{"id":1796,"date":"2025-01-15T23:53:23","date_gmt":"2025-01-15T23:53:23","guid":{"rendered":"https:\/\/europaskolos.lt\/index.php\/2025\/01\/15\/at-the-money-how-to-buy-alternatives\/"},"modified":"2025-01-15T23:53:23","modified_gmt":"2025-01-15T23:53:23","slug":"at-the-money-how-to-buy-alternatives","status":"publish","type":"post","link":"https:\/\/europaskolos.lt\/index.php\/2025\/01\/15\/at-the-money-how-to-buy-alternatives\/","title":{"rendered":"At The Money: How to Buy Alternatives"},"content":{"rendered":"<p> <br \/>\n<\/p>\n<div>\n<p><iframe class=\"lazy lazy-hidden\" style=\"border-radius: 12px;\" data-lazy-type=\"iframe\" data-src=\"https:\/\/open.spotify.com\/embed\/episode\/4B14AlbWoZ8ffEJYwpYXD4?utm_source=generator\" width=\"100%\" height=\"352\" frameborder=\"0\" allowfullscreen=\"allowfullscreen\"><\/iframe><\/p>\n<p><noscript><iframe loading=\"lazy\" style=\"border-radius: 12px;\" src=\"https:\/\/open.spotify.com\/embed\/episode\/4B14AlbWoZ8ffEJYwpYXD4?utm_source=generator\" width=\"100%\" height=\"352\" frameborder=\"0\" allowfullscreen=\"allowfullscreen\"><\/iframe><\/noscript><br \/>\nAt the Money: Lessons in Allocating to Alternative Asset Classes. (January, 15, 2025)<\/p>\n<p class=\"EpisodePage_showDescription__gGkPP\">Hedge funds, venture capital, private equity, and private credit have never been more popular. Investors have lots of questions when allocating to these asset classes: \u200aHow much capital do you need? What percentage of your portfolio should be allocated?<\/p>\n<p><em>Full <\/em><em>transcript below<\/em>.<\/p>\n<p style=\"text-align: center;\">~~~<\/p>\n<p>About this week\u2019s guest:<\/p>\n<p>Ted Seides is founder and CIO of Capital Allocators, and learned about alts working under the legendary David Swensen at the Yale University Investments Office. He wrote the book, \u201c<em>Private Equity Deals: Lessons in investing, dealmaking and operations<\/em>.\u201d<\/p>\n<p>For more info, see:<\/p>\n<blockquote>\n<p>Personal Bio<\/p>\n<p>Professional\/Personal website<\/p>\n<p>Masters in Business interview<\/p>\n<p>LinkedIn<\/p>\n<p><span style=\"text-decoration: underline;\">Twitter<\/span><\/p>\n<\/blockquote>\n<p style=\"text-align: center;\">~~~<\/p>\n<p>\u00a0<\/p>\n<p>Find all of the previous <em>At the Money<\/em> episodes here, and in the MiB feed on Apple Podcasts, YouTube, Spotify, and Bloomberg. And find the entire musical playlist of <em>At the Money on Spotify<\/em><\/p>\n<p>\u00a0<\/p>\n<p><iframe class=\"lazy lazy-hidden\" style=\"width: 100%; max-width: 660px; overflow: hidden; border-radius: 10px;\" data-lazy-type=\"iframe\" data-src=\"https:\/\/embed.podcasts.apple.com\/us\/podcast\/at-the-money-lessons-in-allocating-to-alternative\/id730188152?i=1000684109047\" height=\"175\" frameborder=\"0\" sandbox=\"allow-forms allow-popups allow-same-origin allow-scripts allow-storage-access-by-user-activation allow-top-navigation-by-user-activation\"><\/iframe><\/p>\n<p><noscript><iframe style=\"width: 100%; max-width: 660px; overflow: hidden; border-radius: 10px;\" src=\"https:\/\/embed.podcasts.apple.com\/us\/podcast\/at-the-money-lessons-in-allocating-to-alternative\/id730188152?i=1000684109047\" height=\"175\" frameborder=\"0\" sandbox=\"allow-forms allow-popups allow-same-origin allow-scripts allow-storage-access-by-user-activation allow-top-navigation-by-user-activation\"><\/iframe><\/noscript><\/p>\n<p>\u00a0<\/p>\n<p>\u00a0<\/p>\n<p>\u00a0<\/p>\n<p>Musical intro: <em>You\u2019re my alternative girlfriend,\u00a0 I love you, now you cannot pretend,\u00a0 There\u2019s nothing left that won\u2019t cross over<\/em><\/p>\n<p>\u00a0<\/p>\n<p>Hedge funds, venture capital, private equity, private credit, allocating capital to alternatives has never been more popular. or more challenging. How should investors approach these asset classes? I\u2019m Barry Ritholtz, and on today\u2019s edition of At The Money, we\u2019re going to discuss how investors should think about alternative investments.<\/p>\n<p>To help us unpack all of this and what it means for your portfolio, let\u2019s bring in Ted Seides, who began his career at the Yale University Investments Office under the legendary David Swensen. He\u2019s founder and CIO of Capital Allocators, and since 2017, has hosted a podcast by that same name. His latest book is \u201cPrivate Equity Deals: Lessons in investing, dealmaking and operations from private equity professionals\u201d is out now.<\/p>\n<p>So, Ted, let\u2019s start with the basics. What is the appeal of alternatives?<\/p>\n<p><strong>Ted Seides<\/strong>: If you start with what\u2019s called a traditional portfolio of stocks and bonds, the idea of adding alternatives is to improve the quality of your portfolio, meaning you\u2019re trying to get the highest returns you can with a similar level of risk, or sometimes\u00a0 the same kind of returns with a reduced level of risk, and bringing in these other alternatives help you do that.<\/p>\n<p><strong>Barry Ritholtz<\/strong>: I mentioned a run of different alternatives. How do you distinguish between private equity, private credit, hedge funds, venture capital? Lots of different types of alts. How do you think about these?<\/p>\n<p><strong>Ted Seides<\/strong>: Each of them have their own different risk and reward characteristics, and that\u2019s probably the easiest way to think about it. If you go from a spectrum, private credit, think about it as the same as bonds, a little bit different. Hedge funds can be like bonds or stocks, a little bit different. Then you get into private equity, which is kind of a little bit of juiced stock portfolio, and venture capital is the riskiest of them all.<\/p>\n<p><strong>Barry Ritholtz<\/strong>: So you\u2019re discussing risk there. Let\u2019s talk about reward. What sort of return expectations should investors have for these different asset classes?<\/p>\n<p><strong>Ted Seides<\/strong>: Well, similarly, private credit, think about a bond portfolio with credit risk and a little bit of illiquidity. So, that\u2019s bonds plus. Is it bonds plus? 200 basis points, maybe something like that.<\/p>\n<p>Hedge funds generally have either bond-like or stock-like characteristics with less risk. Private equity, you should expect a premium over stocks, and venture capital, a premium over that because of the early stage risk.<\/p>\n<p><strong>Barry Ritholtz<\/strong>: Those are really kind of interesting. You mentioned illiquidity. Let\u2019s talk a little bit about the illiquidity premium. What does that mean for investors? What\u2019s involved with that?<\/p>\n<p><strong>Ted Seides<\/strong>: When you start with just traded stocks and bonds, you can get out instantaneously.\u00a0 So if you\u2019re going to commit your capital. to any of these other categories, you have to embrace some illiquidity \u2013 meaning if you want to get out in that moment, it\u2019s going to cost you.<\/p>\n<p>So to take on that risk, you need some type of extra return. Otherwise, it wouldn\u2019t make sense to do it. So the concept of an illiquidity premium is that in order to pursue these strategies that prevent you from accessing your money instantaneously, you need to get paid for that.<\/p>\n<p><strong>Barry Ritholtz<\/strong>: So where does the illiquidity premium come from? My assumption was because this is so much smaller than public markets with so many fewer investors, perhaps there are some inefficiencies that these managers can identify \u2013 any Truth to that?<\/p>\n<p><strong>Ted Seides<\/strong>: It depends on the strategy, that\u2019s, that would be the story with hedge funds for sure. When you get into private equity and venture capital, it\u2019s always in price.<\/p>\n<p>So if you\u2019re getting the same asset that\u2019s in the public markets or the private markets, in theory you should want to buy it at a discount in the private markets because you can\u2019t get your money out quickly. And that\u2019s where you would see that premium.<\/p>\n<p><strong>Barry Ritholtz<\/strong>: And so, since we\u2019re talking about lockups and not being able to get liquid, except at very specific times, how long should investors expect to lock up their capital in each of these alternatives?<\/p>\n<p><strong>Ted Seides<\/strong>: It depends on the strategy. And whether you\u2019re investing directly in these securities or let\u2019s just say you\u2019re in funds. So private credit can vary, but oftentimes you may not get the liquidity until the assets are liquidated.<\/p>\n<p><strong>Barry Ritholtz<\/strong>: So that could be anywhere from 5 to 10 years. It can be.<\/p>\n<p><strong>Ted Seides<\/strong>: Hedge funds often are quarterly liquidity, depending on the underlying. You get into a private equity or venture capital fund, now you\u2019re generally talking about 10 to 15 years.<\/p>\n<p><strong>Barry Ritholtz<\/strong>: Because you have to wait for that private company to have some liquidity event to free up the cash.<\/p>\n<p><strong>Ted Seides<\/strong>: And on top of that, if you\u2019re investing in a fund, you have to wait for the fund manager to find the company. So you\u2019re committing your capital, they find the company, they might own it for, you know, say three to eight years, and then you\u2019re waiting to get the cash back.<\/p>\n<p><strong>Barry Ritholtz<\/strong>: That\u2019s really, that\u2019s really kind of intriguing. All right, so when investors interested in alts, How much capital do they need before they can start seriously looking at the space? Is this for 5 million portfolios or 50 million portfolios?<\/p>\n<p><strong>Ted Seides<\/strong>: It\u2019s changing a lot to move to smaller numbers. If I go back to when I started in this.\u00a0 You didn\u2019t have kind of pooled alternatives. Think about fund to funds or all this movement of the democratization of alts. And a minimum might be a million dollars for a single fund.<\/p>\n<p>If you wanted diversification and you wanted, say, ten different funds, now you\u2019re talking about ten million, and if that\u2019s only ten percent of your portfolio, you\u2019re looking at a hundred million dollars just to make it. Those are big numbers.<\/p>\n<p>That has changed a lot. And now you\u2019re starting to see more and more products available at, you know, rather than a million dollar minimum, maybe it\u2019s $50,000 or even less.<\/p>\n<p>It\u2019s a little bit less, what size? I mean, you do need to have, you know, is it 5 million? Is it 10 million? I don\u2019t really know.<\/p>\n<p><strong>Barry Ritholtz<\/strong>: But it\u2019s not 500, 000. Right. So, so, and you were saying the goal is<\/p>\n<p><strong>Ted Seides<\/strong>: Well, the goal is to get access to some of these areas, hopefully in a very high quality way, and have some diversification within the strategy that you\u2019re pursuing, and that does take some capital.<\/p>\n<p><strong>Barry Ritholtz<\/strong>: You just said something really interesting before. Ten different funds and a million dollars each out of a hundred million dollars. You\u2019re implying that investors should allocate a certain percentage. So let me, rather than use that example, let me just ask that directly. How much in the alt and private space should investors think about allocating in order to generate potentially better returns and increase their diversification?<\/p>\n<p><strong>Ted Seides<\/strong>: It\u2019s entirely a function of, let\u2019s say, a liquidity budget. As you mentioned,\u00a0 you need to lock up your capital, particularly when you\u2019re getting into private equity and venture capital. That means you can\u2019t access it.\u00a0 If someone has enough money that they don\u2019t really need to access, if you have a hundred million dollars, you\u2019re probably not accessing most of that year to year, and you\u2019ve seen in some of the most sophisticated institutions, all these alts get up to 50% of their portfolio.<\/p>\n<p>If you\u2019re talking about, maybe you have 5 million to invest, it\u2019s not clear you want to take half of that and put it away so that you can\u2019t access it in case you need the capital in between now and 15 years from now.<\/p>\n<p><strong>Barry Ritholtz<\/strong>: A phrase I heard that kind of made me giggle, but I want to share it with you. 60\/40 is now 50\/30\/20. What, or some variation. to that effect. What are your thoughts on that?<\/p>\n<p><strong>Ted Seides<\/strong>: I think about it a little bit differently, which is most of the time you want to think about the risk and return of the overall, and you can break that down into stock bond risk. So whether that\u2019s 60\/30, that\u2019s fine. The question with alts is how do you want to take that risk?<\/p>\n<p>So rather than in a 70\/30 having 70 percent in U. S. stocks, yeah, you may want to say, hey, maybe 20 percent of that should be in private equity. You have similar risk, but you have a different type of return stream and hopefully a little more octane.<\/p>\n<p><strong>Barry Ritholtz<\/strong>: Let\u2019s talk about fees. It used to be that two and twenty \u2014 two percent of the underlying investment plus twenty percent of the net gains was the standard. What are the standard fees in the alt space today?<\/p>\n<p>\u00a0<\/p>\n<p><strong>Ted Seides<\/strong>: It is a function a little bit of that return characteristic. So if you get to the higher octane private equity and venture capital, You generally do still see 2 in 20. On hedge funds and private credit, it tends to be a little bit less than that. But make no mistake about it, the fees are higher in the alternatives than they are in the traditional world.<\/p>\n<p><strong>Barry Ritholtz<\/strong>: How should investors go about finding alternative managers and evaluating their funds?<\/p>\n<p><strong>Ted Seides<\/strong>: This is incredibly important because unlike in the stock and bond markets, the dispersion of returns and alts is much, much wider. Meaning if you find a good manager, it matters a lot more than if you find a good stock manager or a good bond manager. Conversely, if you find a bad one, it hurts you much more. benefit if you\u2019re hurt by stock and bond.<\/p>\n<p>So how do you do it?\u00a0 It does take a fair amount of research and either a trusted advisor or someone who knows the space. There\u2019s a lot of different ways to get involved in that. One of the ways you\u2019re seeing more and more as alts get democratized is the bigger brands are creating products.<\/p>\n<p>You can go to Blackstone and you\u2019ll be fine.\u00a0 \u00a0I don\u2019t know if you\u2019ll get the best returns, but you\u2019re not going to get the worst returns. One way that people think about participating is you look at who these larger public alternative managers are. It\u2019s a Blackstone, Ares, Apollo, KKR, TPG. These are super high-quality investment organizations.<\/p>\n<p><strong>Barry Ritholtz<\/strong>: How do you gain entry to the best funds? A lot of, you know, it\u2019s a little bit like the old Groucho Marx joke, \u201cI wouldn\u2019t want to be a member of any club that would have me.\u201d The funds you want to get into the most very often require giant minimums because they\u2019re working with foundations and endowments; and very often they\u2019re either closed, or there\u2019s a giant queue to get into them. How does one go about establishing a relationship? (P. S. all these questions come right from your book.) But how do you go about establishing a relationship with a potential alternative fund that you might want to have exposure to?<\/p>\n<p><strong>Ted Seides<\/strong>: It\u2019s really hard, particularly as an individual. If you think about it, you\u2019re competing with all of those very well-resourced institutions, endowments, foundations, pension funds, that have people, well-compensated people, that are out looking for these funds.<\/p>\n<p>The question you have to ask is, what are you trying to accomplish? And that can be different for, for, You know, different people and different organizations. But generally speaking, it does require working into networks where you start to learn who the players are. And trying to figure out from that who are the better ones.<\/p>\n<p>It takes a lot of time to do that well.<\/p>\n<p><strong>Barry Ritholtz<\/strong>: If someone wants some assistance in building out the alternative portion of their portfolios, where do they begin looking? How do they go find that sort of those sort of resources.<\/p>\n<p><strong>Ted Seides<\/strong>: Usually the first step comes from the fund to funds world; and you could look at as a great example Vanguard now as part of their retirement package did a deal with Harbor Vest.<\/p>\n<p>Harbor Vest is one of the leading fund to funds to allow entry to get good quality exposure. A Harbor Vest, a Hamilton Lane, Stepstone, some of these are some of the bigger established private equity fund to funds. They do a very good job. of getting people access to high-quality exposure.<\/p>\n<p><strong>Barry Ritholtz<\/strong>: If you\u2019re, if you\u2019re a 401k at Vanguard, do you have access to that? Or is that just broad portfolios?<\/p>\n<p><strong>Ted Seides<\/strong>: I know it exists within their suite. I\u2019m not sure if it\u2019s part of their target funds or you can directly access.<\/p>\n<p><strong>Barry Ritholtz<\/strong>: What are some of the bigger challenges and misconceptions about investing in alternatives?<\/p>\n<p><strong>Ted Seides<\/strong>: The biggest misconceptions come from the public perception of it because Most of the time in the news, you only read about sensationalization. You read about huge returns and big failures.<\/p>\n<p>In almost all the cases \u2013 and let\u2019s set aside venture capital because venture capital is designed to have huge successes and failures \u2013 all the action happens in the middle. Hedge funds, generally speaking, are very boring. They\u2019re not newsworthy. They shouldn\u2019t make the news.<\/p>\n<p>Private credit\u2019s the same way. There will be a time in private credit where there are defaults, and you\u2019ll read about defaults. But you probably won\u2019t read that the returns are just fine, even with the defaults.<\/p>\n<p><strong>Barry Ritholtz<\/strong>: How do investors go about doing some due diligence on the funds they\u2019re interested in? How do they make sure they\u2019re getting what they expect to get?<\/p>\n<p><strong>Ted Seides<\/strong>: A lot of it starts with meeting the people and trying to understand what is their philosophy, what is their strategy, and how do they go about deal making.\u00a0 You then can get into the data.\u00a0 Any of these firms that\u2019s been around, they\u2019ve done deals in the past, and you could try to figure out, how do they add value? Do they buy well? Do they run the companies well? Do they sell well? Is it financial leverage?<\/p>\n<p>Then trying to figure out, what do you think works? And is that a fit with how that firm pursues investing?<\/p>\n<p><strong>Barry Ritholtz<\/strong>: Really interesting. So to wrap up, investors who have a long time horizon, a substantial portfolio, the time, effort, and interest in exploring the alternative space may want to pull some modest percentage of their holdings aside and locking these up for an extended period with the hope of getting a better than average return on a diversified basis or an average return on a lower risk basis.<\/p>\n<p>Start out by looking at some of the bigger names in the space that Ted had mentioned. Do your homework and your due diligence. Go into this with open eyes and make sure that you are not allocating too much capital to a space that might be locked up for five or ten years or more.<\/p>\n<p>Successful alternative investors have been rewarded with outstanding returns. Unsuccessful ones have underperformed the public markets.<\/p>\n<p>I\u2019m Barry Ritholtz and this is Bloomberg\u2019s At The Money.<\/p>\n<p>\u00a0<\/p>\n<p style=\"text-align: center;\">~~~<\/p>\n<p>\u00a0<\/p>\n<p><iframe class=\"lazy lazy-hidden\" style=\"width: 100%; max-width: 660px; overflow: hidden; background: transparent;\" data-lazy-type=\"iframe\" data-src=\"https:\/\/embed.podcasts.apple.com\/us\/podcast\/masters-in-business\/id730188152\" height=\"450\" frameborder=\"0\" sandbox=\"allow-forms allow-popups allow-same-origin allow-scripts allow-storage-access-by-user-activation allow-top-navigation-by-user-activation\" data-mce-fragment=\"1\"><\/iframe><\/p>\n<p><noscript><iframe style=\"width: 100%; max-width: 660px; overflow: hidden; background: transparent;\" src=\"https:\/\/embed.podcasts.apple.com\/us\/podcast\/masters-in-business\/id730188152\" height=\"450\" frameborder=\"0\" sandbox=\"allow-forms allow-popups allow-same-origin allow-scripts allow-storage-access-by-user-activation allow-top-navigation-by-user-activation\" data-mce-fragment=\"1\"><\/iframe><\/noscript><\/p>\n<div class=\"printfriendly pf-button pf-button-content pf-alignleft\">\n<p>                    <img decoding=\"async\" class=\"pf-button-img\" src=\"https:\/\/cdn.printfriendly.com\/buttons\/printfriendly-button.png\" alt=\"Print Friendly, PDF &amp; Email\" style=\"width: 112px;height: 24px;\"\/><\/p><\/div>\n<\/div>\n<p><br \/>\n<br \/><a href=\"https:\/\/ritholtz.com\/2025\/01\/atm-how-to-buy-alternatives\/\">Source link <\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>At the Money: Lessons in Allocating to Alternative Asset Classes. (January, 15, 2025) Hedge funds, venture capital, private equity, and private credit have never been more popular. Investors have lots of questions when allocating to these asset classes: \u200aHow much capital do you need? What percentage of your portfolio should be allocated? Full transcript below. [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":62,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"om_disable_all_campaigns":false,"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[3],"tags":[3135,170,169],"class_list":["post-1796","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-ekonomika-finansai-bankininkyste","tag-alternatives","tag-buy","tag-money"],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/europaskolos.lt\/index.php\/wp-json\/wp\/v2\/posts\/1796","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/europaskolos.lt\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/europaskolos.lt\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/europaskolos.lt\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/europaskolos.lt\/index.php\/wp-json\/wp\/v2\/comments?post=1796"}],"version-history":[{"count":0,"href":"https:\/\/europaskolos.lt\/index.php\/wp-json\/wp\/v2\/posts\/1796\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/europaskolos.lt\/index.php\/wp-json\/wp\/v2\/media\/62"}],"wp:attachment":[{"href":"https:\/\/europaskolos.lt\/index.php\/wp-json\/wp\/v2\/media?parent=1796"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/europaskolos.lt\/index.php\/wp-json\/wp\/v2\/categories?post=1796"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/europaskolos.lt\/index.php\/wp-json\/wp\/v2\/tags?post=1796"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}