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Technology is revolutionizing the private wealth market, enabling independent advisors to access alternative investments and compete with larger firms. Founder, CEO and Chairman of CAIS, Matt Brown, shares his platform's role in streamlining the investment process and the importance of education in advisor empowerment. Listen to the discussion for insights about the future of private equity and the growing opportunities for asset managers in a market ripe for change.
Key takeaways:
CAIS is leveling the playing field for independent advisors, granting them entry into the realm of alternative investments with cutting-edge technology.
By simplifying the investment lifecycle, CAIS enhances accessibility and operational ease, broadening the scope for high-caliber alternative investment opportunities.
Envisioning a shift in wealth management, CAIS is at the forefront, championing technology to foster a more inclusive and diversified investment landscape.
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Teaser
Welcome to the EY Next Wave Private Equity Podcast, where industry leaders come together to discuss emerging opportunities and industry trends shaping the global private equity landscape.
Matt Brown
What we realized is that we can’t lead with technology, efficiency or product, we have to lead with education.
Bridget Walsh
That's Matt Brown, Founder, CEO and Chairman of CAIS. I'm Bridget Walsh EY’s Global Head of Private Equity.
Walsh
In this episode, Matt will be sharing his insights on how technology can help private equity unlock the vast opportunity in the private wealth market. Hi Matt, great to have you with us.
Brown
Bridget, really, it's a thrill to join you and thanks for having me.
Walsh
So Matt CAIS has been a game changer in democratising alternative investments for the private wealth market. Could you share more about what CAIS does and the opportunity you saw 15 years ago when you launched this business?
Brown
Sure. In 2009, when we launched CAIS, what we saw in the market and what opportunity we were really targeting was that independent wealth management, which is about 50% of the total size of US wealth management, which stands around $45 trillion, didn't have access to alternative investments in the same way that the largest wealth management firms did.
Brown
Many of the big wealth management firms, like the UBS's, JP Morgan’s, etc., built very elaborate platforms that would allow third party alternative investment funds and strategies like private equity, private credit to be able to be available to their financial advisors and also then to their end clients of course.
Brown
But in the independent wealth community, because many of those firms were not large enough, they didn’t have a platform and therefore didn’t have access. So, what the CAIS goal was, was really to level the playing field between these two communities within wealth and create a universal platform that any wealth firm could plug into and have the same level of access and technology efficiency that the largest wealth firms were benefiting from.
Walsh
And you talk about technology efficiency there, Matt, can you elaborate on how CAIS is leveraging technology to transform the whole investment process and make alternatives more accessible?
Brown
So, what CAIS does is really three things on our platform, and we break it down into pre trade, trade and post trade experience.
Brown
So, for the advisor they had a pre trade experience, so everything you'd want to do before you purchase anything, you want to learn about it, you want to compare, you want to read due diligence reports. So, it's all the things that you do to get ready and informed before you make an investment decision.
Brown
Then we go to the trade area of the platform where we digitised and automated the entire purchasing experience, which historically has been very manual, paperwork, etc. And so now instead of having to fill out documents, it's really just a click of a button.
Brown
And then on the post trade experience, it's everything you want to do once you own something. So, for example, you want to monitor the investment, you want to manage your capital calls. And then of course we have to send data throughout the entire ecosystem to where the wealth advisors actually do their other business such as the custodians, which could be a Fidelity or a Schwab or other reporting platforms.
Brown
So really what it is, it's a complete end to end solution for alternative investments.
Walsh
You were very successful in financial institutions before you left and became entrepreneurial and set up CAIS. What is it about Matt Brown that made him do this and go on this journey?
Brown
Well, I am a three-time entrepreneur, I started two companies prior. I started my career in wealth management as a financial advisor. I then moved into the alternative investment world. So going into building CAIS, I really had the knowledge of both sides of our marketplace.
Brown
But you know at my core I love identifying and solving problems and I also like kind of in a way staying on the side of the underdog.
Brown
The independent wealth community clearly isn't one of these behemoth gigantic firms, and if I can empower them with the tools to compete, level the playing field and make sure they never lose their clients to big firms, I think that feels pretty good too.
Walsh
So, in tackling this market and parts of wealth management it’s quite traditional industry, Matt and obviously education must have played a big role. How did you go about educating the market about your offering?
Brown
Yeah, you're absolutely right, Bridget.
Brown
What we realised is that we can't lead with technology efficiency or product. We really have to lead with education.
Brown
Many of the financial advisors did not have a lot of exposure to alternative investments and as a result, they weren't spending time understanding the strategies, how to implement them in client portfolios, or even talk to their clients about the benefits of alternatives.
Brown
So about five years ago, six years ago, we spent a lot of time, effort and energy thinking about how we can deliver scalable education broadly to the advisor community and worked with, you know, machine learning techniques to be able to bring strategy information, fund information, portfolio information into the market for advisors so they really understand the benefits of Alts and what each individual fund and strategy does.
And our education platform, which is called CAIS IQ, is a very robust learning centre and is designed from a learning architecture standpoint, in a way that really responds to how advisors want to learn, and how they can actually retain information and be able to deliver that to their end client.
Walsh
And given the scale of this market, I mean, you mentioned 45 trillion at the start. I mean this is a huge market. So, the private wealth market is just poised for further growth. How do you see the scale of the opportunity for private equity firms in terms of tapping into this?
Brown
That's a great question, and it kind of brings me to the other side of our platform, which is where the asset managers participate. As a two-sided marketplace our technology not only faces the advisor to make their world easier, but it also is a tool for the asset managers to participate in our platform to reach the market and the opportunity.
Brown
Just to give you some stats, US wealth management as I mentioned, is about 45 trillion and over the next decade most likely will cross 70 trillion in the US. But the numbers that I think the asset managers are looking at are the potential dollars that are going to be reallocated to alternative investments out of that 60/40 traditional portfolio when it gets reallocated to more of a 50/30/20. 20 being alternative investments.
Brown
Now if you think about what that could mean, that's trillions and trillions of dollars entering into the alternative investment community for the very first time over the next decade. And that presents a great growth opportunity for asset managers to grow and diversify their shareholder base.
Brown
So, when you look at the commitment that a lot of asset managers have to the wealth market and what they're willing to do to make sure that they approach the market correctly, also leading with education, they're building their teams to service the advisor community. This really is a very important and very big wave and it's to the point where there's going to be a lot of change happening in the market.
Walsh
I mean, when I think of our client base at EY or general partners, they have investor relation teams who do a great job, you know, of building institutional relationships with pension funds, sovereign wealth and others, how do you think they need to pivot their teams, as we look forward to tap into this vast wall of money that's coming our way?
Brown
The most successful asset managers are really following the same playbook. And the way they're doing it is one, they're starting by building dedicated teams for wealth. They're not borrowing the time of their institutional team.
Brown
Remember, wealth is a different market, has a different language, they have different needs. So having people on their team that truly understand the needs of the wealth advisor is very important. So that's kind of one which is committing resources and building a team to service the market.
Brown
Number two is and this is a very important part of it, it's making sure that they have the right product design, meaning that they're delivering their strategy in the right investment wrapper that is usable for a financial advisor.
Brown
If you think about an institutional fund, it might have quite high minimums. It might be a very long lock up, there's capital calls. All of that makes it very difficult for a financial advisor to broadly allocate to their client base with a product type that's structured like that. But what's happening now is that the asset management community is taking their strategies and they're wrapping them in open-ended funds for accredited investors at smaller minimums, which is really allowing an advisor to get access more broadly for their client base to these strategies.
Walsh
And as you've talked to traditional wealth managers, Matt, what have they been most excited about as you've educated them about this market?
Brown
Yeah. Well, I think one of the biggest things that we knew would happen, but it's great to see is that many financial advisors who previously did not have access to alternative investments, you know, I think knew that they were oftentimes less competitive when working with their existing clients or trying to maybe attract larger clients.
Brown
You know, it's a bit like not having a complete toolbox when they're building portfolios and trying to get the best outcomes for their clients.
Brown
So, I think what really has happened is that the advisors now who are adopting alternatives are really seeing a pickup in their business. They're able to really not only attract new clients, but they're actually deepening wallet share with their existing clients.
Brown
We've had many conversations with financial advisors that previously thought their clients were not allocating to alternative investments because they weren't doing it with them, only to find out that when they now can offer alts, those clients were investing in alternatives, but they were using one of their competitors.
Brown
So alternative investments is not only improving portfolio performance, which is clearly the main event, but it's making advisors more competitive versus other firms that currently offer alternatives to their clients.
Walsh
So Matt, when you set off on your journey 15 years ago, you obviously had a business plan, what has been the biggest surprise, maybe the biggest opportunity that you hadn't even thought of 15 years ago?
Brown
Well, we joke internally that, a great idea is only a great idea if people care. So, we knew we were on the right track. But as you know, as an entrepreneur, there's always a lot of risk in building a new company.
Brown
The first five years to be quite honest, we saw green shoots of success, but there really wasn’t mass adoption. And we were really questioning ourselves if this was the right idea. Because we weren't quite seeing advisors really racing towards alternatives and we weren't seeing the asset management community really focused on wealth management.
Brown
Well, all that's clearly changed. But a lesson learned that you really have to have the staying power to really see your ideas through. You have to have the capital to support your business or access to capital. And frankly, you have to have great partners. And I've been fortunate enough to have a great team of, I would almost call them co-founders of the business because they've been here almost since the beginning who have taken this idea, taken it to places frankly that I couldn't even have imagined.
Brown
But when we read the business plan that we wrote in 2009, which we often reflect back on, the mission, the vision is almost identical. To truly democratise alternative investments in wealth management and use a technology that's scalable, that really makes things easier, faster, less expensive for the financial advisor.
Walsh
What's the vision? If we were having this call again in five years’ time, what does CAIS look like?
Brown
Well, I think that in five years, we would like to think that we've changed the investment behaviour of the wealth management community. That all advisors who are not currently using alternative investments are really allocating them in a three-dimensional portfolio and not just sticking with that traditional 60/40. It just, it will become table stakes to have alternatives in your portfolio.
Brown
But I think the next evolution of the business is even beyond just our technology platform. It's really being able to power the tools that actually an advisor uses for complete portfolio allocation.
Brown
So, it should be a single button as an advisor thinks about their equities, fixed income and alternative investments. And that's really where we're driving towards, to make it even easier for a financial advisor as they think holistically about the outcomes of their clients.
Walsh
Thank you so much, Matt. It's been brilliant to have you on the podcast today. What a great story.
Brown
Bridget, thanks so much. It's a pleasure to be here and I hope I can come back and join another time.
Walsh
That's it for this podcast, but please do subscribe for more insights from the PE industry's top professionals. From me, Bridget Walsh and Matt Brown, thank you for listening. Goodbye.
Teaser
Thanks for joining the EY Next Wave Private Equity Podcast. For more insights and perspectives, visit ey.com/privateequity.
End of podcast.
