Registered Rep.: At CAISfunds, you have created a platform to give advisors and broker/dealers access to alternatives. What was the impetus behind creating such a platform?
Matthew Brown: Three years ago, we looked around at the methods industry players were using to get access to alternatives, and saw that some of the bigger banks, such as Merrill Lynch and Morgan Stanley, were building out these structurally-sound platforms that solved for operational issues or hurdles that prevent clients from accessing alternatives. But the issue in the wealth management space has been that private clients have different needs than those at the institutions, so we built an independent platform that's conflict-free and unaffiliated with any institution. We aim to level the playing field with this platform, so that smaller firms that didn't have access to an alternatives platform can offer one as robust as the larger firms. RIAs are especially resource-constrained and competing against firms with a lot of resources, and they're finding that they have to outsource it because they can't justify doing it in-house.
RR: Are you seeing increased demand for alternatives?
MB: More advisors are increasing their allocations to alternatives these days because other asset classes — equities, fixed income — are not generating the types of returns that investors are happy with. Alternatives can generate returns and act as a diversifier. Most advisory firms with high-net-worth clients are trying to bring some type of alternatives solution to their clients.
RR: Why do they need an alternatives platform? Are clients demanding it?
MB: Clients are going toward advisory firms with comprehensive alternative platforms, and firms that are growing their assets are the ones that have robust alternatives solutions. It's not as easy to attract clients these days because they have a choice, and they're going to go to firms that offer a larger, more diversified toolkit.
RR: CAIS partners with Mercer Consulting to conduct the due diligence on the 30 funds on the platform. How should advisors go about conducting due diligence on alternative managers?
MB: Any advisor investing in alternatives must have a very thoughtful due diligence and monitoring process. It should include not only investment due diligence on why the manager is buying and selling, but also operational due diligence, which is how strong the company is and what types of oversight and controls they have in place. In addition, due diligence is not just a one-time thing; it's ongoing.