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Jacob Miller and Matthew Rubin demystify fees, liquidity, and communication in private investments
Key Takeaways
- Investors should evaluate private investments based on net returns, and not on perceived high fees.
- Technology is transforming private market access. Streamlined administration and transparent reporting make investing in drawdown vehicles far less cumbersome for clients and advisors.
- Investing across multiple vintages can work like a bond ladder, allowing private investments to become a reliable and systematic source of portfolio liquidity.
Transcript
Jacob Miller: Hi, I’m Jacob Miller, co-founder of Opto Investments.
Matthew Rubin: Hi, I’m Matthew Rubin, chief investment officer of Cary Street Partners.
There’s just a tremendous amount of education that’s required to really get clients comfortable with investing in the private markets in aggregate. One is fees. There’s a misconception that they’re just higher-fee investments. The way that we look at it at Cary Street is net returns. Everything is after fees. It’s fine if a manager is going to make their fees, but what are we getting back once we invest in the manager?
Another big hurdle with private investments is the administration around those private investments. And Opto has been a tremendous partner there in getting us very comfortable with being able to administer those private investments, even in drawdown vehicles where there’s a different set of reporting, where there’s a different time frame around that reporting. The technology that you deliver as a firm has just made that process very seamless for us and for our clients.
Jacob Miller: Unfortunately, prior to developing Opto, the idea that it was just much more difficult was largely true. You know, subscription documents for every client, for every fund, dozens of K-1s at the end of the year, delays and a lack of transparency—like when cash is in transit, where is it?
And so if we can get to the point where that is an hour-long conversation with the client, five minutes on a sub doc, and a quarterly review of what’s going on in a portfolio, I think that well justifies the effort of getting access to this new asset class.
Now on fees—yeah, absolutely. It’s just net return. And that should be how you look at every asset class: What am I getting kind of the day?
I think the last misconception we see is, even in drawdown vehicles, what is illiquidity? This isn’t a black box. You don’t put in $100 and 12 years later get some number between 100 and 300. Capital will be called in al structured way over probably three or four years, and by the time you’re fully called, most of the time funds might be distributing early capital. And so that’s, I think, demystifying that illiquidity. And the way I kind of put it—if you’re investing every year, you can almost think about it like a bond ladder. I’m contributing, it’s distributing, and eventually that program becomes self-sustaining. A source of liquidity for the portfolio instead of being a drag.
Matthew Rubin: The way that we think about it is looking at multiple vintages and investing in the context of a portfolio of alternative private investments for clients. And to your point, Jake, it does become like a bond ladder. It becomes very systematic in the way that you’re deploying capital and in the way that you receive capital back.
The other thing that’s really important is the communication between the fund and the end client, and making sure that’s fluid and consistent so the investors know where the capital has gone, what’s being done with the capital, and when they should expect to see capital returns over what time frame.
Important disclosures
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