Show V/O:
This is Alternative Allocations by Franklin Templeton, a monthly podcast where we share practical, relatable advice and discuss new investment ideas with leaders in the field. Please subscribe on Apple, Spotify, or wherever you get your podcast to make sure you don't miss an episode. Here is your host, Tony Davidow.
Tony:
Welcome to the latest episode of the Alternative Allocations podcast series. We're going to try a different format today. Normally, my producer, Julia Giordano, is sitting quietly next to me and helping my guests and I get comfortable and going through an outline of what we're going to cover for the day. But we're going to try a different format. Julia is going to interview me today. So Julia, the table is all yours.
Julia:
Thank you Tony. I'm very excited to do this. So the reason why we have turned the tables today is Tony has just released his second book called Private Markets, Building Better Portfolios with Private Equity, Private Credit and Private Real Estate.
And, I thought it'd be a great idea if we could take some time to talk to him about it. Learn a little bit more about Tony. I know every episode we learn a lot about our guests and their experience, and we haven't had a lot of time to learn about Tony and why he is such an esteemed guest and why we're lucky to have him.
So to start off, can you just provide to the audience a little bit more background on where you came from, why you're in this industry, how it shaped your views regarding the private markets, and just give a little bit more insight into your experience.
Tony:
Yeah, so it's funny, normally when I'm on stage, I'll typically tell the person introducing me, please don't go through the whole bio because it makes me feel old. But I think what was interesting when I was writing the book is, it is interesting how a lot of my views and philosophy were formed in my early years. Julia, as you know, I began my career working for a family office, a New York-based family office many, many years ago. And it was interesting because a big part of our allocation was to private equity and private real estate. That was a big part of what we do. Of course, the family office thought of things from one generation to the next. We also had charitable foundations. So we thought about allocating capital for the long run. We thought of it as patient capital and we knew in the long run we would likely be rewarded for much more richly than we would in the traditional public markets.
Later in my career, I spent about 15 years at Morgan Stanley with three primary roles. I originally built and managed our institutional consulting business, so dealt with large endowments and foundations and public funds. And not surprisingly, they had a real appreciation for alternative investments. It was a big part of their portfolio allocation and a big part of where they saw the value over time.
I later moved and ran a small business called Greystone, which was, at the time of the acquisition, a multifamily office boutique with an expertise in alternative investments. And candidly, what we really bought was the expertise in alternative investments because it brought open architecture to Morgan Stanley's PWM business.
And while I was there, I had two roles. I was responsible for growing the Greystone business, but I was also a member of the firm's client strategy group. So I worked with a lot of our big banking clients as the asset allocation and alternative investment specialist. And what I really appreciated about that time was I was working with a lot of these entrepreneurs who founded a company with a singular idea. They either brought their company public or they were in the process of bringing their company public. And what was interesting is, of course, these were all private enterprises before going public. So I saw the value and the freedom that they had in managing a young company from an idea into a viable business and then reaping the benefits over the long run.
Along the way, I got a little bit of the entrepreneurial bug and joined a little startup company, which was private equity backed. So I had kind of a third vantage point of looking at private equity in the sense that they really control the company. They wanted to see a return on their investment. They helped us by making introductions. They had a seat on the board. But they were singularly focused on getting the most out of that underlying enterprise. And looking back on it, it was a really good experience because I saw the value of a private equity firm really helping a young company mature, get disciplined, and fulfill the potential over the long run.
That company was sold for a pretty healthy profit, not too far afterwards. So I think what's interesting when I look back at my perspective and in particular in the private markets is that was a big part of the experience that I had. And I saw it from the vantage point of a family office, which was seeking outsized returns.
I saw it from the vantage point of institutions who were looking at alternate sources of capital. I saw it from entrepreneurs who really reap the benefits of managing young enterprises into viable businesses. And then I saw what private equity can do in helping to unlock some of that value in young companies. So I've always had an appreciation of it. And I think now with my role here, I'm able to share some of that wisdom and experience over time.
Julia:
No, that's great. And, I mean, I'm well versed in how you ended up here, but maybe you can share a little bit more about what brought you to Franklin Templeton and kind of how your role has evolved here over the last couple of years.
Tony:
It has. And what's kind of interesting, you've heard me say it many, many times, but I work for a lot of great companies and at a point in time, I really wanted to be my own boss. I had my consulting firm and candidly, I had to turn away projects. There's a lot of demand for a lot of the work that I was doing, which was primarily developing alternative education programs, and I did some consulting work for some family offices.
But Franklin Templeton originally hired me to build their Alts education for the wealth channel. And it was going to be a project. I think we originally thought it might be a year project to build it all out, deliver it, first to do internal training for all of our partners here, and then roll it out to the field and engage advisors.
But about halfway through the assignment, I think the firm recognized that there was a real need. This isn't a one and done sort of thing. We needed to have an ongoing commitment and somewhere along the way, the firm created a role for me in the Franklin Templeton Institute, where I could use my background and travel and create content for advisors. So my role is primarily creating content, podcasts, and a blog that you are very familiar with, running around the country and dealing with advisors. And all of those activities are really kind of aligned around helping advisors think about allocating capital.
A lot of the things I end up writing are things that I hear from advisors when I get questions over and over again. I feel like I need to write a white paper. I need to write a blog. As you and I talk about all the time, a lot of our guests come from “What are the questions that we're getting from advisors?”
You know, they're thinking about incorporating alternatives in their practice. Can we have people who do it, maybe an outsource CIO or a multifamily office CIO to help them think through some of that decision making. So everything that I do is motivated on trying to help advisors have better informed decisions, helping them introduce these newer, complex investments to their investors.
Julia:
Right. And I think that we've heard that a lot from many of our guests that one of the biggest hurdles is education and that advisors don't necessarily feel comfortable. So if they're not comfortable with certain parts of private markets, they're not going to bring it to their clients. So I think hopefully what we're doing is helping, obviously with this podcast being one of them, but with many of the things that you're putting together, you know, I'm hoping that's helping with that effort.
And again, as we talk too, I think it's an industry wide effort. It's not sort of thought of as our firm's only goal. It's that we want to work together to try to bring it a little bit more broadly out there. So I think it's great that we're able to do that. So before we get into why you wrote this book, I know that it's your second book.
So for those who don't know, you did write a book previously. So I don't know if you want to just explain a little bit about the difference between the two and what prompted you to write this one.
Tony:
Yeah, so I wrote a book, and this is when I was independent, I had kind of the freedom to do anything. And I think when I wrote my first book, which was on goals based investing, my expectation was it was the first book, it wasn't the last book, and I really wanted to provide a little bit of a foundation. And in that book, I talked about the evolution of the wealth management industry.
It obviously had a lot of discussions around using alternatives broadly, the growth of private markets specifically, but I always thought that was really designed to provide kind of a foundation as advisors are starting to understand where the puck is going and how the industry is evolving. And I always expected to write the second book. I just didn't know exactly when that I would do it, but I think in my travels, it really became abundantly clear to me that there was a need for something a little bit more comprehensive. I would typically walk off stage and I'd probably have discussions for another hour with advisors about other topics to cover. And I just realized that writing a white paper and producing a podcast is great – it piques the interest and starts to engage that conversation – but it's not the whole story.
And I thought writing a book gave me kind of a bigger platform to tell the whole story. And I tried to write it in such a way that not only does it help the advisor, but it helps the advisor in having that next level discussion. Something you and I talk about a lot with our guests, which is how then does the advisor turn around and have a discussion with an individual investor trying to remove a lot of the jargon and really provide more case studies to illustrate what these investments are really all about, how they are different than traditional investments, but how they're actually similar. So how can we describe them in such a way that's a little bit more relatable to an investor rather than the fear that these seem risky because they're very unfamiliar.
Julia:
No, I think that's good. You started to touch on this of trying to get a sense of who you wrote this for, and I think you were saying you did this so advisors can help with their conversations. And you started to give a little bit of a difference, I think, between that first book and the second book, but is there a specific audience that you were thinking of who would automatically get the greatest use out of this book? Is this something that is more widely available and conceptually something that anyone can understand?
Tony:
I think my primary audience is for the sophisticated advisor who is either allocating or trying to refine how they allocate capital. It is about building better portfolios, so it's really primarily designed for that audience. But I'd argue that it really works for advisors wherever they are on their journey and the way I crudely describe it, you have the dabblers, you have the power users, and then you have those skeptics. And the skeptics, they may never pick up the book. They probably should, at least to understand it, because I think every advisor needs to at least be conversationally proficient, right?
High net worth investors are demanding and want to understand the private market. So I would argue everyone needs to understand it, whether they embrace it partially with their practice or across all of their practice. I think everyone really needs to understand it. So my primary audience is the advisor community, regardless of where they are on their journey. And hopefully the book helps them get a little farther along on that journey.
But it's also written in such a way that hopefully individual investors who are curious and a lot of my friends are in the industry, but they may not be experts in private markets. And a lot of them over the years have always asked me to help explain what are the differences, how do we use it and all of that.
So I do think that there's a role for high net worth investors and just kind of understanding the jargon we use, how the strategies work, what's the underlying composition. We tend to fall into the jargon. We talk about things like illiquidity and J curve, helping them just understand really what we're talking about there.
Julia:
And I assume it also, as you mentioned, case studies, that also probably gets a little bit more strategic about portfolio allocations, which is obviously Alternative Allocations is our podcast. So I know that's a key point for you, but I'm assuming you get a little bit more in depth with that too. So people can kind of understand how to use the different types of private market investments and strategies and where do they fit into clients’ portfolios.
Tony:
Yeah. And Julia, as you know, that's really been my primary focus here. We built all the foundational materials, why alternatives, the merits of the individual asset classes. I still think we needed to cover that. So that's certainly covered in the book. And again, I think it's important to understand where we've been and where we're going.
But a lot of the book is really focused on allocating capital. What are the common practices, again, thinking about it from a goals-based lens to modern portfolio theory. I do have a chapter in the book about total portfolio approach, which is this view that CAIA and others have been really promoting. It's more of an institutional view. I'd argue it's an aspirational goal for advisors where we want to take their practices, not necessarily something easily achievable in one fell swoop, but I think it's a transitional sort of way about thinking about allocating capital over the long run.
The one thing I would just say is if it's not apparent, I love the industry and I love what we do, and part of it is because I think the industry is constantly evolving, and I wrote the book somewhat in mind of what I refer to as lifelong learners, you know, people who are always on that journey to improve, and I know a lot of my advisor friends who are super successful advisors. They're constantly looking. How can I improve? How can I do a better job serving the needs of my clients? I think those lifelong learners are going to really enjoy a book like this because I not only talk about where we are, the last three chapters are really kind of projecting where I think we're going to be, how these strategies are going to be more broadly used. How we're going to start to see more granularity besides kind of the big building blocks that we have available now, private equity, private credit, private real estate. We have more niche strategies where we have products that maybe integrate some of these structures together. What are the impacts for individual investors, a topic that you and I've talked about in past podcasts. What happens when they start to become more broadly available in retirement plan?
So I wanted to not only talk about where we've been, but also project a little bit about where we are, because I think for a lot of advisors, they're trying to anticipate as they're growing their practice and thinking about what are the challenges they're going to be facing over the next couple of years. So I wanted to get a little bit ahead of that if I could.
Julia:
So I wanted to not only talk about where we've been, but also project a little bit about where we are, because I think for a lot of advisors, they're trying to anticipate as they're growing their practice and thinking about what are the challenges they're going to be facing over the next couple of years. So I wanted to get a little bit ahead of that if I could.
Tony:
Yeah, there's a couple things that I certainly think about and I talk about all the time. One is I think we just need to recognize we're in the early innings. So if an advisor feels like maybe they've missed out on it and therefore they're too late to the dance. Nobody's too late. We're still in the early innings. Roughly the allocation to alternatives have been five to six percent for two decades. So we are still way behind where institutional allocations are if aspirationally, we believe that 20 percent is the right number, and maybe 20 percent means that some are zero and some are 30 percent allocations, we've got a long ways to go.
The other thing is I would argue we've never been at a better point in time because we have products that are really built for the wealth channel that are more broadly available. And then related to that is we now have access to world class managers. So if we had really good products but we didn't have access to the best of the best managers, we wouldn’t get the same experience that institutions have. So I think those are really important things to think about.
And then I'd argue, it's not a nice to have anymore. I think every advisor needs to have a point of view on private markets. Clients, more and more are demanding that advisors either have them on their menu or can explain to them why they don't. So to me, it's absolutely part and parcel of the advisor's value proposition to be comfortable understanding the various structures and strategies, and more importantly, how to use them with their clients.
Julia:
Oh, that's great. This is exciting. So now I'm going to pivot a little. We talked about this before. I said, I know you pretty well, but not everyone may know you outside of Tony, the alternative strategist. So what can you tell us about some of your interests outside of work and, you know, a little bit about your family and just kind of what else drives you other than I know alternative investments do and private markets, but what else drives you?
Tony:
I joke I'm kind of a shallow person. I love what I do. So I read and I write a lot. I kind of consume with everything going on in the industry and read a lot about it. And I'm constantly, I'm growing, I'm growing all the time. But yes, I do have interests outside. And, you know, number one on my list is always my family. My wife and my two daughters are my why. It's really why I work hard, why I've worked hard my whole career.
And it's my most fulfilling thing just to watch them. My two daughters are now grown women and they're teaching children in school. And I know that those children will be better off because of them. My wife, I obviously picked the right person. As you know, my wife, she's a pretty special lady. And for some reason, she has put up with me and all my travel and my chaotic hours for all these years.
Funny little factoid related to the book is Julia, as you know, I don't sleep like a normal person does. And when I decided I was going to write the book, I decided in May and I delivered a 300 page manuscript on August 15th, which was a little bit early, even from what my editor wanted. And part of it is because I would wake up at one o'clock in the morning and write until six o'clock where I'd start my normal workday. And I did that for months. And I don't know how my wife put up with it, but she does. So she's this pretty special lady.
And then I'd say the only other really activity. I love golf. I'm an avid golfer. Unfortunately, golf doesn't always love me back, but it is something that I think is a great way of getting out with friends and spending three hours, four hours. It teaches you a lot about the type of person they are, their temperament on the golf course, the way that they handle themselves. But it's really one of my favorite things to do. It's my release. And again, I'm not always great at it, but I know at the end of the round, at least I've spent quality time with somebody that I wanted to be with.
Julia:
Which is often your wife too, which I'm always impressed by.
Tony:
So Sovy and I are both very competitive against each other and then when we compete in tournaments.
So it's not always, it's not always enjoyable as it seems. But yeah, no, we do play a lot. And then I know you wanted to tease a little bit about, you know, one of the interesting things about me that I think a lot of people at this point know is I actually live in Punta Cana, the Dominican Republic. And that was again, when I was running my own consulting business, I realized I could do a zoom call from anywhere. My wife's from there. So we live there. But last year, I spent 40 weeks traveling across America. So I certainly wasn't sitting on the beach like some people might imagine.
Julia:
But it's a nice place to go home to.
Tony:
But it's a nice place to go home to, and I do live in paradise, so I can't complain.
Julia:
Exactly. Nice. Well, thank you so much, Tony. This has been great. I'm really excited to read your book.
If people follow any of us on social, you’ll see I already got my copy, and I'm super excited and started it yesterday when it came out. Not that I didn't get sneak peeks before, but still. So I really appreciate it. I think you've been great. This podcast has been a lot of fun to work together and hopefully everyone will continue to listen to future episodes and I'll leave Tony to the making sure everyone rates, subscribes. He's good with closing off, but thank you. It's been really fun turning the tables and being able to ask you some questions, so thank you for letting me do that.
Tony:
Julia, you are the best partner anyone could ever ask for. It has been great doing the podcast. I love the guests that we've had on. It's kind of interesting sitting in this chair versus that chair, but I thought it was a fun sort of format to do. Hopefully this was helpful for people to understand kind of the way that we look at the world, you know, why you and I are motivated to deliver the podcast, which is really designed to help advisors on that journey, wherever they may be. As Julia mentioned, if you like our podcast, please let us know. If you haven't already done so, please subscribe so you never miss an episode. We have terrific guests. Except for me, we typically have terrific guests who have an awful lot to offer, but it really has been a passion, I think, of both of us to deliver this to an audience that has been growing and growing over the last couple of years. It's been a real thrill.
Julia:
That's great. Well, thank you so much.
Tony:
Thank you.
Show V/O:
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