now, right? Year over year, but we’re also coming off of two years of lockdowns and just incredible record-setting government spending from COVID-related programs.

So why don’t we start at the top, Jimmy? What are your take on these three points, this plan, and specifically, you know, let’s take the first point? The federal reserve has the primary responsibility to control inflation.

Jimmy: Yeah. Well, I find it interesting that he titles the article, “My plan for fighting inflation,” but then his first point is it’s the fed’s job. It’s basically what he is saying here. So I think by that, he’s kind of signaling, “Yeah, go ahead and keep raising interest rates to kind of tamp down inflation and I won’t get in your way.”

I mean, I don’t know.

Andy: It’s not a lot of their [SP] there. You know, I will say, I think President Biden and the fed, they’re both in a tight spot and we won’t Monday morning quarterback who got us into this spot, but, you know, they need to control inflation, but they don’t want to send the economy into recession. Who knows?

We may already be in a recession. I mean, I really think that perhaps their most realistic goal is even like a minor recession or just sort of a mini-recession that moderates inflation kind of a Goldilock situation, right, Jimmy?

Jimmy: Sure. Yeah.

Andy: With a small recession and medium-high inflation, not ultra-high inflation. Realistically that may be the best that we can hope for right now, of course. It’s not going to get investors super excited. So let’s bring that on to the second point now, we need practical steps to make things more affordable for families.

And President Biden talks about global oil reserves and energy, clean energy tax credits that he wants Congress to pass. What do you think about this second key part of the plan to fight inflation?

Jimmy: Yeah. Well, I mean, the one thing that kind of just popped him into my head right now is didn’t the EU just in the last day or two here, say that they’re going to limit Russian oil exports going forward?

Andy: Indeed, they did.

Jimmy: I mean, so that’s kind of running directly counter to this point, right? I mean, he’s saying the price of the pump is elevated in large part because Russian oil, gas, and refining capacity are off the market. Well, now they’re even more off the market, right? If the EU is not buying Russian exports, I think that’s going to just further drive the price up because now we’re kind of drawing from a smaller pool of oil and gas exports, right?

I mean, we’re all kind of fighting for even more limited exports. Maybe I’m not making my point clear, but [crosstalk]

Andy: No. I think you are, Jimmy. President Biden mentions these clean energy tax credits that he’s proposed with, you know, the Build Back Better, or Green New Deal, or whatever you want to call it, you know, talking about manic Mr. Market, right? And the uncertainty in the markets right now.

I don’t think the markets are worried about clean energy investments that may pay off 10 years from now. And I don’t think families, frankly, families are worried about these types of investments right now either, right? An…

Jimmy: I’ve found this point to be a bit of a headscratcher. He seems to be injecting some environmental-climate agenda into a way to fight inflation. I don’t understand, what this even has anything to do with inflation, quite frankly.

And if anything, you know, more tax credits is just going to further, you know, skew the market and could make things worse. You know what I mean?

Andy: Well, yeah. And especially with the energy policy of this administration, I don’t think we’re going to see a lot more oil production in the United States, or at least certainly not as much as it could potentially be. So I kind of agree. It’s a little bit of a headscratcher. Thirdly… Let’s move on.

Jimmy: Yeah.

Andy: President Biden says we need to keep reducing the federal deficit. And again, I think that he’s right to point out that the federal deficit is showing a reduction versus, you know, the prior 24 months in 2022. But again, a lot of that is the simple rubber band effect from the just incredible spending binge that the federal government went on in the past two years because of COVID.

But then he’s also talking about collecting more taxes. I mean, frankly, it sounds like this is sort of a soft sell for Build Back Better and some of the tax increases that might be backed into…baked in, excuse me, to possibly slimmed down, Build Back Better bill that perhaps Joe Manchin could get behind.

Jimmy: Maybe. I can’t get past the fact that or past my thought from… I don’t know, number two and number three seem to be kind of running counter to each other here. Who’s paying for the clean energy tax credits exactly? But then he is saying, “We need to reduce the federal deficit.”

So I’m not really sure where that money’s going to come from. I guess I’m a little bit confused by the whole thing, quite frankly. Maybe I’m dumb. But…

Andy: No. I don’t think you’re dumb. I would just say this, and this isn’t a political show, “The Alternative Investment Podcast,” right? We are looking at all of this news from an investment standpoint.

And even aside, Jimmy, from your reaction to this op-ed, I think the larger question for investors is how’s the market going to react not only to this op-ed, but to the administration’s plans? And it’s beginning to look to me, you know, investors are pricing in possibly a small recession and are pricing in some, maybe slightly moderated, but still higher inflation for another 12 to 24 months.

So I don’t think that most investors or analysts are looking for any sort of quick solutions to some of these problems and specifically the higher inflation, but also, I don’t think the market is pricing in any kind of disaster, Jimmy.

It looks to me like it’s kind of pricing in the muddling through. We’re going to muddle through the next 12 to 24 months. And it might be a little ugly, but we’re going to get through to the other side.

Jimmy: No. I think that’s right, Andy. I think it’s pricing in. You know, probably taxes will go up at some point in time. Frankly, I’m kind of surprised that we haven’t seen a tax rate increase passed by Congress yet. I think that kind of caught everybody by surprise. I would probably guess that most people would’ve thought we’d have some sort of tax bill passed by the administration by now, but we haven’t yet.

But still, I think probably some sort of tax rate increases on the horizon for wealthy individuals and for corporations. And I think we’re also pricing in. This inflation trend is probably going to be with us for a while and if there’s any way out, it probably is that mild recession that you kind of alluded to earlier, Andy. I think that’s right.

Andy: Yeah. And so that brings me to this next link. This isn’t one over our five. This is kind of just a bonus article.

Jimmy: Are we getting sponsorship from Tecovas here? We should probably have a word with them.

Andy: Yeah. I guess our viewers…

Jimmy: Sponsoring the show. That was kind of accidental, but I kind of like it. They got some nice boots.

Andy: Our viewers must know that I’m a little bit country, right? You can see my retargeting ads for these cowboy boots. But, Jimmy, talking about the market’s reaction to all of this, I thought it was a little bit humorous, the “Wall Street Journal” on their op-ed page had another op-ed titled, “Joe Biden’s train-wreck economy.”

Jimmy: They were right next to each other, I think, at one point.

Andy: It was on the same page view. So yeah, you know, again, I think the market is sort of pricing in at this point that we’re going to see this sustained higher inflation for some time. We might muddle through, we might see some higher taxes. Let’s shift gears to some industry news, Jimmy. Let’s shift gears out of macro.

And we want to talk about an announcement from the IPA, the Institute for Portfolio Alternative. So we already mentioned Tony Chereso earlier briefly in this episode. But the IPA board of directors has announced Tony Chereso’s departure as president and CEO of IPA. So, Jimmy, I brought up the press release here.

And so, Tony has been at the Institute for Portfolio Alternatives for seven years according to this release. And they used the word bittersweet, “A bittersweet mix of emotions as Tony is moving on.” And, Jimmy, you and I have interacted quite a bit with Tony, both with AltsDb and then you even further back with OpportunityDb, and I have to say Tony has just been, number one, a great person to interact with, a great cheerleader for the industry, frankly, and also just in a lot of sponsors and asset managers that I’ve talked to, everyone that brings up his name does it in a very positive and respectful way.

So this is a guy that has a ton of credibility. And, frankly, I do think that he might be missed because the IPA, I think, is really in a strong space right now just as an organization. And I think a large part of that, a significant part of that has been his leadership there.

Jimmy: Yeah. I think you’re exactly right, Andy. Tony’s been great. I’ve known him for, I think about almost four years now. I mean, he first reached out to me. He was one of the earliest listeners of my other podcast that I do “The Opportunity Zones Podcast.” And, you know, he reached out to me early on when I first got that going in 2018 and took me out to lunch.

He’s local here in the DFW area. And I got to know him pretty well over the last few years. And I’m sure we’ll continue to work with him going forward. But he’s got a ton of expertise in the alts space. I learned a lot about alternative investments from Tony over the last few years. And he’s got a ton of integrity too.

He’s just a great guy, really sharp guy to talk with and knows his stuff and does right by people. And I’m a little sad he is moving on from IPA. For our listeners and viewers who don’t know, IPA is the Institute for Portfolio Alternatives, and they are a huge advocacy group for the alts industry and an educational group. And, you know, their main mission is really to spread awareness of what they term portfolio diversifying instruments or investments, I think, is actually how they term it.

So, you know, I would say them along with ADISA are the two biggest trade groups within the alts industry. The two trade groups that we at AltsDb look to for direction and leadership all the time. And we attend their events, both ADISA and IPA, and, you know, IPA puts on several events per year. You know, we always like hearing about those and learn a lot from, you know, what comes out of those events, Andy.

Any other thoughts on Tony moving to Inland from you? Or I guess we can talk about Inland a little bit also.

Andy: Well, and I also want to say, you know, I think Tony has shown great leadership and had a great stint at IPA, but I also think their organization is just a great organization. And if you look at their mission, I think, you know, in some ways, it overlaps a little bit, Jimmy, with what we want to do at AltsDb, which is just, there’s all these structural trends, large macro trends that are driving the growth of alternatives and increased transparency and, you know, lowering barriers to the retail investor but also to advisors and just expanding access as well as education.

This is something that IPA does very, very well.

Jimmy: Yeah. Their whole mission… Sorry to interrupt. Their whole mission is basically to close that knowledge gap that we were talking about earlier in today’s episode, Andy, that there’s this huge knowledge gap and also utilization gap, not just with individual investors, right, but also with financial advisors who you would think would have, you know, a lot more expertise on portfolio diversifying investments, alternatives, if you will.

This is what this group is all about. They’re backed by the largest alternative investment product sponsors in the country and that’s their main mission, is really to get the word out there to investors and their advisors about the value that alts can bring to a client’s portfolio.

Andy: As well as… Yeah. They also perform very important advocacy, Jimmy, for the industry. So, you know, I know we have… Our listenership, it’s pretty diverse, Jimmy, but there’s really three main buckets of listeners at “The Alternative Investment Podcast.” Right? We have self-directed accredited investors. We have financial advisors, including RIAs and other types of wealth managers, but we also have a lot of sponsors and asset managers who listen.

And so, you know, if you are a sponsor and you’re not a member of the IPA, definitely go to their website, check out their membership page. We’ll link it in the show notes here. There’s a lot of benefits to being a member. And I also just think it’s important for all of the firms in the industry to work together and advocate for the industry because these structural trends, they benefit all of us in the industry and they also benefit investors.

So great stuff going on at IPA. And Tony is moving on here to Inland. And, Jimmy, you’re a little more familiar with Inland than I am, but I know that they are, you know, they’re one of the nation’s largest commercial real estate groups, and Tony’s going to be the CFO at Inland.

Jimmy: Yeah. No, which is great. It’s great news for him. I know he’s probably… I haven’t actually spoken with him in the last few weeks since this was announced. I hope to speak with him soon though, but I’m sure he is sad about leaving IPA, but I’ll bet even more than that, he’s even more excited about the opportunity to be the CFO for the Inland group. Inland, you know, as you mentioned, Andy, one of the largest commercial real estate sponsors in the country and all of the big conferences I go to, whether it’s IPA, or ADISA, they’re always there.

And they’re not just there, they don’t just have a little booth in the corner like I do. They’ve got like one of the huge booths right out front. They’ve got quite the presence there. They are the largest DST sponsor in the country. They command more DST market share than any other sponsor. At least I think that was as of 2020.

I don’t know if I have my 2021 numbers in front of me, but they they’ve always been one of the 800-pound gorillas in the room when it comes to commercial real estate development, and especially that DST product-type, they’re leading the way on.

Andy: Absolutely. So, you know, if you’re an advisor or an accredited investor looking into DSTs, definitely check out Inland. And, Jimmy, we got one more link today, which is an event that we want to talk about, an event that you are actually going to, the Seventh Annual Real Estate Family Office and Private Wealth Management Forum West.

Jimmy: That’s right, Andy. Yeah. And I also mention I’m not just attending, but my other business, our other business, Andy, OpportunityDb is one of the sponsors or media partners, I should say, of this event as well. So just wanted to make sure that was clear.

Andy: Yeah. And you know, this event, I looked over the agenda, a lot of interesting sessions with some, I would say top of mind topics. Let me pull up the agenda here in my browser. So, first right off the bat, one of the very first sessions, family office structure, direct investing versus joint ventures, versus funds, what are the pros and cons to each of these investment models?

So I think that’ll be a very interesting session. Then at 10:45 alternative asset classes and niche opportunities in real estate. So this is a deep dive into a lot of different real estate sectors, including urban parking, coworking, self-storage. That’s a favorite of mine.

Vaccine cold storage, boy, that’s pretty timely. It’s funny, Jimmy, because these are, you know, niche opportunities, I guess, but like self-storage, to me, that’s just a huge sector now. I see it everywhere. So some of these niches have become almost industries in their own right. And then…

Jimmy: Vaccine cold storage is really interesting.

I don’t think I’d ever come across that one until I saw this agenda, but it makes perfect sense, doesn’t it?

Andy: Yeah, absolutely. Absolutely. And, by the way, we had another recent guest of an episode that we just recorded on The Alternative Investment Podcast that does discuss some of these supply chain real estate segments. So stay tuned if you’re a listener for that.

Jimmy: That was the episode with CJ Follini. Is that right, Andy?

Andy: You got it. You got it. And then one more session I wanted to mention, Jimmy. at 11:50 a.m., multi-family strategy, class A versus workforce, the ultimate smackdown. Value-add versus stabilized, urban versus suburban. I love these sessions that have any kind of versus, it reminds me of like a boxing match, but, honestly, I think these are important things to discuss, especially as cap rates have compressed so much, maybe they’re easing up just a teensiest little bit, but these are important decisions when allocating capital, and I think it’s just great to get so many smart minds in a room to discuss the appeal and how these different segments compare and contrast, and, frankly, which is going to be the better opportunity right now with these different segments.

Jimmy: I think that’s right, Andy. I think that versus word kind of perks up your ears a little bit, you’re expecting to, as you mentioned, kind of see a boxing match, or a cage fight, or something like that. So I might have to check that one out. That one looks pretty cool. Why don’t you scroll down to after lunch though? Because my favorite one coming up, if I made toot my own horn from it, is my session on qualified opportunity zone.

Andy: Who’s this guy? Who’s this guy in the blue jacket? Yeah.

Jimmy: That’s me, founder of OpportunityDb. So I’m speaking on a panel. By the way, let’s just zoom out a little bit and talk about who this event is really geared for. You know, the primary recipient of all of this knowledge is really meant to be Ultra High Net Worth advisors, family offices and… Let me see… I’m actually reading from your screen now here, Andy. I would say family offices and wealth advisors, that last one there are probably like the two primary audiences here.

You know, if you’re controlling a lot of capital, how can you allocate that capital? Of course, all of those other players will also be there kind of to help facilitate that capital flow, but those are the two big… And I would say along with family foundations and endowments, those are probably the two or three biggest capital allocators or capital sources that are going to be attending this event.

It’s all about, you know, just educating them on what types of products are out there, what trends are unfolding within the alternatives industry, specifically within the real estate industry. So going back to my segment on Oz’s for a minute, we’re going to be talking about how family offices should be allocating their portfolios to qualified opportunity funds, when it might make sense too. And then we’re also going to touch on some updates.

And the agenda on that page is a little bit behind because I’ve got my discussion topic notes here from a prep call we just did last week, but we’re going to be talking about the OZ legislation, some market updates, how to do due diligence on opportunity zones, those type of offerings. And I will say one more thing, Andy.

If we have any listeners or viewers out there, particularly if you’re located on the West Coast close to where this conference is going to be in Southern California and you’re still looking to attend it potentially, we will have a coupon code available on the show notes page for today’s episode at altsdb.com/podcast. I forget if it’s 10% or 15% off, but if anybody’s interested in using that, we’ll have a link to that on our show notes page.

Andy: Yeah. And, Jimmy, I should mention “The Alternative Investment Podcast” has been growing. So we do have listeners in the thousands now…not quite tens of thousands, but in the thousands now. And so we probably have some listeners who are planning to attend. And so I’m going to go ahead and suggest that they flag you down and introduce themselves.

Jimmy: Oh yeah. Please do. Yeah. I’d love to meet any of our listeners. If anybody’s going to be there, I’m… You know, a few other people I’m looking forward to interacting with, Andy, if you don’t mind me, is Jeff Feinstein at Pinnacle Partners. He’s on my panel there. I’ve known him for a really long time in the industry, but I’ve only met him in person once before.

So it’d be great to catch up with him. And then Alex Bhathal has become somewhat of a friend of mine in the industry over the past couple years. He’s the managing partner at RevOz Capital and Revitate. He’s controlling a lot of private family office capital that’s been pouring into opportunity zones across, I think about, I want to say like a half dozen or so projects nationwide over the last couple years.

And then I’d be remiss if I didn’t mention DJ Van Keuren, is also going to be at this event. He’s the founder of the Family Office Real Estate Institute and “Family Office Magazine.” And I’ve actually known him for a very long time online. He was one of my first ever podcast guests on “The Opportunity Zones Podcasts,” but I’ve never met him in person after four years.

So I think finally on Monday I’ll actually get to meet him. So I’m looking forward to that for sure.

Andy: Excellent, Jimmy. So, hopefully, we’ll see a few of our listeners there. And with that, I think it’s time to wrap things up. So for our listeners and viewers, you can always get links to all of the things we discussed, including the articles as well as some of the other resources at altsdb.com/podcast. And please, do not forget to hit that subscribe button and subscribe to us on your podcast-listening platform of choice.

And we are also on YouTube now with the video version of our podcast. So, thanks again, and we will see you next week.