Transparency In Alternative Investments, With Stacy Chitty

The alternatives industry has been revolutionized since the 1990s, and products such as non-traded REITs now offer significantly more value to investors than they did decades ago. So why are so many advisors still hesitant to invest in alts? And how can more advisors become educated (and comfortable) so they are willing to invest in them?

Stacy Chitty, co-founder of Blue Vault, joins the show to discuss trends in the alternative investment landscape over the past few decades, and especially the benefits that increased transparency has brought to the marketplace.

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Episode Highlights

  • The story behind Blue Vault, and the specific types of alternative investments that the platform covers.
  • A short history of non-traded REITs, and how the REIT industry (and product) has been transformed in the past few decades.
  • Stacy’s insights on trends in the alternatives industry, and why many alternative products today offer fundamentally more value to investors than their counterparts of decades ago.
  • Differences between non-traded REITs and interval funds, and why certain investors or advisors may prefer one to the other.
  • Details on the BlueVault Bowman Summit, to be held on March 6-8, 2023 in Atlanta, GA.

Today’s Guest: Stacy Chitty, Blue Vault

About The Alternative Investment Podcast

The Alternative Investment Podcast is a leading voice in the alternatives industry, covering private equity, venture capital, and real estate. Host Andy Hagans interviews asset managers, family offices, and industry thought leaders, as they discuss the most effective strategies to grow generational wealth.

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Show Transcript

Andy: Welcome to “The Alternative Investment Podcast.” I’m your host, Andy Hagans. And today we’re discussing a really important topic, very top of mind in our industry right now, and that is Transparency In The Alternatives Industry and in all these alternatives products. And joining me today, I have Stacy Chitty, who is co-founder of Blue Vault.

Stacy, welcome to the show.

Stacy: Thank you, Andy, glad to be with you.

Andy: And, you know, I know a lot of our listeners and viewers are probably already using Blue Vault but probably not all of them. So why don’t we start there? Could you tell us more about Blue Vault and how you fit into the alternatives industry?

Stacy: Sure, sure. So I’ll do a brief recap going back to when we were founded in 2009. And really, we were founded just to provide better transparency to financial advisors about the actual performance of non-traded REITs.

That’s really all we set out to do back then. So we created through some collection of data metrics, we created a one-page at a glance sheet with lots of pretty colors and charts and graphs that was easy for an advisor to look at, glance at, and get kind of the updated information about the performance of the REIT so that they could do their own analysis.

It might be something…a refresher for them before they meet a client. And slowly but surely, it kind of caught on and the market started changing, and other products like BDCs, and then interval funds started coming out and advisors were utilizing other products.

So here we are today in 2022, we cover, I guess, six or seven different alternative investment product types. And we have a database that is searchable and filterable, you can query and compare and contrast. And you can do it across product types. And you can do it again with literally dozens and dozens if not hundreds of data metrics, performance metrics, though.

Nothing to do with what the prospectus says what we’re going to do, what we hope to do, what we anticipate doing, it’s all what we’ve actually done. So that’s what we do. So we hope that that’s one of a kind of a three-prong leg of services that we provide but that’s the way it all started.

And that’s where we hope that we can play a role in protecting the investor by showcasing performance of investment managers.

Andy: So your end user is financial advisors, RIAs, but you kind of view your…even though they’re not your user, the goal is to help investors essentially.

Stacy: The goal is to protect investors, that’s first and foremost, protect investors. Now, you know, there’s only so much you can do so everybody tries to play a small part in that. We’re just trying to play our small role in doing that. We just felt like…you know, in the past 20 years ago, 15 years ago, 25 years ago, when an advisor sold a limited partnership or when they sold even a non-traded REIT, and the advisor after the sale, a lot of times they lost track of how the actual offering was performing.

It could have been the investment manager didn’t make it. It could have been the wholesaler changed and the new wholesaler didn’t have a relationship with the advisor. It could be that he stopped doing business with the company and the wholesaler stopped coming by. Or even if the wholesaler did come by, he perhaps only got part of the story of the performance. And so we felt like the advisor was oftentimes left out of the conversation.

And we were just simply trying to inform the advisor more, keep them better informed on a continual basis so that they knew how the product was performing on behalf of the investor.

Andy: Absolutely. And, you know, that reminds me of some research that you all produced with Cerulli & Associates. And our listeners, we actually had an episode, oh, maybe 10 or so episodes ago. So listeners can go back and listen to that episode where we talked about that research in depth. But, you know, one piece of that, that I think is pertinent is more and more advisors are investing into alternatives, they’re more comfortable with that.

But at the same time, there’s still a very large information gap. I mean, to put it frankly. I mean, I’m not even talking about the retail investor, I’m talking about with advisors, even RIAs even family offices, still a very large… how big do you think that information gap is? Do you think it’s closing?

Because even though the education is improving, and I hope that our show and AltsDB, I hope that’s a part of that. At the same time, there’s more and more types of products coming out as well so it feels like the job is also getting bigger. Are we gaining ground? Are we losing ground? Are we treading water? What do you think?

Stacy: No, we’re definitely gaining ground, so we’re moving in the right direction. Or what I like to say a lot of times, we’re actually moving the ball down the field. It’s slow but we are moving the ball down the field.

Andy: So we’re keeping in between the tackles, picking up two yards at a time, that’s what you’re telling me?

Stacy: That’s right, that’s right. That’s right. And hopefully not losing yardage along the way. But you’re right, the biggest issue…and this is us asking in the Cerulli Blue Vault survey. We asked advisors, what’s the biggest issue that prevents other advisors, you, or other advisors from using alts or incorporating alts?

And it’s the educational gap, there’s just an overall lack of understanding. And that is a little strange to me. I’ve been in this industry since 1997 and I’ve always…because I’ve been on this side of the table, things like mutual funds, and ETFs, and stocks, and bonds, those types of issues were more complicated to me, it’s just simply because that’s not what we did, you know?

But evidently, if you gauge the marketplace, all advisors know what a mutual fund is and how it behaves, and, you know, tax implications, and stocks, and bonds, and interest rates and whatever else. They haven’t grown up understanding alternative investments and the benefits that alts can bring to the table.

Sure, there are risks just like there are risks in any type of securities offering or investment. But there’s no doubt that we’ve got our work cut out for us to try and catch up with the whole educational game. And there are so many more resources today to help advisors do that than there were even 10 years ago, it’s really amazing.

And so I don’t think it’s going to take a long period of time. And you’re right, more advisors are incorporating and utilizing alts than ever before but still, most advisors don’t. But it’s trending upwards. And so, you know, there’s a lot of theories also about what’s going to happen over the next 5 and 10 years and how that’s all going to change.

You know, as far as we’re concerned, it’s the same today as it was 20 years ago, and 50 years ago. And the name of the game is diversification. So the primary benefit that you get from alternative investments is diversification or non-correlation correlated to the market, less correlation to the market.

So we feel that. There are other benefits too, but to us, that’s probably the largest benefit now. Then you got to go into, “Okay, well, what do I use? What type of alt? And who do I use? What product sponsor or investment manager do I choose? How do I know I can trust them?

How do I know that they’ve got the investor’s interest at heart? And those are additional questions. But one of the things you can always do is you can look at past performance, even though it doesn’t guarantee anything for the future, it is an indicator. And that’s one of the things that you can see if you subscribe to Blue Vault’s research, for example, you can see what these investment managers have done in the past and what they’re doing currently.

And it’s an indication, it gives you an idea of the talents and the abilities of the investment manager.

Andy: Sure, so you think when an RIA, let’s say, starts investing in alternatives or starts placing, you know, client capital in alternatives, are they typically interested in one product type or one segment specifically?

Or are they more looking at the alternatives world and then sort of selecting within that? Like, are they interested in non-traded REITs and so they’re subscribing to Blue Vault? And then they kind of…you know, maybe they start to get more comfortable with BDCs later or do they just hear, “I got to be in alts,” and so, you know, they look into it?

Stacy: You know, that is a great question. And I’ll tell you that I’ve got a little bit of insight on that. And the insight that I have is a little different than what I had thought it would be. So what I have noticed is that if you speak to an RIA and they’re dipping their toe into the water, the alt water, they’re doing it typically because they have found out some information about a particular product type, whether it’d be a REIT, or BDC, or an interval fund, or whatever.

And they know a little bit about that. Whereas I would have maybe thought that…you know, shows how much I know. But I would have thought they would say, you know, “I need to incorporate alt, now let me look at everything. Let me go do a deep dive into everything.” And I don’t really think that’s the way it happens.

I think they’ve met someone, they’ve read something, they finally gave wholesale an opportunity to come by and talk to them and the wholesaler is talking to them about one particular product. So they become a little bit more informed about that product and that’s where they feel most comfortable. Now, when they do that, then it may expand to other areas, other product types.

But I think it really kind of starts…most of the time, it starts with one type of product. And I guess you would have to also say that that’s typically the REIT structure. Because you do have some larger institutional players who’ve entered the space that are raising hundreds of millions of dollars and that money primarily is being invested in real estate.

Of course, advisors probably understand real estate better than they understand oil and gas or better than they understand credit. So I think that’s one of the more logical places for them to start. I think that’s where. And REITs do raise more capital during the year than BDCs or interval funds, or other alternative structures.

Andy: Sure, and, you know, obviously, a lot of advisors or clients are already invested into REITs, publicly traded REITs so, you know, there’s even just a little bit of familiarity about REITs. And now we’re seeing the trend of publicly traded REITs going private. And so, you know, just in the REIT world overall, it seems like there could be a circumstance where there is less information and transparency available in 2024 than there was in let’s say 2019.

Do you think that’s a concern at all, you know, from the investor perspective? Because, I mean, there are some sectors now where there are no longer publicly traded REITs where there used to be.

Stacy: Well, to the extent that that’s true and I would be very surprised that there are sectors that are not represented in the publicly traded circles. So for example, from where we sit, there are sectors that have traditionally not been available to the retail type of investor that are available today.

So a great example is self-storage just has not been…it’s not like office or retail or multifamily, but it’s coming, it’s a growing sector, it’s a booming sector. Of course, industrial is doing very well too but industrial has been around for a long time. Another sector that’s fairly new is a single-family rental.

So if your listeners follow, you know, real estate much at all, they probably are aware that there’s an overall housing shortage in our country.

Andy: You could say that again.

Stacy: It blows my mind. I can’t believe there’s a housing shortage in our country. But that literally millions and millions of homes or livable structures, a shortage there and…

Andy: I think 5 million is the term that I’ve, you know, heard from the National Association of Realtors, yeah.

Stacy: And evidently, you don’t fix that in a year, that kind of stuff takes years and years. So some people, some investment managers are going the single-family rental route and you can’t argue necessarily with their argument. These are individuals who, you know, they can’t afford to buy a home, but they don’t want to live in an apartment, they’ve got kids, there are school districts, they want to be in neighborhoods with pools but they can’t afford it so they rent.

So there’s an argument there, but back to your initial question, I don’t think that there’s a trend towards less transparency. I really believe the trend is towards more and more transparency. Now, you know, public REITs that are going private, I’m not an expert on that. I don’t know why they would do that.

I’m not aware that that’s either a trend.

Andy: Well, I think…yeah, and I mean, maybe it’s not some game changer. But I think the issue is just, you know, the publicly traded REITs, if they’re trading at a discount, then there’s really economically, you know, no reward for going public anymore. And so…

Stacy: Well, that could be, yeah. Yeah, that would make sense.

Andy: So let’s talk about…so you mentioned six or seven. I think I know about at least four types of alternatives that Blue Vault covers, so non-traded REITs, the BDCs, interval funds, as well as private placement offerings. Am I missing any, are there a couple more?

Stacy: Yeah, there’s a couple more. One is a tender share offering. Another is a closed-end fund, another is a preferred share offering. That one is kind of interesting to me. So these are publicly traded REITs that are offering. And I’m not saying they have to be publicly, but typically, they are publicly traded REITS who register a preferred share class and they raise money, they raise capital in that preferred share class.

And again, there’s all kinds of good arguments for why that’s a good thing. And I’m assuming there’s arguments for why that’s a bad thing. I’m not here to…I don’t know the answer to those things. We just report the facts and that’s something I wanted to just make sure that your listeners knew. We don’t give opinions about performance, we just report the facts. We gather the information, the metrics, the data from the SEC website, and we just provide it.

We’re actually offering just a service to the advisor by doing that.

Andy: I see.

Stacy: But we don’t really give our opinion about the…

Andy: Let the market decide, right, you know?

Stacy: Yeah, let the market decide. The main thing is I don’t want to be…this is convoluted, I don’t want to get off on this too much, but, you know, nobody really knows. When you’re talking about markets and investments, I just have this underlying I guess, idea that, you know, you don’t really know, nobody really knows.

And of course…but there’s a lot of people that think they know, or there’s a lot of people who try to make others think that they know, and I just don’t want to be one of those. So we just simply want to provide the facts and let you decide.

Andy: Understood. So you’re not a guru, you are an information provider. Yeah, I understand. I guess I do want a little bit of your subjective opinion, Stacy. I mean, where your firm is positioned, and given the nature of what you do, I think it’s an interesting perspective because you’re not just working with one product type, you’re working with all of these…I think we mentioned seven different product structures within the world of alternatives.

And I do think that…you know, you mentioned going through the SEC filings and basically collecting that information and publishing it. I do think there are still some differences within those in regards to how much information is available, or how transparent they are. So, you know, why don’t we just go through them one by one even just briefly? I want your take on how each of these segments or how well they’re doing in terms of communicating, conveying information, being transparent, educating so on, and so forth.

Let’s start with non-traded REITs, you know, do you feel that non-traded REITs are doing a pretty good job communicating, conveying, being transparent with advisors?

Stacy: Well, the answer is yes. The short answer is yes. I do think that they are transparent. I do think that they do a good job of communicating. Now, could they do better? Yes, you know, we all could. I think you probably have to look beyond that answer, Andy.

I think what you have to do is look at the individual investment managers, some do a better job than others. I will tell you that in the case of REITs and BDCs, we cover every single offering, non-traded offering that there is and so we know exactly how these entities are performing. Now, they don’t have to tell us more than once a quarter, but they did have to tell us once a quarter.

Andy: So you’re saying there’s, you know, differences from issuer to issuer, sponsor to sponsor, you know, they’re all doing the legal minimum, I guess, that’s required by the SEC. But there are others that are going above and beyond in various ways, you know, that’s where you see the comparative difference?

Stacy: Yeah, absolutely. There are some that do better. I think they have a communication…how to say it? They have a division of communication to individual investors. They also have a communication line to advisors as well.

And typically, as you probably are aware, they don’t communicate with the investor, and not communicate that same information to the advisor. So they obviously want the advisor to know what they’re communicating. But they do communicate directly to the investor in monthly statements or quarterly statements, whichever one they send out, probably monthly.

It used to be a combination of the two, but I think most investment managers have settled down on monthly. The biggest trend in that world right now of REITs is these perpetual offerings. At one point, the offering which they call today a lifecycle offering because it had a life, it had a beginning and it had an end.

And it’s interesting [inaudible] where we are today because we’ve done a 360 loop on this whole lifecycle thing. Because at one point, back in the ’80s and ’90s, limited partnerships were being sold. The investments in these portfolios were primarily real estate and these limited partnerships just would seem like they would go on forever.

And then the investor would end up finding out that they didn’t perform. They weren’t performing or they didn’t perform. So not only did they hold that money forever, they didn’t end up performing. I’m not saying in every case, obviously. So there was a movement in this industry to give the advisor an idea that, hi, you got to have an exit strategy here.

What’s your exit strategy? We don’t like this to carry on and on and on. So non-traded REITs, the first one was registered in 1990, by the way, and that’s when a non-traded REIT started raising capital. And for the first 10 to 12 years, there were only two or three different companies doing that. But they typically had more of a view of, “We’re going to end this thing, and Mr.

Investor, you’re going to get all your money back, what you do with it at that time is your deal. But we’re going to give you your money back at some point. Either we’re going to sell the portfolio, or kind of the new movement was to list on an exchange thereby providing liquidity.

So that was really important, a liquidity strategy, an exit strategy, very important.

Andy: That’s funny, that’s just interesting because that’s going back to the trend I was talking about some of these publicly traded REITs are going private again. But anyway. I mean…

Stacy: It is.

Andy: So that makes sense. And, you know, a lot of these alternatives, BDCs, or you’re talking about REITs right now, some investors historically had a bad experience, a poor user experience shall we say with them. And I think you’re right that in some respects, it kind of gave alternatives almost a bad reputation. But, you know, the next generation of these products appear to me…and, you know, a lot of other smart folks that I talk to, I mean, they really are better for investors.

Doesn’t guarantee that they’re all going to perform, doesn’t guarantee they’re all going to return double digits, but things are generally moving in the right direction. So let’s talk about interval funds because that’s another one where there’s been a lot of momentum, you know, a lot of steam.

How do interval funds compare in terms of their communication, advisor understanding, transparency, how do they compare to non-traded REITs?

Stacy: Well, again they’re public offerings, so they’re required to report to the SEC. The differences between interval funds and non-traded REITs is that they don’t have to report on a quarterly basis, they only have to report on a semi-annual basis. The other thing is it’s not a January 1st, July 1st filing deal. So the filings are literally…I think they’re…our research team told me one time that 10 out of the 12 months, there are interval fund filings.

And of course, there’s a lot more interval funds than there are REITs, non-traded REITs. So there is the obligation to file, they just don’t have to file as often. The other big difference between a REIT and an interval fund is that interval funds, where they get the name is that at different intervals, there’s more liquidity and so…hence the name at certain intervals.

So there is more liquidity and they are also investing quite differently than a non-traded REIT would. A non-traded REIT is typically buying hard real estate, buildings or portfolios of buildings. An interval fund is in some cases investing also or in most cases also investing in other things including trading instruments.

So they’re more into the market, which allows them to have a little bit more liquidity by doing that as well. Some people love the interval fund structure, some people like the REIT structure. But I think the REIT structure is a simpler structure to understand. We’re actually having a webinar sometime coming up the next month about interval funds, what do they invest in?

And I can sit here and tell you right now, we cover them. And all of our research and research team knows what they are invested in but I don’t. I don’t really know what they’re investing in.

Andy: So Stacy, this is what I was getting at with the question, is all these alternatives, it sounds to me like the non-traded REITs are a little bit more communicative or a little bit easier to understand, or there’s just a little bit more transparency there. Doesn’t mean anything negative about issuers of interval funds, but they’re simpler, they’re a little easier to understand.

Stacy: I think they’re easier to understand. I’m not saying there’s less transparency in the interval fund world, I’m not saying that. In fact, there could be more, it’s just that I…the interval funds have only been out since about 2016. I’ve been in the REIT business since 1998, so I just know more about REITs than I do interval funds. I’m just not an expert.

But as far as investors go, they probably can go find out just as much if not more information about interval funds. And I’m assuming that the investment managers do a good job of communicating, there’s always one or two that do a good job, but I think they do that. I think that based on what you just said talking about the simplicity, to me, it’s an easier story to understand.

You take money in a REIT, you go buy a building, and you manage the building, you collect rent, okay? Versus what an interval fund does, it seems to be a little bit more complicated at least to me because I think they’re invested in more. But you could argue that investing in more or different is better because you’re more diversified, you’re not just in hard real estate.

So you could argue that as well.

Andy: Yeah, certainly, I mean, they’re just a different animal, right?

Stacy: Yeah, they both have their…

Andy: And the intermittent liquidity is a tremendous, you know, value-add, I think, to the alternatives marketplace. And I think that’s another, you know, kind of trend that we’re seeing intermittent liquidity products. But I want to move on to private placement offerings because I know that’s a newer area folk…I mean, I don’t know how new, but wasn’t in the original, you know, sectors that you all covered.

And really, it’s only been in the last five or so…

Stacy: Couple of years.

Andy: …years that they have really, you know, hugely grown. And honestly, on this show, that’s mainly… we cover private placement offerings more than anything else, you know?

Stacy: You do? Okay, I didn’t know that.

Andy: Yeah, we like to talk about non-traded REITs, BDCs, interval funds, all of these products, but I think we’ve had more sponsors on from, you know, five or six sponsors for private placement offerings than anything else, any other type of guests on the show. So, I’m familiar with that world, but it’s very different from that perspective of collecting data in respect to what Blue Vault does.

So what’s been your experience working with the private placement offering issuers, you know, how do they compare with, you know, non-traded REITs or some of these other structures?

Stacy: How do they compare in what? You’re talking about in what area?

Andy: In terms of, you know, how you’re able to collect information. You know, how easy is that information for you to get? You know, how communicative have you found the issuers or sponsors to be and so on?

Stacy: Okay, so it’s two different worlds, first of all, that’s how different the information flow is. So with a private offering, and again, hence the name, they’re private, and part of being private is you don’t have to disclose. You don’t have to file publicly with the SEC your performance, what you’re doing, how you do it, you know, those kind of things.

Now you can communicate with your investors. And I’m assuming that all of these companies do. Exactly what their obligations are, frankly, I don’t know what their obligations are as far as communicating to those investors, but they certainly don’t have to report somewhere or give me information about how they’re doing, okay?

Now we’re working on that, we’re trying to improve that. Because there is a…when I say lack of transparency, I don’t mean it to sound like it’s all bad, it’s just the nature of a private offering, is there’s not as much information flow because you don’t file publicly. So if you want to get information about these offerings, then you’re completely dependent upon the product sponsor, the investment manager providing that information to you.

Whereas for Blue Vault, we could go to a public document and we can get all kinds of information about REITs and BDCs and interval funds, and some of the other product types. We can’t do that with private offerings. So how do we collect some of the data that we do collect? We collect it by going straight to the product sponsor, or the investment manager, which opens up another can of potentially slimy worms.

And that is that they’re very concerned about why you’re even asking for the information, they have to be very protective about that. All we’re trying to do is provide greater transparency in our marketplace which means to industry professionals, financial advisors, okay? We’re not trying to provide any information to the investor in public, that’s not our model, number one, and we wouldn’t want to do that.

So we’re just trying to gather information from these product sponsors that we can relay to the professional financial advisor so that he or she can be better informed about the performance. And that’s really what we’re focused on the performance. So what an investment manager says they’re going to do in a private placement memorandum, that’s not really where we live, we just care about are they going to do what they say they’re going to do?

And so that’s how we try to track performance. Now because we do all the things that we do at Blue Vault, tracking data on private offerings has taken to some degree a backseat, we just are…there’s a lack of resources. But that’s not…

Andy: It sounds like that’d be very labor intensive, frankly, especially making sure all that data would be like apples to apples, so to speak, you know?

Stacy: Yes, that is the case. So to give you an example, when someone files with the SEC, or there’s a REIT, and they file their MFFO two different ways, Blue Vault can take that and we can analyze it and then report it on an apples-to-apples comparison.

So we can change it so that things are apples to apples. But you can’t really do that with private data unless the sponsor is willing to give you all that. And we don’t get that detail of information from the investment manager of private offerings. So what do we get? There’s about 12 to 14 different metrics that we ask for, and in most cases, we receive.

Some product sponsors don’t want to provide the information. And some of them don’t want to do it, you know, there’s a variety of reasons. My opinion is that there’s not really usually any good reason not to provide the information.

Andy: So do more sponsors of private placement offerings participate or do more elect to not participate?

Stacy: More participate, more participate.

Andy: Okay, so most sponsors are willing to share that information.

Stacy: Yes.

Andy: Okay, that’s interesting.

Stacy: Yeah, good question. Most of them are. But they weren’t initially, Andy, because they’ve never been asked by someone for this information. So Blue Vault comes along and starts asking the question, they’re like, “Whoa, wait, what are you talking about?” This is private. Well, we know it is, but let me tell you what we’re trying to do with it. We’re just trying to create better transparency, protect investors, help advisors and help you guys because we believe the more the transparency, the better across the board.

There’s no exceptions to that rule, we don’t believe. So the more information that we can provide. But just to be clear, at least at this point, these product sponsors, investment managers, they’re not giving us the detailed financial information that they would if they were providing it, if they were public offering and they were filing with the SEC, it’s not to that level at right now.

It’s also important to point out that they could file voluntarily. So just because they don’t have to file doesn’t mean that they can’t file. And some of them seems to be a little bit of a trend where some of these investment managers are electing to file publicly because they have nothing to hide.

And they want to show the industry and investors to the degree that an investor knows how to go find that information, what they doing and how they’re doing. So we hope, actually, that more and more sponsors will elect to do that. But to the degree that they don’t, what we’re doing is gathering the information, or at least some of the information ourselves and we’re aggregating that data.

We’re putting it in our database so that you can cross-reference, compare, contrast, filter so that an advisor can find out what’s available to him, what’s out there that I don’t know about that I could be using. What sectors? I’ve used multifamily but I didn’t know there was industrial, I didn’t know there was retail.

So an advisor is able to look into the Blue Vault database and query a lot more information that is typically available to them.

Andy: Got it. So the advisor might be using Blue Vault not only to collect that performance information, but it sounds like even doing some product discovery like, you know, seeing private placement offerings in a sector that they didn’t even know there would be one.

Stacy: They should be. That’s what I would be doing if I was an advisor. I’d want to know…well, first of all, if you do your homework, then you’re probably going to realize that there’s a particular asset class that I should be investing in right now in contrast to others. And I’m also going to know who’s the better investment managers that are offering, and what are the different features of their offering?

How do they differ from each other? For example, I’m just throwing this out, which one has lower fees, you know, that’d be one thing that I would be looking at. So now you can compare those things through the database.

Andy: You know, one trend that we talked about earlier in this episode, some of these very large asset managers coming into the space and not exactly dominating, but just, you know, some of these really big names when they enter a space, it’s like everybody knows about it.

In the industry, everybody knows but also on the advisor side, everybody knows. How do you see that trend in reference to the smaller or the mid-sized sponsors and issuers? Because on the one hand, it’s more competition, on the other hand, some of these big names that come in, it’s almost like they might be legitimizing that product type in the minds of many RIAs.

Stacy: That has happened. That has absolutely happened. My view on it is is that a rising tide lifts all boats. And I’ve seen it, I’ve watched it with my own eyes and I’ve seen that play out. So the larger product sponsor has not come to the space and pushed others to the side. In fact, they’ve come to the space and they’ve got their loyal following. And I think in most ways, they have brought credibility to the space which has helped the smaller players.

Now, where they go to raise the money exactly is slightly different. So still today, your larger institutional players that come to the market, they’re mainly raising the money from family offices and from the wirehouse advisors and all. They can talk about our RIAs, and certainly, we’re making strides, the industry is making strides there, but I don’t believe that that’s where the bulk of the money is coming from.

I think it’s coming from the wirehouse advisors. We know that to some degree. And then family offices which are just large RIAs. But everyone is making inroads with the RIA. What’s been interesting to see, Andy, is that the larger players that have come to the market, the thought is that they’re going to get in with these independent broker-dealers and they’re just going to completely take over.

And that has not happened, you know, they’re in and they’re doing okay. But I think the smaller players are raising more capital in part because of the institutional players. You could argue that before these institutional players came to the space, for example, the non-traded REIT space, you could argue that the alts world was not doing well.

They had had…to your case earlier, that they had had…you know, I think three or four of the top capital raise firms since 1990 had gone through performance problems at one point or another. And people were just skeptical that a REIT can even work.

It wasn’t the REIT at all, it was the investment manager. And certainly, there have also been tremendous improvements over the years, better quality investment manager with much lower fees. You know, those two things predominantly have created a much, much healthier investment structure, investment performance.

Andy: What do you think has been the pressure on fees? Has it been, you know, more information and transparency within the alternatives world just puts that competitive pressure? Or is it more just that macro trend of in the traditional investment world, you know, the Fidelitys and the Vanguards, it’s like I’m used to paying 10 basis points fees on investments, you know, or is it another factor?

Stacy: I think it’s multiple factors. But certainly, there’s regulatory pressure, I guess you could say, lack of better words. So there’s some regulatory pressure, there’s performance pressure, okay? Look, it’s one thing when you have a high fee and you perform well. But the minute these high-fee products don’t perform well, then what’s everybody going to do? They’re going to blame it on the high fees, you know?

Just like the Sunday afternoon quarterback situation, it may not have been his fault, but if they lost, it’s his fault. It’s one of those situations. But the other issue was, you know, I think the media played a role in all of that as well. I think the media beat up investment managers with products with higher fees, and I think just over time, it takes its toll.

And advisors…and again, if you have high fees and you perform, nobody says anything.

Andy: The 2 in 20 is not a big deal if you hit the Grand Slam, right ,with your fund.

Stacy: That’s right. And, you know, the interesting thing about that, it was just a few…I’ll call them bad apples. It was just a few bad apples that underperformed. Most non-traded REITs…I guarantee you that most people don’t know this. Overwhelmingly, most non-traded REITs who have gone full cycle, given the money back, returned annualized positive gain to their investors, some of it extremely healthy, okay?

I think the average…

Andy: So they passed the three rules of family office investing, they passed all three rules, don’t lose money, don’t lose money, and don’t lose money.

Stacy: I mean, it’s literally just a handful of REITs who lost money but they’re the bad apples, they gave the whole market kind of a bad name.

Andy: They’re the ones we remember, that’s for sure.

Stacy: Yeah, but what has…you know, the lemonade that we’ve made from those lemons is that overall fees have come down, they’ve been forced to. That’s better for the investor, is better for the advisors, it’s better for the entire industry. More capital is being raised as a result of it. And I’ll just get in one thing. One thing I want to make sure I say, Andy, that, you know, Blue Vault, what I used to say back in ’09 and ’10.

If Blue Vault has a role to play in reporting performance and we cause a bad investment manager to have to leave the industry because of bad forms, I hope that happens. Because there’s no excuse for there to be a poor investment manager in this space taking advantage of investors.

And to the extent that we played a role in pushing some and we did, I know we did, we played a role in getting rid of those. So I don’t know of a single poor-quality investment manager remaining in the space. That doesn’t mean they’re going to all make money, it doesn’t mean that, you know, all that. But I’m just saying the quality of the investment manager is so much higher than it used to be.

You couple that with the reduction in fees and you got a pretty solid thing going right now.

Andy: It’s just a better product for the investor.

Stacy: It’s a better product. And the only reason that the majority of advisors aren’t using these products is the liquidity issue. That’s it. They don’t like the idea of putting money, even if it’s just 5% or 10%, they don’t like the idea of putting the client’s money somewhere where they can’t get to it. But I had an advisor tell me that last week that he’d been burned, and he’s not going to do it again.

Andy: I get it. And so I know Blue Vault, obviously, a big part of what you do is information gathering and your platform and publishing that information out to advisors. But Blue Vault also runs events, or at least an annual event, is that right?

Stacy: Yeah. So it basically goes like this, we have a platform and it’s really an educational platform, okay, so everything we do is about education. One of the prongs of the three prongs is our research, which is what we’ve been talking about. So research, fact-based research, is an educational tool.

Another educational tool that we have on that platform is something we call the Advisor Engagement Program and it’s just simply where we talk about alternative investments. We talk about alternative investments in general, what they are, what their benefits are, what the risk are.

But then we talk about individual structures, tax strategies. We talk about different benefits and features and costs and fees, and all those kinds of things about individual investment managers as well, what they do and why they do it, what is, you know, their differentiator, their unique contributing factor to performance. So we do that.

But then that third prong like you just said is an annual event that we host. We’ve been doing it since 2015. We were all set to do it in 2020 and the day before it started, we canceled it because of COVID. March 8th or 9th, I never will forget it. But we were due to be in Atlanta that particular year. And I tell people had we not canceled that event, we would have been in Atlanta, the same week that the NBA season was canceled, MLB, NCAA Men’s Basketball Tournament was all canceled.

So I think we made the wise decision. But we regrouped and 60 days later, we did a virtual event. We did the virtual event again in ’21 and then earlier this year ’22. But now we’re going back to a physical event and we’ll be in Atlanta at the Grand Hyatt in March.

And we think we’ll have by far the largest event that we’ve ever had there. There’s just a lot more players in the space and there’s a lot more services firms, vendors providing services to the marketplace as well.

We call those internally AltsTech. So it’s FinTech but with an alt twist, so AltsTech.

Andy: Well, yeah, I don’t know if AltsDB would technically fall under that umbrella, we might. Who should attend the conference, is it mainly for, you know, industry professionals, or are we also talking about broker-dealers or RIAs, or advisors?

Stacy: Advisors.

Andy: Attendants.

Stacy: Advisors should attend the event, including RIAs. In fact, we are trying to reach the RIA market more and more. Where we’ve always been is in the independent broker-dealer market. And a lot of our subscribers are affiliated with independent broker-dealers, but more and more of them are from what we call the true or independent RIA market.

So advisors but broker-dealers as well, we’re going to have a combination. We’ll probably have more advisors than we will broker-dealers, of course, but those. And then there’ll be investment managers and then there’s going to be these AltsTech types of firms, those that offer products and services that aren’t investment structures.

There’s a ton of those firms out there today where 10 years ago, that was just not the case, they were in their baby stages, but now there’s a maturity factor there. We hope AltsDB is going to be there maybe as one of our media partners. I think you and I have talked about that before.

I’m hoping that we can work something out in that regard. Maybe even have you come and host a podcast live from Atlanta from the hotel, Grand Hyatt Buckhead.

Andy: Stacy, honestly, it is one of my favorite things to do, is get out and about and talk to sponsors as well as advisors and family offices in person. I mean, I love our virtual events, they’re great, but it’s just like you said 10 years ago, there was…the ecosystem, the infrastructure, it barely existed.

And fast forward to 2022 or 2023 and what a world of difference. It’s very exciting industry that we’re both blessed to be able to work in.

Stacy: It is. It’s an important industry because as an advisor that I spoke with last week said…and he says, you can find all the stuff on the internet. And of course, you know, he and I both, you know, be the first ones to caution you about what you read and believe on the internet.

But there are professional predictions that the market is going to underperform over the next 5 to 10 years. So 6% and 7% total returns, annualized returns might be about as good as a typical investor does if they’re just in the marketplace.

So I think that there’s going to be more and more advisors who recognize that and they’re going to be more excited about learning about the vast array of alternative investments available to them to utilize, to diversify, and even improve performance. And by the way, there’s all kinds of analyses that you can point to, Andy, that incorporating real estate into a client’s portfolio increases the total return and decreases the risk.

Andy: A hundred percent.

Stacy: You know that. There’s all kinds of analyses of that. And why the masses don’t understand that, I don’t know.

Andy: There’s a reason that…yeah, there’s a reason that, you know, largest endowments, and, you know, dedicated family offices, they don’t have a 4% allocation to real estate. I mean, you’re talking about on a market cap basis, this is an asset class that so many of us are underweight even if you do own your own residence, you have to look at that portfolio.

Stacy: Oh, yeah, absolutely. And look, the endowments, they have an advantage that the typical investor like you and me don’t have. They have a lot of time, they have billion-dollar portfolios, you can just do things better. But there’s got to be a reason, there’s got to be something they know that the retail advisor and the retail investor don’t know.

If they’re allocating that much to alts strategies, real estate, that type of thing, and most advisors don’t allocate anything to the alt market. There’s a disconnect somewhere.

Andy: Absolutely. And I think a great place to talk about that disconnect and learn more is at the upcoming summit. And for our listeners, I’ll be sure to link to that event web page where you can learn more and register. As well as all the resources that we discussed, I’ll be sure to link to those in our show notes at

And I want to remind our listeners, don’t forget to subscribe to our show on YouTube and on your favorite podcast listening platform so you can be sure to receive our new episodes as we release them. Stacy, thanks so much for coming on the program today.

Stacy: You’re welcome, it was my pleasure. Thank you for inviting me.

Andy Hagans
Andy Hagans

Andy Hagans is co-founder and CEO at AltsDb, and host of The Alternative Investment Podcast. He resides in Michigan.