From Quarterback to CIO: John McArthur on Alts, AI, and the Future of Wealth at Krilogy

0:00Welcome to the derivative by our Sam Alternatives. Send it. Hello there. Welcome back to the derivative brought to you by our Sam Alternatives, where you were truly just won the annual golf outing last week. Well my team had Jeff Eisenberg, calm Oz from Ohio and Jamie from Arkansas, round and out the winning team. Speaking of golf, we're doing a few golf events in and around the president's cup, which is coming to Chicago to Medina this month. So go check it out. Let us know if you can make some of the events at rcmalts.com slash golf. Okay onto this episode where I sit down with John McArthur, CIO of Creole G Financial, who we first started talking with five plus years ago and has really been looking into all of it in a big way since then and are now nearly at $6 billion under management

1:04impressive. We'll forgive them for being Cardinals fans during the Cubs, postseason run here, but how do they view the market? How do they use all and what should I do with my college savings? Send it. All right, everyone. We're here with John McArthur. How are you, John? I'm great, Jeff. Pleasure to be on. Thanks for having an easy name for me to pronounce. Sometimes there's five minutes of me figuring out how to pronounce the guest name, but you ran on it. We're here. What are you recording on? End of August, I think tomorrow to Friday. Tomorrow's week zero, college football. And we were just chatting offline for SAC. You got some college football experience? A little bit. Yeah, a little bit of college football experience. A long time ago, I was at Mizzou for a couple of years, University of Missouri, and then Northwestern for a couple of years. So how do you unique experience to get a couple of years at both places? And you don't look like an interior delinement. What were you playing? I'm not an interior delinement.

2:05I was a quarterback. Nice. Yeah. Little back up, some backup action and special teams. So there you go. What high school star in Missouri and then ended up at Mizzou? Yep, ended up at Mizzou. Missed most of my senior year, actually. I broke my foot a week before. In high school? Yeah, a week before game one. Missed most of my senior year, unfortunately, but it's all those things. Did they win the state title without you? We did not win the state title. We wouldn't have won it with me or have worth it. So fun. Fun. Fun experience. So let's do a little call it was Missouri was in the big 12 when you were there? It was. Yeah, that dates. Yeah. Now SEC. So what do you have a big 12 preview or an SEC preview or just a Missouri preview? Yeah, gosh. None of the above. Yeah. Probably none of the above. As I'm still, you know, involved in some extent, pay attention a little bit, but not

3:06nearly as I did at one point in time. I think that would be good. I should be good. I look forward to going on a couple games this year. I was surprised when they joined the SEC, I didn't feel like they would be able to hang and they've done a very good job of it. They did. Yeah, they hung right away. Yeah, they've done a good job. And then I'm going to sneak some bears fandom in here that Luther Birdon who came from Missouri was just unbelievable. We're excited about what he can do. Incredible. Yeah, it should be a big year for him. Let's hope so stay healthy. Now come with. Wait, that's for sure. Do you ever sit here now and curse? You could have gotten all this NIO money and all that stuff. It's a different era. Yeah, it's a different era. I mean, I don't know. I don't go to that mental space, but yeah, it's fascinating how things have evolved. I actually think it's a negative as it, like the trickled out effect. Not to digress too much, but to think about esports and some of the fanaticism and the

4:07youth level, I don't know that it helps that side of things. The parent versus the kid who wants it more. For sure. It's incented. The parents greatly, right? You can get off the payroll quickly. Yeah. Yeah. We did it. It says it is anyway, but we did a podcast with Scott Carl, who was an MLB picture for a while and we're diving into all this. Just the incentives have gotten screwed up. Something's got changed. It feels like it does. Yeah, I don't know what it takes. But I agree with that. And then, like, who's managing that money? Speaking of, right, as a wealth advisor, like you're a 18-year-old getting millions of dollars. Yeah. I mean, it's like it's well documented. It's been hard enough for grown adults to manage kind of newfound wealth from so many different aspects. And now it's happening to your point at a much younger age. And then the sports, especially football, right? That's cool.

5:07You're going to make $2 million maybe for three years. But your peers are going to make whatever, $300,000 for 40 years. Right. And like, the math will work out better and they have to budget themselves and all that stuff. Weird. When did you think, okay, I'm not going to the NFL. I got to think of a real job. Yeah. I think opportunity and timing is really important. I mean, at the college football level, at any level, Division 1, 2, or 3, I mean, you're with a lot of folks. They can all play, right? And so being able to take advantage of opportunities and timing, some of those things are out of your control. I feel super blessed that the experience, I think it helped me just from a life experience perspective more than anything about kind of growing up and self advocacy and some of those types of things.

6:08Because when I transferred, I had to walk on off to your eligibility and then had to re-earn a scholarship. And so at Northwestern. Northwestern. Was that like, past Fitzgerald was playing era? He was, I transferred there in the winter of 96 and they had just finished their citrus bull season. So nice. Yeah, he had just finished. Darnell, Octree, I'm trying to remember all those names, but somewhere in the, Steve Schner, Steve and I went to the same high school. Steve had a story career at Northwestern. Yeah. And then so you got to Northwestern and he didn't convert to a Cubs fan, you stayed a Cardinals fan? Yeah. Damn it. We nearly had you. No, but you've, you've had the better of that for most of the past 20 years. Well, the tide has shifted here lately, but let's hope. So out of Northwestern, you said, hey, like every young boy's dream, I want to be a wealth advisor or what, what did that look like to get into that space? You know, I had always been interested in markets.

7:09I think my, my first fascination was, you know, markets in general and the wealth advisor path is the one that I, that I took. I, you know, I needed to learn how to become a professional, as opposed to a college kid. So my first job was at Trans-American Los Angeles. They had a two year management training program on campus interview at Northwestern. It's perfect, actually. I got to move to a whole bunch of different departments, mutual fund research and, you know, you name it just to, again, learn how to be a professional and have a, a corporate job of sorts. Were you in the famous, like, Trans-American building there in San Francisco? I was in Los Angeles. That one is San Francisco. But yeah, it was out town. LA lived in Pasadena. What do you see LA at night? It gets like educated on the financial planning side of things. So yeah, that's where it started, the wealth advisor path. And I always love working with people. So that was, that's where it started and then spent a couple five, six year stents at

8:11A.G. Edwards back when it was around. Great Midwest based firm and then Morgan Stanley for a similar period of time, which were both really good in different ways. And then joined actually former teammate of mine at Mizzou, quarterback as well, Kent Scornier. He founded Crilogy09 and I came at the beginning of 2012 and here we are. And you guys avoided any like quarterback logo or in the name, something like there might have been touchdown wealth advisors contest to throw a ball over a pond in our old office at one point, but our skills have diminished. Like after trading here in Chicago with the trading floors at the Merck, it's right backs up against the river and cocktails were flowing and invariably a guy would bet some guy, like I bet you can't throw this across the river. And people like, oh, sure, like $5,000 and it's probably 80 yards, right? So maybe Lamar Jackson could do it. Maybe sell it.

9:12Maybe. Yeah. Yeah. Properly whatever. No one ever done everything, which I'm sure wasn't the case. Yeah. It was not the case. And then so always interested markets, you were wanting to trade ever. You were like, was there ever a point like, hey, should I go hedge fund route or something or just? No, not necessarily. Just more macro portfolio construction. I got my seamless certification in those early, Crilogy years to kind of align with the transition into CIO role, which was in those early days of Crilogy. And you know, honestly, just blessed to have a ton of smart people around me and on our team. And, you know, we have fun doing it. And what do you see? Like if you pulled out of the big shops, right, A.G. Edwards, Morgan, is that still continuing? You see more and more, it seems to me like, how can there be any big branch guys left? Because all you read about every article is like, this group pulled out and formed their own R.A. this group pulled out. Yeah. Interestingly, there's still so much wealth.

10:13I mean, the predominance of wealth is still in the, the brick, you know, traditional investment bank firms. I mean, they have a lot of firepower. I think, you know, having reflected on being there prior to being in the independent space, you don't know what you don't know really. You know, you just used to, this is how things are. And you don't just don't know any different. You know, it's, it's again, positives on both sides of the equation, but being in the independent space, you know, for as long as I've been now and, you know, having the type of culture, it seems really cliche, but we are super intentional here around our people and teammates and collaboration. And, you know, everybody's got a different experience at bigger firms. And mine certainly wasn't a bad one. I experienced a lot of growth and got a lot of, a lot of great value from it. You know, the culture feel on the independent side is, at our firm is different. Yeah, yeah, you feel still felt compelled to leave. Yeah. And then you mentioned what happened to A.G Edwards?

11:13They got, yeah, they got a part of my copia and ultimately, well, swarga. Oh, yeah, yeah. Yeah. Yeah. So that was in the, you know, those 708 period, yeah. What copia? I forgot about that name. Right. Was that one of those 09 bank clients? Yeah. That's right. And then talk about, you, so you've got founded in 2009 or you came on in, you know, Ken Scornier, our founder, yes, started the firm with like $20 million and three people and, you know, kind of going back to the football conversation around timing and opportunity. Ken and I remain friends, you know, post our college days and stayed in touch. And the timing just wasn't right, right out of the shoot for me. I had literally just moved in Morgan Stanley and kind of informally partnered with a branch manager with the idea of setting up a formal team within Morgan and again, timing was tough with GFC and management change and all those types of things. And so it was too, it was too recent for me to have just, you know, leap to, from A.G.

12:16Edwards to Morgan Stanley and then right after it was independent. So it took a couple of years for that to happen. You know, we were, we were probably managing 100 million or so and assets when I came over and we're a little under six billion today, five, six billion. And then what did that look like in oh, nine, right? Was he purposely at that timing or just was, no, I think that's just how it just happened. Not a bad time to start a firm, I guess, right? When you're at the levels, the market was at and I have this one. I have this conversation with my wife of my son was born on nine and my daughter in 11 and we put basically the same amount of money into their college accounts and his is like way better, right? She's like, why is this so? What are you doing? What do you favor him? Like, no, yeah. Like the market was at literally was born in February. Wow. And we started plowing it in right there in March at the loss. It was like, all right. He'll have to spread the wealth with sister at some point.

13:17Exactly. That's a fun, I want to talk about that later. Get your wealth advisor take on a college savings and one of that. But, right, like, I've heard a lot of advisors before, but like, oh, I was at the big bracket and I didn't like how they were handling the risk and so I peeled out to start my own firm or whatnot. So you did see a bit of that around that time. Yeah. Yeah, it's interesting. You know, we're thinking about we're having those conversations on our investment team now. So how do you solve for left tail risk type of considerations? I mean, markets at all time highs, by all accounts, things are clicking on all cylinders. earnings growth is going gangbusters. Like, everything seems to just be hitting right. Of course, there's plenty of noise in the background and things to be worried about. But as we know, I mean, it doesn't last forever. And so just thinking about, you know, crisis, alpha, you know, left tail risk, uncorrelated strategies, those types of things. So. Yeah.

14:17Let's dig into all that. So where that's a newer look into that or you guys have had some alternatives. I know you get some stuff with us for quite a while, but yeah. Yeah. So you've had some alternatives, but you're saying, hey, this is looking more and more needed. Yeah. It's, you know, if you think about the wealth creation, it's just so above trend for so long now for most people. I mean, our work is always financial planning based and focused first to help kind of guide and dictate the appropriate strategy and portfolio construction. And, you know, everybody's had, you know, generally speaking, if seemingly you're taking some meaningful level of market risk outside, outsized returns relative to expectations. It's now a lot of conversations about not only preserving, but, but turning into, you know, cash flow during the distribution phase of that, of that process as they transition

15:22close to or into retirement. So, you know, when you kind of factor all those things in together and just recognize where markets are, historical valuations, all the things you see floating around in the, you know, financial media and so forth. Yeah. It's more front and center for us and to make sure that our advisors have the tools in the toolbox. It's ultimately at the end of the day, we're not going to our investment team and committee isn't going to dictate how an advisor should run their practice, but we sure, sure as heck better equipped them with all the tools and resources they need to do. Yeah. So, what does that look like? How many advisors and then they each get to pick their portfolio? You have an approved list or what does that look like? Yeah. We have model portfolios that we run. We hired a technical analyst about four years ago who's added tremendous value to our process that really compliment our, the more traditional fundamental work. We've got a, a quant analyst. So we've got a lot of tools in the toolkit. Some, of course, more tactical in nature with the technical analysis piece.

16:26Strong, some more strategic, strategically based, you know, we'll use individual equities, we'll use ETS, we'll use mutual funds. All the above on the public market side of things, individual bonds, muties, etc. And then private markets, you know, it's been an effort for us really out of the shoot. I mean, the last 12, 13 years plus, I mean, private markets themselves have evolved so much just in terms of how to solve for and the different structures and asset classes that one can now get access to that they couldn't in the past, which is really exciting. And so we've, we've approved one-off solutions pretty slow and methodically over time. Just again, trying to cover all the bases or as many as we can from a resource perspective. And ultimately, it's up to the advisor to, you know, to, to continue to kind of lean in and learn to incorporate with clients or not. You know, there's definitely some, you know, it's not always needed, right? You definitely don't always need to solve with private markets or all, but I think it's

17:30an increasing amount. Not on this podcast. You always need to solve with all, it's on this podcast. That's right. Well, especially now, right? I mean, you haven't needed to be diversified in markets for a long time. If you're large-cap, you're fine and, you know, and what's your personal and firm view on that of like, but I could argue this, it looked just as scary five years ago, 10 years ago, 20 years ago, right? Like it's almost always the case that we're kind of burying along and it seems irrational and it just, it's like the whole world is set up to keep this thing propped up. Yeah. And the smart ones know it can't always last, but in the meantime, the dumb people are the, or I won't say smart and dumb, but the risk blinders, blinders onto the risk are just like, why, just buy it, just three X and a video. Okay, go wrong. Yeah. Yeah, I mean, it's always appropriate to have some level of just market beta and just be in the game, but, you know, concentration wise, I've heard the staff the other day. I mean, when, not if open AI and Anthropic end up going public, it's like the top 13

18:32names are 50% of the, 50% of the, the S&P, I mean, so from a market cap perspective, you know, so like give or take there, right? Like really close. So gosh, how diversified can you be? I mean, you know, you debt's definitely right to be to have some again, level of beta and inevitably you're getting the AI exposure, but, you know, if you look at the private market, some of the, you know, head strategies or, you know, trend strategies, which are less than on correlated or even, you know, venture and private equity tend to be again, in the right situation, really nice compliments and really benefiting from the US economy in a much more meaningful way. Again, it's become so funneled and narrowed on the public market side. There's so much of the economy that folks just are participating in when they're just in public markets alone. What would you say? I'm a client. I'm arguing, hey, I think it is a winner take all, yeah, economy of the future and there's going to only be a handful of these big tech firms that own everything, right?

19:36That drive all this AI that have the content that do all this. So why, why do I need that long tailed? Those other equities like, why do I need an index at all? An index on the public side? Yeah. If 50% is those names, like, yeah, maybe I'm cool with it because that's a winner take all scenario and I believe that's what's going to happen. Yeah. You know, the challenge would be that's the belief and that belief existed in 99, that belief existed in 2007, right? So, you know, if you have some level of exposure there is prudent, right? But, you know, the math certainly shows if you weather the downturns in a much more meaningful way that the compounding wealth effect and kind of smoothing out the ride, if you will, is going to help you win in the end. Particularly too, when you consider one's time frame, right? Like you may say, look, I'm looking to shut things down or become fully dependent on my portfolio for cash flows and retirement.

20:37I mean, the market doesn't care about your time frame, right? I mean, it's going to, it's going to, oh, we can't announce bad earnings because Jeff's about to retire. Right. Right. Yeah. So, it's, I think in periods like this, and again, I'm not suggesting that the top is even there. I just think the prudence around diversifying into other markets, both public and private. I mean, we have a call this afternoon with our team in regard to fixed income in the bond market. I mean, this is, of course, the moment, you know, when the 10 year is it, 475 and, you know, clients are wondering why any bonds are owned in the portfolio. Exactly. Or once again, flats a negative year to date, like, why are we doing this? It's, you know, that's a panic on the bond side akin to bottoming in equities. That doesn't mean that the 10 year can't press higher to 5, 5 and a half percent or beyond even, but we would suggest a lot of the damage is done there, given where cash flows are on fixed income even.

21:37So, I think it remains an important piece. Would you say your model portfolios are mainly 6040, like, right? Like it's weird in our space. Everyone's always comparing to 6040 and I'm almost like, who's really doing 6040? Yeah. Yeah. No, I'm sure it's not just spy and ag, right? It's like, of course, maybe it approximates that, but it's significantly more dynamic that that. Well, I, you know, I think the other thing, well, so the short answer is there are, you know, essentially five different risk buckets buckets in each of the, kind of the model philosophies, if you will. And our approach, again, is to, we want to give advisors an ultimately client a large degree of choice to kind of align with their belief systems. So that may be, you know, everything from purely passive, I want as low cost as I can get, you know, kind of per our conversation earlier, or I believe the benefits of both active and passive combined. And so some of our solutions are truly roughly a 50, 50 mix of both of those.

22:38So what we deem kind of our less efficient asset classes will have some, some active management. And then it's the daily liquid alternative solutions. And, you know, I've long felt that the academic theory has been terrific in that space, but really hard to implement in a consistent and compelling way. You know, we've, you know, against some of its, maybe better to be lucky than good, I would attribute it to our talented team, but, you know, we've had a lot of success in the daily liquid alternative solution. So to your question, it might look more like a 60, 20, 20 for many as opposed to, you know, a 60, 40. And then do you feel like some people get to that 60, 40 by, well, the 20 active, whatever kind of looks like a equity or it looks like a bond from a wrist standpoint. So maybe we jam it into that bucket. Well, that's, that's really critical, right? It's, it's understanding the risk that you're actually taking. So that 20%. Let's call it an alt sleeve. I don't love the alt stigma, by the way.

23:39It has negative connotation, but, but for, you know, it's, yeah, it's important. They're not certainly all created equal. I mean, commodities, you know, long commodities would be a high-vol solution where, you know, merger arbitrage, market neutral. I mean, there's a whole bunch of different ways to play that sleeve, but it's got to, you know, it doesn't have to be non correlated, but it sure should be quite a bit less. And it should help, help hold up the portfolio with equities, the fault. Yeah. That, I get wonky for a minute, right? Like, you could even have something positive to correlate, but it's negatively correlated at the right time. Yeah, you bet. Yeah. Yeah. Which is basically managed futures can act like that, right? I mean, well stated, yeah. I'd say they're non, but for a lot of time, they're long stocks, they're long bonds, they're in the same positions. You bet. Yeah. You just can switch. Absolutely. Which a lot of people miss of like, it's, it's the path of the correlation, not just the raw number over X, here to 10. Exactly.

24:39Yeah. Well said. So you mentioned you don't like alt, what would you call it? Is that more of the clients? Yeah, private market. I think, but that's, but that's what the solutions that are anything other than less than daily liquid, right, that I can't buy on the exchange basically. But do you feel like clients have an aversion to that term to the alt-starm, or it just starts a whole conversation of like what? It's probably my own thing. I all feel like that's, that shouldn't, shouldn't be doing this kind of thing, right? Yeah, right. Like, this is like what way out, you know, bleeding edge of sensibility, maybe? No. All right, I'll work on that. Private. Just to me. Just to me. No, yeah, I don't want to, I don't want to make that any bigger than that. And then so what is that suite of private set you guys look at? You mentioned a couple there. So it's basically all hedge fund categories.

25:40You know, it could, it could be hedge funds. It could be tax favorable hedge funds. It could be infrastructure, you know, private credit or private lending in general. It could be private real estate, secondaries. It's been a really hot space for the last few years, both on the venture side and especially like late-stage growth equity. And that's like getting a piece of anthropic. Exactly. Last year or something like that. I, yeah, exactly right. It could be private equities, you know, small mid-market buyout. I mean, the sample set is just so large. I mean, to the comment earlier around truly participating in the U.S. economy in Blackstone has great educational pieces on, you know, companies that have a certain threshold of revenue, higher than 100 million in revenue in the U.S. I mean, most of them are private by a significant margin. It's like 87% or something like that. So I think that resonates with folks. It's like, gosh, you know, if I'm in the Mag 7 or I'm in the top 10 to 15 publicly traded S&P names, and I truly do really have a narrow focus here.

26:44There's so much more to the U.S. economy that I could be participating. It doesn't come without risk, of course, right? But liquidity being, you know, one of the highlights. But from a long-term perspective, you'd certainly be additive, you know. Isn't it a little surprising to you, right? There's been so much private equity money for so long and so many deals like you'd feel like every good private company's been snapped up like 5, 10, 20 years of that going on massively. Yeah. It's interesting though. Like if you think about, you think about like the cloud computing, you think about the internet, you think about the mobile transition. If we think about all these, it's called, you know, innovation cycles, technology cycles over time. And now, of course, we're amidst AI at whatever stage it is. I mean, there's so much incredible innovation that's happening in these new companies that are being born and just growing faster than ever, doing more with less. I think that's super exciting for the U.S. economy on a go forward.

27:47So irrespective of whether we're close to the top or not close to the top, I mean, they're still, you know, the future winners, the future Mag 7s are being born in this, you know, I think that's really exciting for investors. And I've just seen friends and in private equity and firms have gotten, but yeah, they're, they don't just sail off into the sunset. They're going to start another company or they're right. Those are all the executives or the team is like, got, just got paid out. Maybe they go sail for a couple months or something. And then they're like, all right, what's next? So I think that's right. Yeah. That next layer of private equity investments comes. It's in that. So, yeah, those, those people are performers. Right. They're, they're born to build and create and are inspired by that. Yes, they've, they've done well financially. I assume over time, but it's in so many cases, it's, it's way more than that, right? They're, they've got a little bit of is the entrepreneurial folly too. I'm like, oh, that worked. That's easy. I bet I could do that in. Yes. Right. I can try that now over here. And a lot of times it doesn't work, but sure. Yep.

28:47That's what keeps the world moving. That's exactly right. Yep. And interested on your thoughts, you thought you kind of sounded like A.I. is going to be this productivity push and fuel the economy even more. My, my theory is we have a big risk that it causes a big recession, right? That there's, yeah. Oh, I think that's right. Like a lot of labor costs or remove, which means people salaries. What's the option? Speaking of anthropic and I've said this on the pot a few times, I saw a deck that said they're trying to take 15 trillion of labor costs out of the market, which is basically 15 trillion of spending. So I'm like, that can't be good for anybody. Right. Right. For the economy. So yeah, what are your overall thoughts there of maybe the market goes higher? I think it, I think you're right. I think it's, I think, I think our fixation has been on like the, the, the infrastructure and the large language models as it relates to A.I. It's really about, I think the, the next phase of it, which plays out in my opinion over

29:52the next few years of, of the businesses that are born on a lot of that heavy lifting and spend that's taking place. I mean, I think you're right that it ultimately ends in a downturn and it's probably not too different from those big, those big majors that we've, we've discussed already. Obviously, don't know the timing of that. I don't think it's an imminent thing though. I think that's, you know, probably a, a slower moving phenomenon. I mean, there's plenty of factors to go along with that. The, you know, the 40 trillion and, and that and significant deficits and the pressure on rates. I mean, right, there's a culmination of, of factors, I think that, that come into play. I just think it, my sense is that because it's such a topical concern right now, tells me that we're probably way early. Yeah. Right. If we're all talking about it, it's not going to happen. Yeah. Yeah. So, a lot of people I'm like, are you crazy? Like they're building to take away jobs. Yeah. And then maybe it's a weird, I don't think stagflation maybe is the right term, but like

30:56the market's at all times. Sure. Yeah. But this underlying consumer economy is, is hollowed out. And maybe for your clients and a lot of people that listen to this podcast, that's just fine. They've got investments that are doing well. But it seems like it, that would be unsustainable for, you know, you don't have any more revenues coming in for a lot of those. Yeah. I guess it doesn't make me wonder though around, you know, there, that's, there's been disruptive technology forces in the past that, you know, changed kind of the job market in the, in the, a lot of the professions that once existed that now don't, it just, it does make me wonder like what, what exists in the next five, 10, 15 years from a profession, perspective that doesn't exist now that we're not even thinking about, right? Somebody running somebody responsible for managing instead of people, they're managing the agents in the, in the firm, the AI agent. Yeah. I mean, I, my, my, where is all that past, I've like, reproot, replace labor where this is like replacing the actual brain. Yeah. So it's like, you don't have to hit these buttons anymore. Now you can go over here and hit these buttons.

31:57Yeah. Um, the, like, no, we don't need your brains at all. Yeah. We got figured out. Think about the value though. And, you know, and day to day interactions on, pick, pick your business of, of the people skills though, right? It's, it's what I tell my, my older two that are out of college. And, you know, the, the value of, of being good with people, a good communicator, like, it's, I don't think that's going away. I think that, the value of that in the future is even more critical. And that's, I, surprise there hasn't been a, some, right? Remember the whole robot advisor move. Yeah. Oh, yeah. Whatever that was, five years ago, I've, surprise there hasn't been like AI advisor moves here. Yeah. Like, hey, you don't have to call your, you know, and a lot of young people don't like talking people anyway. So if they've just gone there. Yeah, on their phone and can interact with their angel. Well, I think that's coming. I feel like Robin Hood and, and maybe some of the others are, are working through that. I don't know to the extent that it's live are actually happening, but, yeah, definitely heard conversation of it.

32:58Yeah. Hopefully, we'll be out of the way by then. You mentioned private equity and private credit like over the last two years, where you, you know, the liquidity is the big risk there. Private credit, especially with like blue, out and all those groups, putting up gates and all that. What's that surprising or dismaying or what, what was your take on that? In fairness, you know, we've been much more lukewarm for the past couple of years. I mean, ever since you see the historic rates, yeah, I mean, it's, there's an inevitability aspect there that you can't go from zero to five in short order without having some consequence. So we have certainly some solutions on the platform. We've been much more lukewarm on it for the past couple of years, but, you know, outside of a few specific examples by and large, the space is holding up just fine. I mean, even, even some that are in the news, it's like, you know, you get a lot of

34:01this negative headline, Rask, and I don't want to name names, but like yet the strategies are positive here today. And by the way, the bond markets negative. So, yeah, you know, there's a lot of, there is a lot of noise. I, you know, I don't want to be totally dismisses of it. I mean, dismissive of it. And, you know, a lot of cruelles are happening and increasing, but again, I think that's just a function of the historic rise in rates and kind of the persistency around it as well. And then, you know, interestingly in the real estate, like I would argue that, you know, private credits probably going through a similar type cycle where, you know, there's this troughing phase and then, you know, you come out on the other side, there's opportunities amidst it, takes a couple of years to work through. I mean, that really happened on the real estate side for the, you know, better part of three or four years. And I feel like that pendulum is swinging in the, in the better direction, you know, even, even despite the rate pressure we've seen. And private equity, you've seen less distributions there, a little bit of a different experience there. Yeah, that's a private equity adventure alike, which does make the secondary space interesting.

35:10That's been of interest us for a while. I mean, if you can kind of shorten that J curve effect and, and get involved with businesses in their four, fifth, sixth year of existence on the kind of a normal 10 year cycle, then that shortens that theoretical timeframe of, of seeing some DPI and the distributions. And, but, you know, I think, you know, for segments of private equity, you know, small mid market buyout, I mean, it's, it's such a massive universe. And then if you look at the public small cap side of things and look at the lack of profitability, I mean, there's an interesting conversation there of having some attractive valuations and opportunities. And obviously it's not all created equal, but again, to the point earlier, for certain clients that can be a nice complement to the public market's piece. I mean, inevitably distributions will, will increase and happen again. And so hopefully we're starting to see that a little bit. Do you ever have to convince clients to the efficacy of private equity?

36:10Like I'm thinking of, I can't remember the stats, but it's like more and more companies aren't going public at all, right? Right. So just remaining private until they're a trillion dollar value or whatever. So like, how do you access that? You got to get through one of these channels. Yeah. I think the system is changing. My sense is that if we look forward in the next five to 10 years, the mechanisms for liquidity will continue to increase in a significant way, which I think is a really good thing. You know, I think it's for us that it's really just about education for clients. I mean, we don't want to, obviously we want to have a strong position and conviction around beliefs in the why and taking the long view and the benefits of incorporating certain asset classes. But it's really an education thing. At the end of the day, there's some that will just say, and it's not right or wrong, we just say, look, I can't get comfortable with anything less than daily liquidity. I feel convicted. There's a give up in that for sure. And I think there's a lot of data that proves that.

37:11That that if the person feels that way and and sleeps best at night by not having anything that's less than daily liquid, then that's where they should be. I see I can't have your job because I'd be like, why? What is it doing for you? What are you going to do with that daily liquid? Are you going to pull it out and that's and yeah, travel to Africa with cash on your in bags like you're right. Yeah. Yeah. You're right. I mean, there's a careful boundary there of pushing them outside their comfort zone. Right. Education, here's the why and look for like consensus and buy and as opposed to, you know, them pinching their nose and see, okay, I'll do it. Yeah. And then talk to that for a second of like the move. Everyone came out of the big brackets and into independent advisors, mainly doing ETFs. Is that the case here? Like what would your ETF mutual fund mix look like? No, we're pretty split.

38:11I mean, it's everything again from individual equity to ETFs to mutual funds. Yeah, I think it's definitely more passive and mutual fund. I think nowadays too though, you can get active management within the ETF wrapper. Yeah. And we have a fair amount of that both, you know, really on the equity side and the fixed income side. And I, you know, the alternative side has gotten a lot better in the ETF wrappers as well. Of course, it's not as pure and ideal in my opinion as you're going to get with a less liquid solution. There's of course limitations by being able to offer daily liquidity, but that's involved in I think in an effective way. And what about interval funds, right? It's kind of a little bit of both like, hey, you can access some of this cool private stuff. It's exchange traded, but it's not as liquid as you maybe want it to be. Yeah, I think those are, those are interesting. I think to your point, you know, I think for people to just have the peace of mind around their being a liquidity mechanism is enough.

39:12I mean, we remind people too, like if everybody's running for the exit at the same time, you know, that's not a good time that you want to get out anyway. So the fact that a manager is going to create some liquidity restrictions there is for your benefit. As long as that's kind of message on the front end, I think that's critical. But you know, that's a good point. It's probably missed by most people in like the blue owl we mentioned stuff like, hey, they're not doing anything criminal. They're trying to protect a run on this asset. Yeah, it's protecting everybody, the entire investor base. And I think yeah, that's easy to miss that one for folks. But the interval fund structure I think is interesting, certainly applicable in scenarios. I mean, we have a couple fixed income solutions that we really like. I mean, we've talked a little bit about that. Well, topically, the discussions are like senior direct lending for the most part with private credit, but there's such a much more dynamic, private lending, private credit space beyond that. And I think it's a really interesting, interval funds can be an interesting way to kind of marry the benefits of public and private, for example, in one vehicle and then trust

40:16in the manager and their skill set and team and resources to have decision making around where the best opportunities are given the market environment. So I think, you know, that's, that's an example, I think, with that, that's interesting. I agree, right? And like some insurance related stuff in there of lending and like that middle market that you need to term to do that deal and you can't do the term without right putting it in that interval. And then yeah, use that income to fund some beta to fund some other alternatives. And like, that's a good looking portfolio. You bet. You bet. A three, three 51 exchanges. You guys seeing a lot of that, like, is a lot of your clients, well, in these mag seven names and they want to kind of get out of it or you're not seeing that as much. We're not seeing a lot of it. It's definitely a topic of conversation, but we're not seeing a lot of it. We're seeing more of the long short tax solutions. That's been a much more topical conversation. I mean, that's been, you know, in our experience, a really effective solution, but yeah, the

41:19three 51s were again, conversations are happening, but we're not seeing a lot of it. Yeah, that's crazy. What was reading that article a month or so ago, that a QR hedge fund that gets the money from the tax is now the largest hedge fund in the world, which to me is a little bit weird. Like it cool. You're taking it out of this concentrated position. You're doing some tax loss harvesting, but then it's going into their hedge fund. Now it's locked up over there essentially, right? Like you have to pay your tax when you get it out there. So you've changed the character and timing of it, but you still, you still have the tax over there. Well, I think there's a couple different. You know, so the one of the AQR solutions is the is the hedge fund that has a tax piece to it. I mean, to their credit, they've had a phenomenal track record with long short and trend kind of married together. The second piece, which is more like the three 51, I would suppose given that it's capital gain focused is a is a separately managed account. So like they're able to, you know, manage the money to provide pre-tax alpha, but also

42:22defer tax liability. There's never a magic bullet, right? Yeah, completely. It's hard to defer old mechanism. And then I should have mentioned this back when I'm talking a little more private and all, but buffer notes, all that jazz, are you guys doing a lot of that or not? Yeah, we've done some of it. Yeah, it's really interesting. That space has gotten really, really interesting. Yeah, but there's some interesting solutions there. So yeah, we've done some of that. My hesitations always like from the bank selling it to me. Why are you trying to sell me to? Right. Yeah, I instantly put up a thing of like a game or trying to get it off your books. Something feels weird. I'll circle back. So my son's a senior. Like, what do you tell these people? I've saved up all this money for college.

43:23I'm about to spend it down and the markets at all time highs. I can't do a lot of the alternative stuff. I know how to do in the different college savings accounts I have. So what do you tell clients of how to manage that final year of that? So to cash, slowly. He's a senior. Yeah, he's a senior at high school about to have a four year college. Exactly. Yeah. Yeah. Yeah. I felt this very early in my career, early 2000s. Like retirement is one thing for folks. Like there's various letters you can pull. You know, you can work longer. You can live on less. Like, you know, you can, yeah, you can be a little bit more flexible there. That Sarah and Getty hot air balloon trip. Yeah. Yeah, exactly. To not have the college funds there is like from a behavioral perspective, just a different animal. But the short answer to the question would then be get more defensive and particularly

44:24because it's it's imminent. And I would expect that if it's an age based or equity oriented allocation that the growth has been outsized, probably relative to expectations for a good long run here. And so given that tuition is going to be due here every six months. Let's call it for the next four years to dial back that risk. I don't think you need to go to, you don't need to go to the stable value fund. And per se in my opinion, you know, definitely dialing back that risk as allocation makes a great deal of sense. I mean, maybe it's 20, 30, 40% equity type of thing would be my my thought process there given that you still do have kind of four years to fund. Exactly. You know, if you miss this, especially what we're talking about, if it's like a blow off top, right? Yeah, you know what I'd be sitting accelerates. Another. Yeah. Right. And then I've got a free tip for you when you talk to really young clients because nobody taught right here. I'm not sure in St. Louis, but here in Chicago, like a grade school, private grade schools,

45:2630, 40, 50 grand. So I'm like, when you meet a girl in a bar, start saving, right? Like, yeah, that's right. It's no wealth management to like start saving for college when you have a baby, but no one tells you, like, to pay for elementary school. Yeah. You meet her in the bar, start saving for elementary school. Couple less drinks. Yeah. Yeah. But yeah, these costs have been getting out of hand. They'll doubt about it. Awesome. So what two questions, like what's we talked a little bit about the, is that your fear or the clients here? I kind of want to hear like what your clients and obviously they thousands of them that have thousands of different opinions, but if you pulled them, what do you think they're biggest couple fears of the next year or two would be? I think this goes back to another reason why I don't think generally speaking, like, this is the top of the market, the top of the cycle because they're, I think for the most part, there is a lot of concern and fear. I don't see anything close to euphoria from clients broadly speaking.

46:28They're concerned about Iran and geopolitical conflict. They're concerned about interest rates, you know, those, you know, inflation, those are the kind of the main topical things, you know, administration, whether you like the administration, whether you don't, like, there's a whole litany of, I think, topical financial media type concerns, which, which is interesting because the market is at all time highs and like just based on price and based on the last handful of years of performance, you'd say, gosh, like, sure feels like euphoria, but like sentiment wise, I don't, I don't get, yeah, vibe at all. And I get in calls of like, hey, I want to up my, yeah, exposure because Jim down the block just bought a new car. Right. That's more characteristic of tops in my opinion, but we're not seeing that at all. And I've been involved in a lot of those conversations. Yeah. And then how do you, is that a firm mantra or each advisor of like, how do you handle the behavioral aspects? Like you mentioned the administration mentioned Iran.

47:28Yeah. Like if you're invested in some of these energy stocks and the straights open, straights close, straights open and they're up and down 15, 20% a day. Yeah. Yeah. Right. What are those conversations like of like, hey, just stay the course. We've got a plan. Stick with the plan. Yeah. I mean, that's generally that said, I mean, we get way more nuance than that, of course, but yeah, to be, to be trading based on headlines, of course, is you have to continually be right, which is darn near impossible. So our focus as an investment team is just really frequent communication and styles of communication with advisors. That may be weekly technical analysis videos. It may be monthly investment meetings at a firm level. It might be an impromptu call like we have this afternoon on the bond market and how, how to think about it and how to frame it, how to talk to clients about it. It may be our weekly written, you know, memos that we do every weekend. I mean, so for us, it's just continually conversing about what we're seeing and what's important

48:34to think about, both with markets and headlines, but mainly with portfolios and changes we're making in that regard. So communication, you know, you'd see the old cliche, you know, good communication solves a lot of things and that's kind of our thought process. So preempt them, right? Like get them the education, get them the answers before they, before they ask the question, that's right. Yeah. And you started in 09. So you didn't need, you didn't have to have the big conversation there of, do we get them? I started in 01, the firm started in 09. Yeah. Yeah. So you had two times where you were looking at the bottom. That's right. That's right. My neighbor down the street, here's a wealth advisor. He was, I guess that was 2020. I caught up with him. He's like, I'm just a psychiatrist. Yeah. And he's like, I'm not a wealth advisor. I'm a psychiatrist. I have 30 minute slots where I talk through everybody's problems and then on to the next day. Yeah. Which is that you like that part of the job or that gets, gets tiring?

49:36No, I like it. I like the, the, the human side of it. I like, I like, I got into this business because I like working with people and I like, I guess similar to the quarterback, and I like the responsibility in being accountable. That part's fun. I never thought that like the CIO is, is, is, is, is, is, is, is, is, is, is, is, is, is, kind of the quarterback, maybe the offensive coordinator, right? And defensive coordinator. Headcoat. Yeah. Like, okay, we need this on the field. Yeah. The fun part is you can have offense and defense on the field at the same time. Yeah, that's true. You're right. And should. And should, right. A lot of people forget that. They're like, no, it's right. Is that the old advisor model? Like, oh, we're now, we've seen the macro and we're now tilting defensive. And it's like, it's more of a, like, put this unit on and off, shift the, shift the allocation. And instead of like, this isn't always on allocation. It protects things. That's right. Yeah. Because as we've seen, risk happens fast. And every day that goes by, it seems like that, you know, with algorithmic trading and, you know, I think there's just, it's going to markets just move faster and faster as time

50:36goes. You know, who will be 24-7 at some point? So for sure, it's coming. Perpetual CME is doing a bunch of stuff on that of like, yeah, all the prediction markets screwed up. Yeah. Like you have clients asking you if they should get involved in that stuff. Fortunately, no. At least that's not how it to me. I'm sure it's being asked, but, and it just, I mean, easy, no. I mean, that's like, you know, if you want it through, yeah. But like, it seems there could be some use case. Sure. Right. If you knew your portfolio is going to get screwed if, if the, whatever, whoever wins the mid terms or something, which in and of itself, that statement is silly, right? Right. You never really know. You're seeing something like that and you could hedge a little. Yeah. Who knows? Yeah. For certain things, there could be definite benefits of it. But I'm mostly agree. It's a, it's like, I think the stats came out like 96% of people lose money. Wow. Yeah. Massive with it.

51:37I didn't prep you for this, but we'll leave with, you know, if you're Mount Rushmore of football movies. So you're top four. I never say your favorite because that gets hard. So I borrowed from Bill Simmons asking for your Mount Rushmore. Wow. That's good. I'll give you, you want a list? Good. You goodness. Yeah. I mean, I, you know, the first thing that came to mind, Candlely was Rudy. Yeah. I was going to say Rudy. Oh, yeah. What else do you have for me? I would go any given Sunday. Yeah. That's up there. Longest yard, original. Yeah. Burnt Reynolds. I would say any given Sundays up there, Rudy's up there. You know, I think this is a little bit off topic of the question, somewhat related. The Bo Jackson 30 for 30 is one of my favorite. He was my childhood star. I had a poster of him on the, when I was a kid. It had him in his Royal's baseball uniform on one side and then his Raiders uniform run

52:42in the football on the other side. Yeah. He's my, my daughter is on the, the travel softball team out by O'Hare and it's at the bowdome. Oh, really? New this year. So we've been going there for like weeks and she's like, what's this? Why is it called the bowdome? Yeah. And I started explaining all this and like inside is all these quotes and like, wow, I'm like, this guy was unbelievable. Like he was the best you could be at two sports. Yeah. At the same time. That's 30 for 30 is a good one if you haven't seen it. All right. I'm going to put her on that. All right. I think we'll leave it there. We'll put Krylgy down in the show notes for everyone. Take a look, give them a call, see what they're up to and then we'll come see you next time or in St. Louis. Please do. Thanks, Jeff. I enjoyed it. Okay. That's it for the pod. Thanks to R.S.M. for sponsoring. Thanks to Jeff Bergerfort producing. Thanks to John and Krylgy for coming on. We'll see you next week. Peace. You've been listening to The Derivative.

53:44Thanks from this episode will be in the episode description of this channel. Follow us on Twitter at RCM Alts and visit our website to read our blog or subscribe to our newsletter at rcmalts.com. If you liked our show, introduce a friend and show them how to subscribe. And be sure to leave comments. We'd love to hear from you. This podcast is provided for informational purposes only and should not be relied upon as legal, business, investment or tax advice. All opinions expressed by podcast participants are solely their own opinions and do not necessarily reflect the opinions of RCM alternatives, their affiliates, or company's feature. Due to industry regulations, participants on this podcast are instructed not to make specific trade recommendations nor reference past or potential profits. And listeners are reminded that managed features, commodity trading, and other alternative investments are complex and carry a risk of substantial losses, as such they are not suitable for all investors.