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Dakota 2021 - Investment Trends Panel

By: Amy Sariego, Director of Content Marketing

If you missed the 2021 Dakota Conference (or you just want to revisit some of the great discussions that were had), don’t worry. In addition to full, streamable videos, we’re sharing the transcripts of some of our panels so that you can read them at your own pace.

In this article, we’re sharing the full transcript of the Investment Trends discussion. During this panel, we discussed where leading CIOs have invested, and where they will be looking to invest in the next year. By the end of the article, you'll have a clear understanding of current and upcoming trends.

A Conversation Hosted by Mimi Drake, Co-CEO of Permit Capital

S1: 00:00


Our next panel. So Dan's going to introduce them, but I just want to give a little prep for why we asked these four great investors to come up. They work for everybody in this room who wants to access to RAs. All right. And the reason being is they want to tap into whether it's a long, lonely product, a private product, private equity hedge fund. It's a very difficult channel for a lot of people to understand because it's so vast. And so we wanted to bring up four investors that we know very, very well and give us a perspective of the ultra-high net worth investor, where they have allocated capital the past couple of years, and where they see allocating capital going forward on behalf of their clients. So it should give us all a good perspective of where they're seeing things today and going forward. And with that, Dan, I'll turn it over to you to make the introductions.

S2: 00:51

Thank you, Gee. So we're very grateful for our moderator who has joined us, special guest Miss Mimi Drake, co-CEO of Permit Capital. Mimi.

S2: 01:23

All right. Please help me warmly welcome to the stage our great friend from Boston Private, Miss Shannon Saccocia.

S2: 01:49

All right. And let's hear it here from Rockefeller, Miss Kita Shah.

S2: 02:14

And so, so grateful last minute to travel down to be with us from Ropes Wealth Advisors, Miss Jennifer Loveless.

S3: 02:44

All right. Thank you. Thank you, everybody. And thank you to Gee and Chris in particular, and to Tracy and Katherine and the whole Dakota team. I think we should all give them a round of applause for pulling off this conference. It's exciting to be out in the post-- we've all been locked down. So Dakota is always viewed as forward-thinking and inclusive, and I think you might have coined a new term, which is crypto-curious. So I think that's a new term. So keeping in the theme of you all being forward-thinking and on top of things, I am really excited here to have a dream team of investors. And so we are going to talk about-- we're going to sort through the noise - there's been so much noise lately - and we're going to learn what allocators are really thinking about. What is top of mind? What are we worried about? What should you all be thinking about when you're reaching out to allocators? So to start us off, let's look at an overview of how your firms have grown over the recent past year or two. And Shannon, why don't we start with you?

S4: 03:49

Sure. Thanks. Thanks to all of you. It's been nice to see some old faces. And Chris and I were just discussing that I think that when we met, our firm was called Hale and Dorr, and I think we were in $900 million. And so, recently, for those of you who don't know, Boston Private was acquired by Silicon Valley Bank. And so now we are on the precipice of about $19 billion in assets under management and serving a very interesting base of innovative economy participants throughout the SVB ecosystem, as well as our legacy client base at Boston Private. And what I've found over the last couple of years is that there are a lot of reasons why the RA space is consolidating. But I think it's most important is that best practices for many of these firms are coming together. So I think it's going to be ever more important to think about how you're approaching these firms, to think about the professionals that are together. I mean, I look at my team from a manager search selection and due diligence perspective, and we have representatives from a number of different great organizations. And so I know the consolidation isn't always easy for those of you in your seats, but just think about it in terms of the quality of platform that our firms are going to be able to continue to offer. And the level of research and due diligence is just going to continue to expand. These are very relevant points, too. Every time you open a newspaper or turn on the news, there's another acquisition or merger, and the industry is certainly consolidating. Kita, what would you add to that?

S5: 05:19

Yeah, definitely. So I'm here from Rockefeller Capital Management. And so just to give you a sense, when I joined the Rockefeller team back in March of 2019, it was about a year old, if you will, in terms of its new acquisition that it was part of. But it was $18 billion already, but now we're at about $90 billion and continuously growing. So it's definitely been a lot of growth over the last three years. And so you might have known us as Rock and Co or Rockefeller and Company, which is primarily the multifamily office for the Rockefeller family. Since then, we've really grown to be much more of a private wealth advisory, wealth advisory-type business, really hiring different private wealth advisors from a lot of the major wirehouses and have been growing, to your point, inorganically in a lot of ways, but also through acquisitions of other RAs that we've seen that are very accretive to the culture that we're forming at Rockefeller.

S3: 06:12

Thank you. And Jennifer, over to you on that question.

S6: 06:15

Yeah. So I'm from Ropes Wealth Advisors, and I actually joined the firm in December of 2019, so can't take credit for all of the growth over the years. But when I started, we were at 4.8 billion in AUM, and we stand about 7.5 billion now. Of course, we've had great market appreciation, but a lot of that has been just new client assets about 8 to 10% annual growth for our firm, and it's all been organic. We're wholly owned by Ropes & Gray, so we certainly have a nice referral system from our estate planning group, and that's kind of how the business was incepted. But we really have diversified with client referrals outside of that and existing client wallet sharing, increasing client assets that way.

S3: 07:11

Well, there's certainly a lot of assets represented here. So let's talk about some of the top trends that you all are thinking about for the rest of 2021 and beyond. And I think, Kita, we'll start with you. You're responsible for opportunistic investing, right? So why not let you kick this off?

S5: 07:26

Thanks, Mimi. So what we think of as opportunistic investing at Rockefeller is really alternative investments, co-investments, and any direct deals as well, so investing in private companies. So it could be anything that fits kind of classically outside of the traditional bucket. And so for us, we've definitely been seeing a lot of different trends that are important. But I think the biggest thing is what's actually happening in the public markets with where fixed income rates are right now. I think that has created two big kind of themes. One of them is definitely alternative yield products. So looking at something that's generating more than a few basis points, I know a lot of our clients no longer can really have that 40%, 60%-type portfolio anymore. So that's definitely been a focus. And I would say the other kind of investment theme is that we're seeing a lot more investors that are becoming accredited investors or becoming qualified purchasers. And so we're trying to find different investment vehicles like interval funds, private rates, things like that that are more accessible to a lot of high-net-worth individuals. So I would say those are the two themes right now.

S3: 08:28

Great. Thank you. Jennifer, what about you?

S6: 08:31

ESG is definitely-- I'd say, one space that we've had a lot of growth-- just kind of talking about where we've come from, though, of course, through the pandemic. Growth stocks had really held in much better and we were more overweight in growth kind of coming into that. So we've sort of been pruning some of those areas since that time to realize profits and kind of thinking about the potential changing tax landscape. Additionally, we've been underweight bonds. Of course, the yield conversation that will resonate probably through this talk, thinking about flexible income mandates that can kind of fill in that gap, as-- I mean, it sort of feels like a broken record sometimes through the 2010s continuing to say yields are historically low, and then, of course, last year, another historical low. So those are some of the areas that we're kind of looking at.

S3: 09:31

Thank you. And Shannon, what about you?

S4: 09:33

Sure. I mean, I would say we're looking at some of the same themes. We're also looking at where did we go in growth? So thinking about innovation. And I think that for many clients their typical portfolio contains what they think of as tech exposure, which can be software, which can be hardware, which can be social media. We're thinking about it in terms of what's the next phase of growth. So an area like health care, precision medicine. Those true areas that are frankly not working all that well. Education. Things that can be disrupted. And thinking about ways to potentially invest in those. And then on the flip side of that, and really, really on the flip side of that from a Barbell perspective is thinking about things like infrastructure, real assets. So I think we've all had a lot of questions about whether it's commercial real estate or residential real estate, what's happening there. But the bottom line is that not just here in the United States, but globally, there is going to be a focus once again on what does it take to operate in this new digitally connected world? So think about things like towers. How do we create better interconnectedness in our communities? Where are communities going to be springing up in order to take advantage of this new virtual lifestyle that I know is maybe not as prevalent here in New York City. But I can tell you that elsewhere, there's still going to be a lot of people that are going to be virtual two, three, or four years from now.

S4: 10:51

And so I think from the perspective of this growth-versus-value paradigm are some of the things that we continue to hear that are really more factor-based. It's about where do we think that there could be opportunities over the next 5, 10, 15 years? We heard this great panel about crypto. I just think about it in terms of where else can blockchain disrupt? And it's not just financial services. So those are things that we're looking at. From a more traditional perspective, I would say that there continue to be disruption in areas like emerging markets. And so are there ways to potentially play the debt markets and emerging markets in a better way? Are there ways to create, really, a more flexible strategy that can take both a debt and equity perspective and really apply those by a very accomplished team? Those are the types of things we're looking at because we think that the world is changing, and we want to get ahead of that change rather than just sort of resting on our laurels from what we've experienced over the last 10 years.

S3: 11:52

I'm going to pick up on one thing you said because the emerging markets question has been out there forever. You know, the argument is they're undervalued and they will outperform at some time. And we've been waiting for 10 years or longer. So I'm hearing a lot of questions about is that really a fair statement anymore? Is the world so integrated that we shouldn't be thinking about it as global borders? Has that changed at all for any of your firms, the way you think about emerging markets?

S4: 12:17

Well, I'll answer that and then I'll open it up to the other panelists. I think that our classification of emerging markets is perhaps different and needs to be really refined in terms of-- it's really about kind of developing economies where there are socioeconomic and changes that can result in economic growth acceleration. And so I don't know that that's China. And that seems to be what the classification has been. And so I think that you need to really take a finer point to it and think about where those opportunities are for true demographic change to drive economic growth. That's where you're going to find the profits, and I think that that's the way that we think about the emerging markets space in general.

S3: 13:01

Very helpful. Either of you add to that?

S5: 13:03

Yeah, definitely. I would say from our side, we're definitely looking at emerging markets for sure. I think there are so many different pockets, whether it's real estate-- growth investing in China, for example, is one example that I could give. But there are so many different pockets, whether it's Europe or Africa or South America, where there are asset classes that some managers just have so much expertise in that area and they really are able to uncover value. And I think it's important to take a look at those investment ideas and see if that's relevant to different client portfolios. So I think rather than just focusing on whether it's developed markets or emerging markets, I think the key is really, are you partnering with the right manager that's going to be able to uncover the value that's there? Are they experts in that area? Are they familiar with the legal and the regulatory environment there? And then can you really take advantage of that and see Alpha?

S3: 13:53

That's similar to Dan's comment about betting on the right manager who can navigate these complexities. Jennifer?

S6: 14:00

Yeah. I mean, I would just echo that same sentiment. We've always used active managers in the EM space. It's still it's just still such an inefficient market. And EM equities topped out in February. And I mean, some of these large companies like BABA and Tencent have had such a huge drawdown in their market value just over such a short period of time. And it almost seems like it should be a buying opportunity, but it doesn't really feel comfortable. It sort of feels a little bit cautionary given we don't really know, I think, where China's headed with this. So that's, I think, to agree with all of you guys, where we really lean on our active managers to help us navigate this space and the local markets.

S3: 14:44

Thank you. And switching to concerns, let's talk about concerns that we have as allocators both for the rest of the year and going forward. What are you all concerned about when you're constructing portfolios for clients in the near term?

S6: 14:59

Yeah. I mean, after yesterday, finally having a volatile day, I think volatility is definitely back. And after three years of double-digit returns, at least in the public equity markets, we recently started kind of taking some of our profits off the table. We were overweight equities to kind of come into the year and really hanging over the ledge recently. So to be prudent investors and, of course, in communication with our clients and their idiosyncratic goals, we've taken some profits there. I think inflation is another one that still remains to be seen. We talk all about how it's transitory, and yet I feel like I'm hearing that it's getting worse in some pockets, whether it's the shipping and starting to shop for the holiday season now, which just seems crazy. So that's certainly an area that we're kind of looking at. And then emerging markets, I think, is another one where we have an allocation there, but we're just-- I think we're feeling a little bit more cautious there now.

S3: 16:10

Kita, what would you say?

S5: 16:12

Yeah, definitely. I think from a risk perspective, I think we stress uncorrelated diversified portfolios beyond anything else with our clients, especially those that tend to have a huge allocation to equities. And a lot of our clients definitely have that because that's where they had their generational wealth. So I'd say, first of all, maintaining that diversified uncorrelated portfolio is key. And so as a part of that, we're looking at funds that are market-neutral on the hedge fund side, for example, or macro-oriented. And then we want to make sure we have a solid real estate or infrastructure portfolio as well because inflation is definitely a topic that we're having with all of our clients. And real estate and infrastructure is a great way to play inflation, at least in the short-term, until we figure out whether it is transitory in nature or not. And then we're looking at diversifying the different sources of yield as well. So whether it's healthcare royalties or private rates or direct lending, we're looking at all those different avenues to make sure that we're having yield and current income, especially as valuation is top-of-mind. Even in the private markets, we're seeing valuations that are huge, whether it's a Series B or Series C round and they're having SaaS multiples and they're not a tech company. So it's definitely something we're focused on to make sure that we're having different sources of income and are maintaining that diversified portfolio.

S3: 17:33

Thank you. Shannon.

S4: 17:35

I just think, in general, just creep. Asset creep. I think that, to Kita's point, if you look at the underlying factors of risk in your portfolio, I just feel like the correlations are rising. And we hear that from sector perspective in the markets every day. But if you actually look at a factor analysis of your client's portfolio, certainly that factor correlation is rising. And so I think about it in terms if I go back to 2005 and 2006 and we were thinking about different ways to replace inferior fixed income. Man, I'd really like to get back to 2006 fixed income for sure. But to replace that with hedge funds because we could replace the vol, right? But then it turned out there were other issues with that as well from a liquidity perspective. So I think just looking at it from an overall portfolio perspective and understanding that from a relative value perspective, there are going to be very challenging parts of the portfolio, but also to look at things that are outside of the portfolio. Are there ways to potentially leverage something like receivables to be able to generate income that's outside of the traditional credit space? To look at parts of the-- some of these larger funds, you'll see like a 0.5% sleeve in something that's really esoteric. Go after that. Go directly after that exposure. Don't accept the 0.5% of that esoteric slice. Go and find the manager that's specializing that because that can actually provide that true diversification, that sharp ratio enhancement that we all talk about but can't really deliver in the public markets all the time. So I just think about in terms of that, just knowing what you own and how it's interacting because I think that just this traditional 60/40 is going to be obviously inferior over the next couple of years. But don't replace that with a different type of risk that could be just as correlated.

S3: 19:28

I want to build on that because when we think about what clients hire us for, it's core portfolios that can allow them to sleep at night, pass on wealth to the next generation. But it's also some cutting edge ideas, some ideas that are thinking ahead into the future, things like what Dan was talking about. So let's talk about that for a minute. What are some of those truly unique ideas that allow the clients to go to whoever they're talking to, whether it's the cocktail parties or their kids or grandkids about what they're thinking about that's interesting in the portfolio. So could you talk about that? And why don't I start with you, Jennifer?

S6: 20:04

Yeah. I work a lot on the ESG side in our firm, so I'll maybe choose that one. Of course, everyone here probably knows the demand for ESG has just been exponential, and then, of course, the supply as well. And we're really starting to talk to clients that-- we're not educating them. They're bringing it to to us as something that they've heard about or they've been thinking about. And it's not just certain pockets of the market anymore. It's baby boomers all the way down to the millennials and these younger generations. One of the ways-- there's definitely that market that's they absolutely want this and we can build a diversified portfolio that way, and then there are some people that are a little bit more skeptical and want to make sure that their returns are there, which with the data that we're seeing, those disadvantages that were kind of in the market with higher fees and not as great returns, those aren't the case anymore. The products are competitive out there. So if we're trying to get one of our clients to kind of wade into the ESG market if they're interested and their interest has been piqued, we will often start with bonds or individual bonds. You can really see your use of proceeds there. Additionally, advocacy, I think. I think there's nothing that makes me feel more confident about an ESG strategy than the portfolio manager being able to really link the strategy to an impact, whether it's Mitch or it's just how they're helping businesses to improve over time.

S3: 21:46

Kita, go ahead.

S5: 21:46

Thanks. Providing my clients with unique opportunities is basically my day-to-day, and it's my favorite part. So it's clearly why I love my job, so I'm more than happy to explain some of the ideas that we've thought about in the last year or so. And so I would say maybe on the real estate side, recently, one that we've really focused on has been self-storage private REIT. So you get the inflation protection from that, you get higher yield than you're getting on the public side, and some tax benefits as well. So that's one example. Shannon, to your point, actually, we've been focused on entertainment royalties or health care royalties as another area that we think is particularly compelling on the private credit side, rather than just focusing on your standard direct lending fund, for example, although we love direct lending too, given what different people are doing. But you can get some unique yield from that as well. And also some tailwinds, whether it's in the entertainment space with what's happening with music on Spotify or Apple TV and Netflix and all that good stuff or on the health care side with everything that's happening in the world. And then some other unique things on the private equity side, for example, where more people think that there isn't as much uniqueness, we've worked with sports-focused private equity funds or restaurant-focused private equity funds, so ones that have specific areas of focus as well, whether it's a niche or a sector focus. And then maybe the last example I'll give, which I think is pretty unique, is that we worked with a fund. And Shannon, again, to your point, we kind of talked to this manager because we thought they were doing something really cool. And, hopefully, people will create funds around some of these ideas that they think is compelling. And so this one was one that is a PIPE focus. So private investment in public equity kind of during the boom of the stock market, but they were particularly picking PIPE investments to do in the clean energy space. So very ESG-forward for a lot of our clients, given the Rockefeller family impact and ESG. And all of that is very important, and we have a great legacy there.

S6: 23:46

And I would just-- these are all great ideas, by the way. But I would say--

S4: 23:52

I'm taking notes of everything you guys are saying.

S6: 23:53

--the rise of the public/private partnerships, right. So we talk about something in ESG and you think about the way to look at an ESG fund. And then you break that down and you look at how important it is for these managers and firms to have a community-focused approach so that they can implement some of the strategies they have. So thinking about public/private partnership and the way to be able to take that and generate value through these relationships of these managers in the community. We've seen this in the real estate space with affordable housing. We've seen this in a number of different ways. And so we're looking at that. Single-family rental on the residential real estate side, this is a really interesting part of the market. It's not just Blackstone that's doing it. There's some really great operators out there. And then finally, on the public side, there's a whole swath of securities that are structured that there continues to be little institutional interest in. So think publicly-traded BDCs MLPs, those structures that create those nasty K1s for your clients-- they create a ton of income. It's an incredibly dislocated space. It was blown up last year and looking for those opportunities that might seem to be very time-specific, but actually can provide value over the course of X number of years because the management acumen is a really important part of what I think is what a manager search selection and due diligence team should be doing.

S3: 25:20

Hearing you all talk, you can picture how busy your days are. These are clearly 24/7.

S5: 25:26

I do nothing.

S3: 25:28

And I know that most of the audience here-- your job is to help get ideas in front of people like this. And so that's got to be a tough job given the demands on our time. So I wanted to pose a question that I hope is helpful to you all. And that is how can this group of people who has some of these great ideas-- what's the most efficient way they can get your attention? Is there a type of call that you always take? And conversely, is there one that you say, "I'm not going to take that kind of call."? So, Kita, why don't you start off?

S5: 26:01

Definitely. And that's a great question. Because at least at Rockefeller - I and I'm sure it's the same for both of you - we wear so many different hats, whether it's manager selection and due diligence or talking to clients and advisors. And so, definitely, I think the key is really giving us the three bullets. That should be the takeaway for us as we think about what we want to be sharing with our clients, right. So it's what are you doing? What's the fund or what's the investment idea? Why should we be thinking about it? Why is it differentiated? Why is it unique? And third, what's the role in a portfolio? Right. I think that if those three questions are basically answered, whether it's-- I have a loud voice so I-- oh, okay. It came back. Whether it's just those three things on the phone or in an email, and then any marketing materials that you already have off the shelf. I think that's such an easy way to just connect with us. We can easily skim it, ask any follow-up questions that we have. So I think that's the key rather than trying to set up a one-hour-long call to walk through it. Give us the bullets. We'll look into it and we'll reach out for sure if it's a great idea.

S3: 27:02

Great advice. Jennifer, what would you add?

S6: 27:05

Yeah. I don't think there's much to add here. I mean, I think that was a great synopsis. And of course, our job is busy, and we certainly feel the same. We know that you're constantly doing the same thing with your position. So I think just kind of having an idea right up front what's the benefit of the strategy, what distinguishes it from another strategy is probably the most beneficial.

S3: 27:33

Anything you'd add, Shannon?

S4: 27:34

I hear two to three-minute videos are the way to go. I don't know.

S3: 27:40

Do you know anyone who does that?

S4: 27:41

I don't know anybody who does that. No. What I actually would say-- can you make it topical and current event-related? So if you're a debt manager right now and you're not sending something out about the ever-grand potential debt fallout, you're missing an opportunity. So we're inundated with not only emails from you, but emails from our advisors and from our clients. And so if you know that, for instance, tax changes are coming up in a 1031 exchange and you run a 1031 exchange program, you should be inundating my email right now about getting your clients into a 1031 exchange before that tax changes. Because I think we're in the current event world, especially those of us who are making allocation decisions. And so if something's happened, key an article. Key something you've seen in the FT. Key something like that and say, "And this is a strategy that I'd love to talk to you about. It's a great time to talk about this." It actually doesn't have to be that relevant. But tying it back to current events will make me read it because I'm scanning my emails for things that are happening right now.

S3: 28:45

Yeah. And. Anything that makes us smarter and allows us to talk with our clients more efficiently is better. I would also add one sort of P.S. to that is understand what each of our firms does and what we don't do so that you're pitching ideas that are relevant to us.

S4: 29:00

Also, on the video topic, maybe podcasts could be really good. I don't know about everyone here, but I'm a big podcast commuter, so could be a good idea.

S3: 29:08

Good suggestion. And I know we want to talk about yield. I'm a little hesitant because this is post-lunch, so I hope everyone's had some coffee because we are going to talk about yield. We have to talk about yield. But following in the crypto conversation, it might seem boring, but we're going to make this interesting. Yield is clearly a real issue. So how are you all thinking about that? How are you addressing that with your clients in addition to some of the ideas we talked about earlier? Shannon?

S4: 29:32

Sure, I'll take that. I think that we're very much differentiating between the amount of core fixed income that we're willing to hold in our portfolios, understanding the limited return opportunity in that asset class, but to allow for our clients to have an appropriate insulator in their portfolio with everything else. So what I would say is that coming at it from the perspective of replacing my core fixed income allocation, which we do through individual bonds, is probably not the best way to get my attention. How it could potentially be additive, how your particular product works in spaces that are a bit more inefficient in the fixed income market, that is where I think that we can potentially add some yield. We've talked about real estate, other ways to add yield. Certainly those, too, but I think from the traditional fixed income perspective, let me know how this plays well with my core fixed income because I can't replace it for the majority of my clients.

S6: 30:34

That's a great point. I wouldn't add too much. I think, again, alternative sources of yield are definitely areas that we're focusing on: real estate infrastructure, private debt, all those areas, minority GP stakes investing. So there are a lot of areas that are offering yields and that are very interesting. The only thing I would say word to the wise or cautionary is that if your yield looks extremely high, we're definitely to be focusing on the risk side of things, whether it's leverage and other aspects. So please be sure to be able to address both of those types of questions. We don't want to see like 30-plus-percent yields and then 500 times leverage. So that's just something to keep in mind. We're definitely looking at the higher yields, but we are very focused on risk-adjusted return.

S6: 31:18

Yeah. I mean, similar spreads are tighter than they've ever been, or we're kind of coming off of the tights. And we've used different plays over the years, whether it's high-yield or-- we're using a hedged equity right now that we started a couple of years ago, thought we would have off by now. But it's kind of continuing to work out well. So I think anything that's uncorrelated is something we're looking at. But to both Shannon and Kita's points, we don't want to take undue risk. I mean, retirees are a huge part of our client book, trust beneficiaries. And part of it is an education of, this is what we can do for you unless we are going to move up the risk spectrum. So certain riskier services or ideas definitely have their place in certain client portfolios.

S4: 32:12

And if I could just add one point. This doesn't mean that it has to pay monthly income, right. So just think about it in terms of if you have an interval fund, if you have something that pays income, just point out the fact that for many of us, it isn't that they have to have this monthly income stream, but that there has to be something coming off that portfolio to meet an annual draw or to fund liquidity for something on the private side. So just-- that's my caveat as well.

S3: 32:39

It's an important one. Thank you. We are all fielding questions about taxes and thoughts about that. How are you all addressing that, and how are you answering questions about potential changes? And do you think about returns on an after-tax return basis? Or tell us how you're thinking about that. Kita, why don't we start with you?

S5: 33:00

Sure. So we have different types of clients. So we're definitely looking at after-tax returns as well as pre-tax returns because quite frankly, we have different account types, whether it's an IRA or foundations or just regular accounts that are taxable and US-based. So we'll look at two different types of investment strategies: those that might be very tax inefficient as well as those that are tax-efficient. So that's just the first thing I'll say. On the tax-efficient side, we're looking at different investment strategies and unique ideas there all the time. 1031 exchanges are huge. Opportunity zone funds, exchange funds, basically anything that we think could help our clients have a better after-tax return. And so I think the focus has always been, have a solid set of ideas that fit that bucket on the after-tax side. But that doesn't necessarily mean that we're not looking at the tax and efficient strategies as well. There's definitely a place for that in many people's accounts, and they offer unique things as well, whether it's on correlation, alpha, growth, whatever it might be. But we're definitely looking at unique ideas on the tax efficient side as well.

S3: 34:06

Jennifer, how about you?

S6: 34:07

Yeah. I mean, most of our client base resides in-- if it's not Massachusetts, where we're based-- in New York and California two of the highest-taxed states in the country. So after-tax analysis is certainly something that we are looking at for account types that are relevant there. I mean, this is going to sound so boring, but municipal bonds is really-- they're only going to be more in demand as time goes on. The debt load that we're paying-- and it's going to be paid off through growth and tax rates. And I think tax rates are only going to be trajecting higher over time. I mean, I think we're all analyzing the tax legislation that's out there right now and continues to be negotiated. For ultra-high-net-worth clients who maybe are clear about what they want to do for gifting and have that eleven point seven million lifetime exemption, you know, as something that they need to be considering. We're talking about that right now because that may sunset - or I should say end - earlier than we expected. But also it's just sort of-- it's one step forward, two steps back, whether the political regime is Republican or Democratic. We're talking about partially unrolling or unraveling something from the 2017 Tax Cut and Jobs Act. So it's always a fluid situation, and I think it's just important that we're getting in front of our clients with ideas that are relevant to that time period.

S4: 35:40

If I can add, just from your perspective, one, I think you're going to continue to be asked about what's the tax profile of the investment, right. So I get a lot of, "Well, it's pretty tax inefficient." Well, how inefficient is it? Like, I just need to know, right. Because then to Kita's point, where am I going to put it? How am I going to use it? The second thing is, I think particularly for SMAs, I think the willingness of our investors to invest in an SMA that creates a lot of short-term gains or if there is an alternative tax-managed version of that, present both. Let us know. I mean, my preference-- and we were talking about this earlier. My preference is to work with a firm on the private side that can give me co-investment and direct deal flow. My preference on the public side is to be able to work with a manager that can work for both my tax-deferred and taxable accounts. So give me an opportunity to know that you have that flexibility and know that I'm not making this decision based on one type of account. I'm trying to look at a firm that I want to partner with. And if I'm asking, it's probably because I like the strategy. And I'm not sure if the tax consequences are going to be worth it for some of my high tax rate clients. To Jen's point, all of our clients are in New York, Massachusetts, and California.

S2: 37:00

I hate to be the one that steps in front of the momentum of this great conversation, but we have to be respectful of our great panelists' time. Do we have any questions for-- there we go. All right. Fantastic.

S3: 37:14

If you sit in the front row, you get to ask the first question. Go ahead.

S7: 37:16

Thank you. So you were talking about ESG, and I was wondering. From an asset manager perspective, there's two ways to go about it. There's ESG integration on a firm-wide level, and that is integrating ESG into the diligence process more broadly. But it's also developing a specific ESG product. And I was wondering-- like an Impact product. And I was wondering. Y'all's appetite, what is that? What is it for? Is it for ESG firms or is it for ESG or Impact Products?

S5: 37:46

I mean, I would like it to be both. I think that's it's a tall ask. I think we're all trying to be more ESG as a firm ourselves. But I would say one of the things that we're also kind of looking for right now is more niche Impact Products themselves, whether it's climate change or diversity. We've got one client that-- we're kind of looking for some options with minority-led businesses. So I think as we continue to customize and really differentiate ourselves having a niche offering that clients can say, "This is what I specifically want to target and match to my values," which can be so unique to that person, having-- the niche products, I think, are really interesting.

S3: 38:38

Shannon, were you going to add something to that?

S4: 38:39

I was just going to say, if it's real ESG in the process, then that's great. If it's one person that's on the team to sort of help out on the-- letting the team say they're doing it in ESG way, then don't even mention it. I mean, so that's why we generally tend to gravitate-- not to be mean, but yeah. We generally tend to gravitate towards Impact investments because it's clear where the impact is coming from.

S5: 39:02

Agreed. The only thing I'd add is that we want ESG or Impact, whatever classification we use, but not at the expense of returns. I think that's a big point for our clients. Some clients will be very okay with taking the return hit because they're making a difference in the world, and we have funds like that. But for the most part, if you're trying to get to the wider masses, it's really the fact that you're incorporating ESG into your product or you're focusing on Impact that's generating the excess returns. And that's what we like to see.

S3: 39:30

Thank you. Do we have time for one more?

S2: 39:32

One more question. We have time for one more question. Anybody?

S3: 39:37

Hard for me to say.

S7: 39:38

I think you guys addressed it all. I mean, honestly, you shared-- Oh. Sorry.

S4: 39:41

Another front row person.

S3: 39:42

I know. Thank you.

S8: 39:44

Just thoughts on emerging managers in general?

S3: 39:47

Okay. The question is about emerging managers if people didn't hear. Shannon, do you want to--?

S4: 39:52

We are willing to consider emerging managers, provided there's evidence of being able to work together previously in some capacity.

S5: 40:03

I would just add that we usually like to see some kind of a track record, even if it's from somewhere else. And the reason for this is just if we don't have a huge discretionary pool of assets, a lot of our decisions are being made by our clients. And so if they can't see a track record, it's going to be very difficult for them to want to make a decision as well. So we can be an extract of another fund. It can be from a prior firm. It could be put together if you will, but it needs to be some kind of a presentable track record.

S4: 40:29

Yeah, I mean, we typically put guardrails around kind of the requirements for our new managers, but those are always something that we will take a look at if, like you both pointed out, there's a historical track record there. I tend to be one of the more conservative people on my team, probably. So I tend to really want to feel like there is that kind of longer-term track record. But our team definitely doesn't have any hard and fast rules.

S6: 41:00

And if you're an emerging space, obviously, that's a little bit different.

S2: 41:07

Fantastic. Mimi, Shannon, Kita, Jennifer, thank you so much. That was fantastic. Thank you.

You can view the full interview here.



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