All About CAIA Association, With Aaron Filbeck

For financial advisors, alternative investments have the potential to enhance client portfolios, and to improve business outcomes. But alternatives can be a complex “beast,” and the education gap remains a significant challenge in the advisor community.

Aaron Filbeck, managing director and head of UniFi at CAIA, joins the show to discuss how CAIA Association is helping to close the education gap for advisors with the mission to ultimately improve outcomes for clients and society at large.

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Episode Highlights

  • Background on CAIA (the Chartered Alternative Investment Analyst Association).
  • How CAIA operates as a global organization, sharing best practices worldwide.
  • Details on CAIA’s education programs, including the CAIA Charter program, UniFi by CAIA, and FDP Charter (Financial Data Professional).
  • Why CAIA’s membership base is so diverse in terms of members’ roles and career trajectories (and how this diversity is a strength for CAIA).
  • The importance of ensuring that the wealth management industry as a whole focuses on improving outcomes for clients.

Today’s Guest: Aaron Filbeck, CAIA

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 am your host, Andy Hagans. And today, we are talking about a very important topic, I might say it’s the topic of the moment, topic of the year, it’s really the topic of the decade in alternative investments. We’re talking about education, the education gap, advisor education, honestly, since I’ve started hosting this show, this is the single topic that I think has come up with every single guest in the entire history of my podcast, is the need for more education in our space. So I’m very pleased to say that joining me today is Aaron Filbeck, who is managing director and head of unify at CAIA. Aaron, welcome to the show.

Aaron: Thanks so much for having me. It’s great to be here.

Andy: Yeah, and I love your organization, what you all do, I’m guessing a lot of the RIAs and advisors in our audience are already using a lot of the resources you offer. In fact, I know that some of the wealth managers that listen to the show have already earned the CAIA designation and speak very highly of it. But if you don’t mind in case, there’s anyone out there who’s not familiar with CAIA Association. Could you give us some background on what you do? And you know, kind of where you fit into the broader alts landscape?

Aaron: Yeah, absolutely. Well, maybe just kind of a high level view of who we are. We’re a global professional body dedicated to creating greater alignment, transparency and knowledge for all investors. But we have a particular focus on the world of alternative investments. So, we’re a member-based organization. We’ve got about 13,000 members around the world. I’d say 55% to 60% are here in the Americas, and then the balance is overseas represented in about 100 different countries. So, we’ve got a pretty wide geographic map of members around the world.

And we’re really focused on education. So, as we’re trying to kind of raise the bar for the industry and kind of execute upon our mission, which is creating that better alignment and transparency and knowledge, we’re doing that through a number of different ways. One is kind of formal education programs that we offer, which we could certainly get into. We also do a lot of thought leadership and advocacy as well. So, beyond kind of your formal training and putting in the hours to actually get formally trained on this stuff, a lot of other resources, as you mentioned, are available for just the industry at large.

Again, with the membership base that we have, about 13,000 members, those members are kind of represented all over the place. So, we’ve got LPs and GPs, advisors, as you mentioned, regulators, distribution folks. So, it’s a very diverse kind of population of membership that we’ve had grow over the past 20 years.

Andy: So, that’s already really interesting to me because normally in financial services and wealth management, so many…so much media, so much education, so many products, they’re targeted towards, like, a very specific segment or a very specific role, or stakeholder, advisor centric education, or resources for RIAs, or resources for LPs, or advocacy. It sounds like you have…you guys have a very diverse group of stakeholders.

Aaron: Yeah. I think that’s a good way to look at it. I think, you know, regardless of where you are in the industry, for us, it’s all about the end client. And that client can kind of look different depending on where you sit. So, if you are kind of in that advisor capacity, it’s an actual individual that you’re sitting across the table from.

If you’re an institutional investor, where a lot of our members are based, it may be, you know, the pensions and the endowments, and you’re serving kind of maybe a larger portfolio, but the end-user or the end institution becomes your client. So, while there is kind of a diverse mix of members in the CAIA Association membership base, I think a lot of the tenets that we stand for are applicable across the board.

Andy: Yeah, that’s an interesting point, right? Because if I’m interacting with CalPERS or a giant pension fund, at the end of the day, they’re serving teachers and retirees who need portfolios and who need good services in the asset management industry and good financial products. And the same exact thing is true for an advisor. You know, ultimately they’re serving their clients. So, you know, I think that’s an admirable mission, and it’s something that I think everyone in this industry can’t be reminded of too often, right? Why we’re here.

Ultimately, we are helping our moms, we’re helping our dads, right? Look at it like that. I think it’s so interesting that CAIA is global because, you know, as host of this show, of “The Alternative Investment Podcast,” and I cover all of these different products, all of these strategies, but so many products are, like, wrapper-specific, right? Like, with liquid alts, we have alternative ETFs, private equity real estate, Delaware Statutory Trusts, REITs, you know, non-traded REITs.

But so much of this stuff is wrapper-specific, and then with wrappers, they interact with the tax code. So, I’m thinking, “Wow, I literally host this show and I feel like I barely have a handle on alternative investments in the United States.” And then now I’m thinking, “Wow, globally?” Like, can you even do a 1031 exchange in Canada? Like, I have no idea. So, I guess talk a little bit about, you know, that kind of global issue. Is there information and perspective that is sort of, you know, cross-border that is truly global, or how much of this is sort of esoteric and localized based on an individual country or regulatory landscape?

Aaron: Yeah, I think it’s a really interesting point. And maybe we can talk more kind of specific about wealth management because I think that is a sense of very much where you see that kind of localization becoming extremely important on the wrapper side. But if I kind of take a step back just more globally about what we’re kind of looking at, you know, there is a lot of overlap in the regions. You know, private equity as a strategy has a lot of similarities in the U.S. and Canada as it might have in Europe or Asia.

So, from our perspective, you know, we try to cover a lot of the similarities across the board. And a lot of these investors, especially on the institutional side, are global investors. So, if you’re, you know, a pension or a sovereign wealth fund, you might be investing in a GP that’s not in your home country. And so, I think having a good understanding of those strategies is important.

You know, in terms of kind of the wrapper, and the localization, and tax code, and all of that kind of stuff, you know, we kind of rely more on kind of the local level membership for providing education on some of those things, our chapters around the world that put on events throughout the year. That’s where a lot of that kind of localized ongoing continuing education occurs.

But as we kind of think about, you know, our program designs and, you know, the CAIA program or UniFi, where I’m really focused, it’s kind of interesting to watch the spill-on effects across different countries. So, maybe what happens in the U.S. has an impact on Europe or vice versa, or, you know, Asia and vice versa. So, while there may be kind of more specific laws that are applicable in a particular area, you start to see the kind of this convergence and some similarities and rhyming that occurs in some of these different countries as well.

Andy: Well, that’s a fascinating way to put it, you know, how things kind of rhyme. And, you know, if we’re talking about portfolio theory or just a lot of these kind of macro issues, and as you mentioned, like, with pension funds or institutional investors, they’re investing globally. That makes sense, right? Portfolio theory, portfolio design is not really gonna be any different in Canada versus the United States, versus in Europe, versus Africa.

I guess I’m still kind of thinking in this micro world of, you know, individual investors of doing a 1031, you know, I’m looking for a DST, you know, all these kind of nooks and crannies of the tax code. So, just the…I guess the design of your organization where you have local chapters and then you have, you know, this larger global body, that’s really interesting, right? Because you can sort of do some research, some education can be global, and then the stuff that needs to be local can be local. Is that basically the philosophy?

Aaron: Yeah. And I think there’s an exchange between the two. So, you know, we’ve got 33 chapters around the world in kind of the major financial centers. You know, we’re talking to our chapter executive teams quite a bit, and the give and take between kind of the global perspective that, you know, where I’m sitting kind of within CAIA, but also the local, you know, a lot of stuff bubbles up, some stuff bubbles down. And so, there’s kind of this exchange of education and ideas and things that we need to be thinking about, whether it’s updating formal programs, or just thinking more generally about thought leadership. So, we really, really value and rely heavily on the membership base to kind of help inform our strategy and direction from an education perspective.

Andy: Well, that’s a huge asset, right? You know, being willing to listen. And, you know, I talk with a lot of asset managers and fund sponsors, and I think the smartest ones are always, like, in listening mode. They’re listening to what advisors are telling them or what investors are telling them. You know, sometimes it might inform their product or strategy, but in a lot of times, it just informs their communications.

Like, so much of this industry, whether you are a fund sponsor, asset manager, I don’t care what your role is, you know, so much of it is about just effectively communicating, right? Because a lot of this stuff is complicated, it’s complex, it’s confusing. So, actually, that being said, it’s perfect to kind of tee up, I want to talk about the educational programs at CAIA. And, you know, I was looking through the website, you know, some of these…like I said, I’ve already met advisors who speak very highly of these programs. But let’s start with the CAIA charter program. This is one that I’ve seen a lot. What is this program? Who is it for?

Aaron: Yeah, absolutely. So, you know, the CAIA charter program has been around since the inception of CAIA. It was the flagship designation program. I’m a member myself as I’ve gone through that program, and I’m a member of the association. So, when I talk about the 13,000 members around the world, all 13,000 of those people who have gone through this program, they’ve passed Level I, Level II, and gone on to become a member, an ongoing member of the association. So, that’s a requirement to even become a member of the association.

But in terms of the actual program itself, it’s a two-level high-stakes examination process. We offer the exam twice per year for both levels. You know, typically, a candidate will spend 200 to 250 hours per level, so 400 to 500 level…or 500 hours of study, self-study, going through this program in order to successfully pass Levels I and II. But really the focus of the program is on what we deem kind of the institutional quality alternative investments that are in the marketplace today.

So, as we kind of look at what are the big asset owners and institutional investors allocating towards, within their portfolios, the endowments, the pensions, the sovereign wealth funds, and so on. And so, we’ve kind of constructed this curriculum to teach both at the strategy level, but also how to manage a portfolio, a big institutional portfolio from an allocator’s perspective. And we’ve kind of divided that program up accordingly.

So, if you look at kind of what Level I is covering, it’s introducing you to some of these more alternative strategies, private equity, real assets, hedge fund strategies, some structured credit, structured products as well as part of kind of that core understanding the bottom up of what those strategies entail, the risk-return profiles, and so on. Level II is where we kind of take that bottom-up perspective and really turn it on its head.

So, now that you have a good understanding of what is private equity, you know, what are hedge fund strategies and real assets, how do you take all that and put it into a portfolio where you’ve got maybe, you know, potentially multiple goals and objectives that you’re trying to accomplish? How do you think about things like risk management and investment and operational due diligence, ESG, and thinking through all of those kind of things as well?

So, it really takes more of that allocator’s perspective from the top down. And then, you know, once you finish Level II, you hopefully have passed both levels and become a member of the association. So, very interesting program. It’s certainly evolved over time as we’ve seen the way the institutions have allocated their portfolios. And that evolution’s been really interesting to track, but a lot to cover in a high-stakes credentialing program.

Andy: Well, Aaron, I don’t know if you’re trying to sell me, but I’m literally, like, taking out my wallet because I love the portfolio strategy, portfolio design. That’s the stuff that I’m passionate about. You know, hosting this show, sometimes the more technical aspects of this stuff, it almost…like, it can make me black out. You know, it can be a slog, some of the really technical stuff.

But I never get tired of, you know, the concepts of “The Ivy Portfolio” of these illiquid alternative investments that institutional investors have such success with. So, yeah, I’m like, “Wow, I need to be looking into the CAIA charter.” So, is this mostly institutional professionals, or is it a mix of those and advisors? I guess who is typically getting this designation, you know, who’s sitting for this test?

Aaron: Yeah. I mean, as I mentioned at the beginning of the episode, I mean, it’s kind of across the board. So, we’ve got, you know, advisors, allocators, LPs, GPs, regulators, professors, and academics. It’s a very broad kind of swath of people who have gone through the program and are members of our association. I think one of the common things, and the thing that we talk a lot about when we kind of position this program is that we’re really teaching you to think like an allocator.

And that doesn’t mean that you need to be an allocator. You may be a GP that’s really focused on one particular strategy or asset class, you could be an advisor, you know, a distribution person. But by the end of this program, you’ll walk away with a better understanding and appreciation for how an allocator thinks across the entire portfolio and across kind of the entire risk spectrum. So, kind of cool to see that we’ve got this wide, you know, variety of different members, but there’s all kind of…there’s this common kind of understanding of what that allocator’s perspective is, which, to your point, you know, I think it is very interesting, but it’s also very important as you think about, you know, that end client, whether it is that institution or that individual.

Andy: So, you’re telling me as an LP, I can go sit for this test, and you’re not gonna have security escort me out of the building.

Aaron: Well, I’ll make sure to share your name and we’ll see what happens.

Andy: Okay. All right. So, next, we have UniFi. And so, I understand you’re very involved with UniFi. So, what is UniFi by CAIA?

Aaron: Yeah. So, UniFi by CAIA is where I spend most of my time. It’s a platform that I oversee and something that we recently announced just over a year ago. So, really excited kind of the direction of where we’re going there. But UniFi by CAIA is a learning platform that was announced by CAIA Association last year, so 2022, and is really designed to educate the private wealth management industry on alternatives.

So, if you are an asset manager and you have a distribution team that’s maybe new to this stuff, you’re buying and building your capabilities within alternatives, as we’ve seen a lot of kind of large asset managers do, you need to kind of upscale quickly on, you know, how these strategies work and ultimately how it fits in a client’s portfolio. Same thing if you’re kind of at an intermediary or a wirehouse, some of these large kind of firms for a lot of advisors that have a lot of product available to them, again, understanding how all this stuff works and how it fits, all the way down to the individual kind of RIA or advisor who’s sitting across from the client.

So, we kind of talk about those three areas being the areas of education for UniFi if you’re more of a client-facing or advisor-facing type of person. But the delivery mechanism of UniFi is quite different from the CAIA program. So, as I mentioned before, it’s, you know, as you go through a CAIA program, you’re spending hundreds of hours going through this content. It’s all self-study, you know, you’re reading a book or you’re reading online through a lot of this material.

UniFi is offered completely online. So, it’s online kind of course type of format and, you know, it’s self-directed. So, you’re going through kind of videos and instruction formally as you kind of go through. More tangibly what that looks like is we offer currently one of our flagship certificate programs called the Fundamentals of Alternative Investments on the platform, which is a 20-hour course that you can go through that kind of gives you the 101 overview of what alternatives are.

So, you don’t need to be as technical as what you might find in the CAIA program, but you need to be conversant, you need to understand, you know, what private equity is and what hedge funds are, and so on, but kind of getting that 101 overview. Throughout the year, this year, we’ll be actually launching some new programs on the UniFi platform, which we’re excited about that go a little bit deeper on certain topics.

So, whereas kind of the Fundamentals program is more of kind of the 101 of all these alternative strategies, if you wanna go a little bit deeper or you’re much more focused on a particular area, we’ll be releasing a series of micro-credentials that maybe instead of 20 hours long are only 5 hours long that go a little bit deeper into these different strategies and help you get an understanding of how they all work. So, in about two months or so, we’ll be launching our first micro-credential on the UniFi platform on private debt and sometime in the middle of this year, we’ll be launching our second one on digital assets.

So, as you’re kind of thinking about a client’s portfolio and, you know, maybe you’re implementing this stuff for the first time, your investment team is kind of talking about all of the merits of these particular strategies, you know, being able to be more conversant, ask better questions, and ultimately communicate it to the end client and figure out where it fits. That’s kind of what we’re trying to accomplish with UniFi.

Andy: Yeah, that’s really interesting. So, it sounds like, you know, the learning format of UniFi, obviously video-based content, I’m a big fan. You know, we’re here on a video podcast although there is an audio version, I should say. But, you know, video-based content is just more accessible. And it sounds like the UniFi content is a little bit more accessible overall than, you know, the CAIA charter, you know, the designation might be a little bit more…I don’t want to say rigorous.

Wait, let me ask you this. If you are a financial professional or you’re in the industry but you don’t necessarily have a finance degree, maybe you don’t have a Bachelor’s in Finance or a Master’s in Finance, or a Master’s in Economics, whatever, I presume that you could still if you’re in the industry and you know a little bit, that you could consume the UniFi content and potentially get those micro-credentials. Does the CAIA charter program, does that more require an academic background in finance, typically people who have a degree in finance?

Aaron: Yeah. So, maybe a different way to answer the question would be, I think it depends on what your career trajectory is and where you sit within an organization. So, I know plenty of investment professionals that, you know, didn’t have a finance degree and kind of got into this business and, you know, learned it through the designation programs or some other way. I think it comes down to what you’re trying to accomplish.

So, the way that I kind of think about this and the way that we position, you know, maybe CAIA versus a UniFi, CAIA is gonna be much more for the professional that’s much closer to the investment process. And so, if you’re actually investing in a particular strategy, or you’re allocating the strategies, or maybe let’s say you’re a product specialist at a big asset manager, where you really need that in-depth expertise, you’re sitting on the investment team and, you know, you’re sitting in the day to day and you do need to communicate it, but you need that level of rigor and technical expertise, the CAIA program is probably gonna be most appropriate for you.

UniFi is much more for kind of more of the individual client wealth management industry. So, you know, I mentioned those three kind of segments. If you don’t need the level of depth, you don’t need the level of rigor but you need to at least be conversant in this stuff, the UniFi platform is probably gonna be most appropriate for you. There’s obviously a gray area between the two depending on where you sit in the organization.

Andy: Sure.

Aaron: But, you know, we see a lot of, you know, asset managers, intermediaries that will put kind of their sales staff through it, their advisors through it en masse just to kind of get them upskilled. If they want to go on and do the CAIA, we welcome that. But depending on where you are, you know, it may or may not be appropriate.

Andy: Yeah, I understand. So, if I’m managing a multi-billion dollar pension fund and I’m allocating to different private equity managers or making those kind of big decisions involving…I’m actually underwriting alternative investments and sitting on investment committees, that’s where I probably want the CAIA designation. But if I’m not necessarily, you know, making those…you know, if I’m not necessarily underwriting an alternative investment or something like that, but it still might be as a professional in one of my client portfolios, at a minimum, I need to know why it’s in that portfolio, and I need to be able to communicate what it is and all of that to the client, right?

And, you know, kind of as we’re talking through this, it’s kind of clicking, maybe this is obvious, but this kind of education is just needed at every level, right? It’s needed for the folks who are managing pension funds, a lot of times they need education. But then it trickles down all the way through, you know, any kind of asset management firm all the way to that retail level. Whoever’s interfacing with retail, they need the education as well. What y’all do is so important. I mean, are there any other organizations really doing this type of thing, or, you know, is CAIA kind of the brand name, would you say, that everybody looks to, that everybody goes to?

Aaron: Well, we’d certainly like to think so. I mean, there’s a lot of education out there, and it depends on kind of the objective of the education provider. And our mission, you know, more education is better than none. And so, you know, we’d like to think that we’re the kind of one-stop shop for education, but I think for us, our mission is to make sure that we are bettering the industry. And however kind of people find that path, I think we’re happy to see that they’re getting educated. But I think you’re right. You know, it is kind of…it is across the board in terms of where you sit. And we want to meet people where they’re at, and more importantly, what’s gonna be most relevant to them and, you know, where they sit in the industry.

Andy: Do you find that financial professionals are honest and aware of, you know, where they have education gaps? Because I feel like in this industry, it’s easy for me. We were talking a little bit about this before we recorded. I love hosting this show. I get a free pass because I’m an LP. So, if I ask some stupid question that kind of reveals that I don’t have, you know, really highly technical knowledge, I’m like, “Well, what do you expect? I’m just an LP, you know? I’m not an RIA. I’m not really an…you know, I’m an allocator of my own portfolio.” So, I get a free pass. Do you think there’s a lot of pressure on professionals and advisors, you know, where they have a harder time kind of admitting to each other, you know, that there are gaps in their knowledge?

Aaron: Yeah. So, I don’t know… So, you know, before I came to CAIA, I worked in the RIA space. And maybe I’ll say this. I think the bar is very high when you are an advisor that sits across from a client because your job as a fiduciary is to make sure that the client’s achieving their objectives and that you’re doing right by them. And so, I think it’s not that people are unwilling to admit that they have gaps in education. I think that especially with this space, it can be complex and people just don’t know what they don’t know.

But if you’re not confident in this space, you know, you’re probably not gonna allocate towards it because you need to be able to sit there and one, understand that what I’m putting in this portfolio is going to be beneficial for the client, but also I have to help make sure that the client sticks with it and that they, you know, remain invested in difficult periods. And if you’re not confident in that as an advisor, then, you know, the client’s not gonna be confident either.

So, maybe it’s a roundabout way of answering, but I do think that the bar is much higher than maybe some other professions where, you know, really try to do right by the client. And I like seeing that. And I think that, you know, advisors should question different strategies and different products. And so, if we can kind of get them in a position where they’re making informed decisions, positive or negative, that’s a really good outcome.

Andy: Yeah. I think one comment that you made probably speaks pretty well of, you know, fiduciaries of the RIA community, which is, you know, just the…if they don’t understand a product, they generally don’t invest in it. They don’t invest client funds in it. But then that just leads me to the next logical point, is I’m like, well, percentage-wise, there’s a huge number of fiduciaries, of advisors who aren’t allocating anything to alts, or at least to many alts categories. So, you know, transitive property, to your point, if they haven’t invested in it, there’s a pretty high likelihood they’re not comfortable with it.

Aaron: Sure.

Andy: You know, maybe they know about it, but they’re not comfortable with it. Okay. Well, let’s move on to the last major program that I saw on your website was the FDP charter. This is the Financial Data Professional. So, where does this kind of fit in to the mix?

Aaron: Yeah. So, Financial Data Professional. So, we talked a lot about alternative investments. This program is slightly different in its coverage. So, while there’s applications to the world of alternatives, it’s kind of a completely unique type of designation program that we launched. I think we’re going on our four-year anniversary. So, it’s been around for a couple of exam cycles, but still a relatively new program and we’ve seen some good uptake in terms of interest.

But as the name suggests, the program is really the intersection of data science and financial services. And so, as you’ve probably seen maybe from some of your podcast guests or just in the industry more broadly, the rise of kind of data science, data analytics, computer programming, computer science, and that intersection with finance, you know, new training strategies, new ways to kind of look at RIF, that has become a very, very popular tool, both in the long-only space, but also in the hedge fund space and even bleeding into, you know, the private equity and private capital space as well.

And so, this program was kind of the genesis of saying, “Okay. Well, you’ve got this new kind of brand of computer scientists that’s being brought into an asset manager. They’re sitting next to an investment professional who’s, you know, looking at economic data and company-wide data, or even just asset allocation data as well and those two need to be able to speak to each other.”

And so, as people kind of go through this program, it helps bridge the gap between those two professions and really kind of helps, I think in particular, the financial professional to better understand the data science and translate. So, how do I take, you know, something that’s economically significant, something that’s actually material, and help a data scientist who has this wonderful knowledge of computer programming and computer science, and not overfit data, not create these algorithms that don’t have any meaning and so on? So, the program, it’s a one-level examination.

Andy: Sorry. So, I’m thinking if I could put this colloquially, we have to get these… And I’m a nerd, so I say this with respect and admiration. We have to figure out how to get these two groups of nerds to speak to each other and communicate with each other, right? The data nerds and the finance nerds.

Aaron: You said it much better than I did. But yeah, exactly. You’ve got these two very smart disciplines…smart people in these disciplines that may not understand one another. And so, if we can kind of bridge the gap with FTP, that’s kind of the objective there. So, I went through the program back in 2020 during COVID, so that was fun. But it’s a very good program. I learned a lot, learned a ton. But I think…

Andy: So, Aaron, which nerd group do you identify with more? Are you more the computer nerd, or are you more the finance nerd?

Aaron: You know, if I had to pick a side, I’d probably say I’m more the finance nerd. But I would say I’m the translator. I probably sit somewhere in between.

Andy: Okay, good. No, there’s always gonna be a need for a translator there. You know you’re right, that is data analytics, machine learning, and you know, now AI is just amazing. And not just with, like, hedge funds, not just with alternative strategies. You know, we had Origin Investments’ Michael Episcope on the show. So, you know, this was, like, 50 episodes ago, but talking about how in the private equity real estate space, they’re using machine learning, you know, to identify attractive opportunities in multi-family real estate. So, this is a huge theme. It’s not going away. Even mid-sized managers and sponsors, you know, or shoot, no, even boutique, you know, even tiny managers and sponsors are using this stuff, data analytics.

You know, zooming back out, you know, I think it’s always good to kind of zoom out, keep our eye on the big picture. I think you and your organization do a very good job of that. So, you know, we cover the alts industry on this show. We’re nearly at Episode 100. They haven’t fired me yet, so I must be doing okay. And like I said at the very beginning, there’s certain themes that come up over and over, but this is a recurring theme that everyone, sponsors, industry groups, associations, service providers, the industry…the education gap, rather, education gap in alts specifically.

So, we have this industry, they want to access the retail market. You know, they’ve already…they’ve pretty much already accessed the institutional market. You know, they’re now a major player there obviously. I don’t know that that’s really a growth area. The growth area is really this retail market, and that requires so much education with so many people, right? It requires educating really entire organizations at multiple levels as we’ve kind of talked about.

So, thinking about, you know, the past 5, 10 years, you know, again, kind of zooming out, how far do you think the industry has come in addressing that education gap? You know, if I could use a football analogy, do we have the ball on the 50-yard line? Are we closing in on the red zone? You know, or maybe we could switch to baseball. Are we in the third inning, are we in the fifth? Whatever…you know, pick your sport, you know, where do you think we are and where do we need to go?

Aaron: Yeah. Yeah. Well, that’s a good question. I think, you know, as I looked like 10 years ago with kind of the rise of liquid alts, that was kind of the…that was probably the 1.0 of this democratization wave that we’ve seen. I would say that, you know, that democratization wave probably went pretty poorly, you know, relative to what it could have been in terms of education. We kinda led with product and there was this desire to kind of jam these hedge fund strategies into a more liquid wrapper and kind of hope for the best.

So, you know, compared to what we saw 10 years ago with kind of this move in private capital, which has, you know, really accelerated over the past couple of years, I would say that we’ve done a much better job than we did, but I think there’s still a lot of ground to cover in terms of providing education. I think, you know, where we kind of are really focused on educating, especially wealth management is kind of that foundational, why are you doing this, you know, why does it matter to allocate to these strategies, and how does it actually impact, you know, the client? As I mentioned, that bar is really high for an advisor. So, thinking through kind of the end client and using that lens to make allocation decisions, I think is where maybe the gap is widest and where we’re really trying to focus our efforts. You know, I think there’s a lot of…

Andy: So, does that kind of mean, you know, it’s not just…? The point isn’t really that I understand the product, the point isn’t that I know the ins and outs of a DST, the point is that I understand how all this stuff is a part of improving outcomes for clients. Is that kind of the gist?

Aaron: Yeah. I think that’s a fair statement, and I think it’s the starting point, you know?

Andy: Okay.

Aaron: You should start with the client. You should understand how it all fits, then let’s get to the product. Once you’ve kind of established goals and objectives, what you want a portfolio to look like, that’s when you start moving into this strategy versus that strategy, versus, you know, maybe some other asset class. I think where we probably got it wrong in the first time around was we started with the product and then we tried to retrofit it into the client. And what we’re really trying to do is reverse that trend and start with the client objectives, and then move yourself into the actual strategies themselves.

Andy: Awesome. Well, Aaron, I think given your role, you know, in what your organization does, I think you have a very, very good vantage point, I guess I could…you know, almost an objective vantage point with so many different kind of stakeholders in your membership to sort of see this industry from a unique angle. So, I wanted to ask you in terms of educational trends, maybe something optimistic, if you see things that way. Based on your previous answer, it sounds like things are maybe moving in the right direction compared to, like, 2010, the 1.0 liquid alts. What are the educational trends that you’re seeing right now with RIAs, with advisors? Where do you see the industry moving in the next few years in terms of education?

Aaron: Yeah. I mean, I think maybe a couple things. I mean, from an education perspective, you know, I think that the technology has certainly gotten better in terms of delivering education. So, you know, you’re not kind of constrained to PDFs and all that kind of stuff where there’s an ability now for whether or not you are kind of an asset manager trying to educate on a product or you’re us, you know, trying to provide online, you know, educational learning, the delivery mechanism, I think, is much more palatable and easier to access for the client.

And I’m an optimist on a lot of the stuff. I do see more and more conversations kind of being…moving towards, you know, the client perspective and maybe away from kind of leading with the product, you know, as I mentioned before. So, I would say that’s an area of optimism. But I think in general, one of the trends that is just kind of really interesting and heartening to see is that everyone is looking for education. You know, I think you have to have a desire and a willingness to kind of jump in and educate yourself.

Maybe to an earlier question, you know, do people actually know where their gaps are? And I think people are much more willing to say, “I really need to learn about this. I need to find something.” And so, you know, here, we get a lot of people reaching out and saying, “Hey, I have this gap. You know, our team has this gap and we really need, you know, to get upskilled on this particular area.” So, that gives me a lot of optimism and a trend that I’m really noticing over the past couple of years.

Andy: That’s awesome. Yeah. You know, all these different things that motivate people, you have the carrot, you have the stick. I’m thinking of, you know, there was kind of the bleeding edge RIAs, I would say, who are allocating some client funds to alternatives years ago, decades ago. But now I think kind of a new trend is you have alternative investments. They’re a little bit the cool kid on the block, you know, in some ways.

And all of this investment by very large, you know, companies pushing into alts and the desire, you know, to have product at the retail level means that there’s a lot of clients who are going to their advisor and are asking about alts. So, if that advisor, you know, was previously been hesitant at the time that the client is coming to you and asking about, you know, where does this strategy fit into my portfolio, or why don’t we have this product in the portfolio, I feel like that’s any laggards, I should say, you know, that’s gonna be the thing that kind of forces them to say, “Okay, I gotta bite the bullet and learn about this stuff.”

Aaron: Yeah, absolutely. I remember distinctly, there’s a…I think it was a Wall Street Journal article maybe a year or two ago that was talking about, you know, young millennial clients coming to their advisors asking about crypto. I don’t know if those conversations are happening as much as they were maybe a year ago.

Andy: Sure.

Aaron: But you’ve got a client base that’s much more engaged with some of these more interesting esoteric strategies. And, you know, for us, it’s good to see kind of the interest, but again, you gotta know when to say no, when to say yes, and when it’s appropriate. So, that’s what we’re trying to do.

Andy: Absolutely. Well, Aaron, this has just been an awesome conversation. You know, thank you so much for coming on and sharing your insights. Where can our audience of RIAs and wealth management professionals go to learn more about CAIA Association and all these programs that you offer?

Aaron: Yeah. So, our website is gonna be one of the easiest places to go. It’s caia.org. We’re also very active on social media, so a lot of our team, a lot of our employees are very active on social. So, we’re on Twitter, LinkedIn, Instagram, so you can find us in a lot of different places. And feel free to send me a connection. I’m always happy to connect with advisors and anyone else in the industry.

Andy: Awesome. And I’ll be sure to link to the CAIA website, but also each of those specific programs in our show notes, which you can always access at altsdb.com/podcast. Aaron, thanks again for coming on the show today.

Aaron: Yeah. Thank you so much, Andy.

Andy Hagans
Andy Hagans

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