1. Tell us about your background and what made you gravitate towards the private markets?
I originally came from a technical and manufacturing background in my first career so I never imagined I would be working in the investment and insurance field. In 2005, due to the early death of my father, I saw firsthand what can happen to a household that did not have the important elements of a financial plan in place. Due to seeking investment solutions for my widowed mother, I was introduced to the Private Markets and in 2008, I witnessed how the private capital markets and publicly traded stock market reacted to the events of the Great Recession. Observing this is what really helped me understand the value of having a portion of one's investments not be directly correlated to the stock market. This set me on a path to learn more about the private capital markets and why wealthier investors often use these securities in their portfolio construction.
2. What are some of the biggest changes you have seen since you started?
In the early years of entering the Exempt Market (or then known as the Limited Market) prior to the regulatory overhaul in 2010, the challenges were many in terms of not having a direct way to become a Registered Advisor. Many industry professionals operated under the Northwest Exemption prior to 2010 and were often more comprised of "sales" oriented persons than holistic registered professionals that wanted to build a long-term career in this space. Registration, compliance and educational coursework changed that significantly to have Exempt Market Dealers become the rightful gateway and objective third party in helping investors add alternative asset classes to their portfolio.
Since 2010, we have consistently seen the quality of Exempt Market Dealers improve in terms of due diligence capability, compliance guidance and the private investments have also significantly improved in standards and quality. In the first few years after 2010, the difference in investment outcomes was very polarized. Some funds performed very well and others performed very poorly - the goal was to create a much more cohesive, and empowering portfolio of private investments to complement traditional market holdings, and that could only be achieved through innovation, standardization and setting the bar higher for investment issuers, looking to raise capital with Exempt Market Dealers. Calls for more transparency, more in-depth due diligence, clearer reporting standards and professional advisory ethics have all created a much healthier marketplace for investors to operate in today.
3. What is the one thing you want someone unfamiliar with this space to know?
The overall experience investors and advisors will have in this space is likely very pivotal to the Exempt Market Dealer they choose to work with. If you work with a larger exempt dealership, the resources to conduct due diligence properly, to get excellent training in compliance, product structuring knowledge and be instrumental in offering structure and alignment mechanisms with investors can be a lot higher. Also, larger Exempt Market Dealers can have multiple vertically integrated businesses to help investors properly diversify holdings in non-private investments and other complementary businesses therefore having a wide variety of options which allows advisors to be much more diversified in the planning they can offer. Numerous Exempt Market Dealers have not been able to adjust to the changing landscape and so the larger Exempt Market Dealers’ businesses that are leading the way can really be helpful to building one's career in this space and investors getting a better experience overall with reporting.
4. What are your ‘go to’ features that you look for when completing KYP on a given product for suitability consideration?
a) Cost of Capital
c) Business Plan (Item 2)
Whenever I am learning about a product, I want to properly understand the business plan, the model of delivering returns and if those methods are realistic. I am seeking investments that are already experiencing good success already and are looking to extend that success with the simplest plan to achieve that and scale up larger.
Some of the top things I first review are the risks that an investor would be accepting and the expected time horizon for the investor to stay involved. If it is unclear on how an investor would receive their capital back, or the timeline is highly dependent on variable timeline objectives being completed, I tend to become less interested.
Cost of capital, business momentum, management team skills and experience are all so important to the success of a fund, they cannot be understated. I generally seek investments where the investor does not have to wait years to know how the fund is performing, so I prefer more frequent reporting funds.
5. Share something interesting about yourself that most people don’t know.
One thing that most people don't know about me is that I was literally stuck by lightning while on vacation at the Grand Canyon. The jolt that I felt through my body affected all people that were holding the metal railing, while viewing the Grand Canyon from the edge. Luckily, while I was very sore and scared by the event, I was able to walk away from a potentially very bad situation without any lasting harm. To this day, if I see lighting, I stay indoors and undercover!