OZ Pitch Day - July 20, 2023
Building Generational Wealth With Alternative Investments – Keynote By Andy Hagans
In this keynote address from OZ Pitch Day Spring 2023, Andy Hagans and Jimmy Atkinson discuss the current landscape for alternative investments, and how High Net Worth investors can embrace alts to grow generational wealth.
Andy Hagans’ podcast, The Alternative Investment Podcast, is available on Apple Podcasts.
- Overview of WealthChannel, a community being built to spread knowledge of wealth development via exclusive, industry-leading podcasts in the financial space as well as events where investors can learn about alternative investment opportunities.
- A definition of alternative investments, and why they are becoming increasingly popular with high net worth investors;
- Why alternative investment products have improved over the last decade, creating improved opportunities in this asset class;
- How frustrations with public stock and bond markets are driving interest in alternatives;
- Ways for high net worth investors to begin incorporating alternatives into their portfolios;
- How Opportunity Zones fit into the broader universe of alternative investments.
Featured On This Episode
Today’s Guest: Andy Hagans
Industry Spotlight: WealthChannel
WealthChannel is the leading community for High Net Worth investors. Their podcasts and events help investors to grow their wealth with alternative investments. WealthChannel’s co-founders are spreading their knowledge of wealth development via their exclusive, industry-leading podcasts in the financial space, where they gather insights from the smartest and most-connected leaders in the financial industry. WealthChannel also hosts exclusive events where investors can learn about alternative investment opportunities, interact with leading asset managers, and take action by accessing quality investment offerings.
Learn More About WealthChannel
- Visit WealthChannel.com
Jimmy: Let’s dive in. Our keynote discussion this morning, a brief fireside chat, if you will, “Building Generational Wealth with Alternative Investments.” The wealthy and the ultra-wealthy, Andy, are taking big financial wins and turning them into massive wins using tax-advantaged Alternative Investments. But what can you tell us, first of all about ALTs? What are they exactly? How do you define them?
Andy: It’s funny you asked that, Jimmy. I get that question all the time. There’s, depending who you ask, there’s no precise answer, but my answer, an alternative investment is any type of investment outside those traditional, you know, investment asset classes, stocks, bonds, and cash or cash-like instruments. And when I say stocks and bonds, I’m also including, you know, mutual funds and ETFs, vehicles that hold those asset classes, you know, long only. So when we’re talking about ALTs, typically we’re talking about real estate or other types of private funds, you know, hedge funds, private credit, private equity, venture capital, all kinds of real estate vehicles. You also have liquid ALTs, you know, alternative ETFs, commodity ETFs, things like that. But on my show, “The Alternative Investment” Podcast, we’re typically talking about those illiquid, you know, alternative investment vehicles, the illiquid funds, the private funds, you know, products like what we’re gonna learn about today at OZ Pitch Day.
Jimmy: Incredible. When I… I’m gonna ask you in a minute how opportunity zones fit into the bigger universe of Alternative Investments. But first, I actually wanna back up for a second because I think I jumped the gun here. Can you tell me a little bit more about you, Andy, and you are the co-founder of WealthChannel. I’m the other co-founder. Maybe you can tell us a little bit about you and about WealthChannel and why we started WealthChannel and how it fits in to the Opportunity Zone universe.
Andy: Yeah, great question. Well, Jimmy, I don’t know if our audience knows you and I were college roommates. We’ve been business partners for about 20 years now.
Jimmy: That’s right.
Andy: We’ve created and sold four different businesses previously. This new project WealthChannel, including OpportunityDb. This is kind of our passion project, right? This is the big thing that we’re building. And it’s a community of high-net-worth investors and investors who are trying to grow their wealth, especially with Alternative Investments. And so, you know, kind of, I don’t wanna say the centerpiece, but maybe I can say that is our podcasts and especially the Alternative Investment podcast, which I host. For that it’s a real passion project for me that I get to host the podcast, I get to talk to all sorts of experts and frankly, some of the smartest, most connected people in finance on that show. So, past couple years doing this along with you, alongside you, I’ve learned a ton about alternatives from other people and applying that with my own portfolio, investing in different kinds of private funds. And, you know, a big theme that I see here at this event at all of our events is passion. You know, because it’s not just about growing our wealth, but we’re having so much fun along the way. Would you say that’s fair?
Jimmy: Oh, we’re. We’re having a ton of fun. Yeah. And it’s really I’ve enjoyed just getting to meet all of the different people in the industry. Some really amazing leaders in the alternative investing industry and in the Opportunity Zones investing industry as well. We consider Opportunity Zones to be a subset of this broader topic we’re talking about right now, Alternative Investments, and Andy, frankly, not just opportunity zones, but all forms of alternative investments seem to be coming a lot more popular with our audience of high-net-worth investors in recent years. Why is that, do you think?
Andy: Yeah, good question. And I mean, that’s borne out by the data, right? So that’s not just, it’s not just our theory that they’re becoming more popular. We’ve seen massive inflows into all kinds of alternative investment asset classes, different product types, different wrappers. So, I really have two answers to that question, you know, why now, right? I’m gonna talk a little bit about why alternatives are popular perennially, but why now? You know, I think number one, the products are just better than they used to be. So compared to 20 or 30 years ago, the sponsors, the issuers, the asset managers working in alternatives with alternative investment products, they’re frankly just more professional. They’re more transparent, you know, the invisible hand of the market, I think, has made the products stronger. Fee structures in general are sort of slowly coming down over time.
So that same cost pressure that’s in the world of traditional investments, it’s also playing out in the world of alternative investments. So, you know, that’s kind of why now. And I also think that investors are getting sick and tired of the volatility in public markets. You know, it’s more and more, it feels like a roller coaster, not only a roller coaster, but a roller coaster that’s being manipulated, you know, by the Federal Reserve, by politicians in Washington DC, by global actors. So, it’s not even just a roller coaster of Mr. Market, but it feels like a manipulated roller coaster, and I think a lot of investors are just sick of it. So that’s why now. But let’s talk about, you know, big pictures zooming out. Why are alternatives so popular with high net worth investors, with the ultra-wealthy, with family offices. Number one, they lower the overall volatility of a portfolio.
If you use them intelligently and include them in a portfolio intelligently, they’re gonna lower the overall volatility. And I think that’s a huge appeal. You know, investors being tired of the roller coaster, especially family offices, the ultra-wealthy really focused on capital preservation. They don’t wanna have years where their portfolio is down 20%. So that decreased volatility, that’s number one. Number two, there’s an opportunity for alpha and higher returns. You know, a lot of these alternative asset classes, for instance, real estate, if you look at family offices, a lot of times real estate is the asset class within that family office that is performing the best in terms of returns over the long run. So, it’s not only less volatility, it’s also higher returns. Thirdly, the tax advantages, the tax efficiency, obviously we’re talking about opportunity zones today. There’s other types of products in the alternative investment landscape.
You know, energy products, oil and gas, really all kinds of real estate stuff. You know, 1031s, DSTs, Opportunity Zones. So, a lot of these products are very, very tax efficient. And when you’re talking about high-net-worth investors or the ultra-wealthy, typically you’re in a higher tax bracket. So, you need to be focused on those triple net returns, returns net of inflation, net of fees, net of taxes, right? Because it’s not always in tax advantage space in your portfolio. So those are the big three reasons. I like to add a fourth reason because it’s fun. You know, I think whether we’re talking about impact, a lot of the projects that we’re learning about today, projects that are frankly changing the world or improving local communities so making an impact. But it’s also just fun, you know, it’s fun to be an LP and a venture capital fund. It’s fun to invest in real estate, sticks and bricks, all of these exciting projects. So, I think if we’re being honest, I can include that fourth reason. You know, speaking for myself personally, I think it’s fun. It’s just a fun sandbox to play in.
Jimmy: Yeah, it’s where’s the fun if all of your money is just sitting in the bank or your brokerage account at TD Ameritrade or Fidelity or Vanguard? I’ve enjoyed being an alternative investor in recent years myself, and I’ve got a soft spot in my heart for opportunity zones as the cream of the crop when it comes to tax advantage investing. But there are a lot of factors to consider, not just the tax benefits, of course. Andy, what are some easy ways for high-net-worth investors to incorporate ALTs into their investment portfolio?
Andy: Well, Jimmy, that’s a big question, almost a loaded question, right? Because it’s gonna depend on the investor. So, I would say you always have to start with knowing your goal, right? So, your goal might be for your overall portfolio, even putting alternatives aside. Is your goal to generate income and have a high-income portfolio? Is your goal capital preservation, you know, a lot of family offices, that’s their number one goal for the ultra-wealthy is capital preservation. I think for a lot of high-net-worth investors, you know, your “everyday accredited investors,” they’ve already, you know, generated some wealth, they’ve invested and accrued some wealth, but now they want to grow that wealth potentially into generational wealth so that’s a different goal. So, I think you have to start and understand what your goal is, because that’s gonna determine your overall portfolio allocation and how you use alternatives in that portfolio.
You know, once you know your goal and then the next step would be determining your allocations, including allocation to alternatives. A lot of times investors are doing this, you know, with the help of an advisor, with the fiduciary, maybe with their CPA or other advisors. Which is great, you know, surround yourself with folks that can help advise you. A little bit of planning goes a long way, you know, you want to have that allocation that supports your portfolio goals. Now we’re getting into the fun stuff. Okay, so now we’re talking about portfolio allocation. In the old days, you know, a lot of portfolios were 60/40. I think increasingly we’re getting to a world where the default is more like 50/30/20, or even more allocated to alternatives, you know, 20% or more. I’ve talked to some ultra wealthy investors, some family offices, their allocation to ALTs is, is virtually 99 or 100 percent.
But that number’s gonna be different for each person. But once you know what your allocation to alternatives is, now, I think you’re looking for asset classes, alternative asset classes that support your goal. So, what I mean by that is, if your portfolio goal is income, you might be looking at private credit. If your portfolio goal is capital preservation, you’re gonna be looking for alternatives that are more stable. You know, like within real estate, DSTs tend to be more stable, more focused on capital preservation. If your goal is to, you know, take the wealth you’ve already grown and to grow it further into generational wealth, that’s a different goal. You know, now you’re looking more at capital appreciation overall returns, you might be taking on a little bit more risk. And that’s where vehicles such as, an Opportunity Zone Fund, you know, that’s a great vehicle to take an existing capital gain and try and leverage that and really grow it into generational wealth.
So, you know, but that all starts with knowing your goal. Then, okay, I know my goal, I know my allocation within my allocation to ALTs, I know what asset classes support my goal. Now we get to the fun part, which is product selection, fund selection. What projects am I investing in? What funds am I investing in? What sponsors am I partnering with as an LP? I mean, to me, that’s the most fun, right? That’s why we’re here today, to hear all these stories, look at all these products, see all these presentations, and you know, that’s where you get into due diligence. Looking at a sponsor’s track record, looking at the numbers, his equity multiple IRR. That’s the really fun stuff in my opinion. Jimmy.
Jimmy: That’s great, Andy. Well, we’ve got two more minutes left for you before I gotta yank you off the stage, Andy. But really quick, keeping in mind that this is an Opportunity Zone event, let’s bring it into more focus here. How do opportunity zones fit into this broader ALTs universe in your mind?
Andy: Yeah, and I kind of alluded to it already, but first I wanna say Opportunity Zones are too much of a well-kept secret. You know, too many family offices and high net worth investors aren’t using this tax program because it’s a little bit clunky, right? Because, you know, no offense Jimmy, but it’s just, you know, the ten-year hold and the fact that you can only invest capital gains. It just, I think in a lot of investors’ minds, it can seem a little clunky. But as you alluded to, it’s probably the best tax incentive ever offered to high-net-worth investors.
And, you know, speaking personally, in 2021, at or near the peak, I was able to take some capital gains from the liquid markets, redeploy those into qualified opportunity funds, you know, real estate, venture capital, different opportunity funds and for me, that was a way to shift some of my wealth into tax advantage vehicles in a way that otherwise wouldn’t be available to me, right? Those weren’t 1031s from the disposition of a real estate asset. So, I think investors need to think holistically about shifting some of their portfolio into tax advantage vehicles. And when it comes to tax advantage vehicles, there’s really almost nothing better than a Qualified Opportunity Fund. So, I think there’s a lot of awesome, you know, sponsors here today with very high quality products. So, I’m just excited to see all these presentations and I’ll be taking notes.
Jimmy: Yeah, I am as well. This is our 8th OZ Pitch Day, we keep getting better and better it seems. And it’s been a lot of fun introducing Opportunity Zones to different investors all over the country over the last 4+ years since we started OpportunityDb. Well, Andy, I’ve dropped the link to WealthChannel in the chat and to the Alternative Investment Podcast in the chat as well. So, I would encourage our attendees to go check out wealthchannel.com and Andy’s podcast, “The Alternative Investment” Podcast at that link that I put in the chat. Andy, thanks so much for participating today, and I hope you stick around and watch some of the presentations.
Andy: Oh, I will, Jimmy. Thank you. Thank you.
Jimmy: All right. Thanks, Andy.