60/40 portfolio ‘is officially over,’ CAIS CEO says

CAIS Founder & CEO Matt Brown speaks with Julie Hyman at the Greenwich Economic Forum about market headwinds and portfolio strategies using alternative assets.

Video Transcript

JULIE HYMAN: Welcome back to Yahoo Finance Live. I'm Julie Hyman, live at the Greenwich Economic Forum in Greenwich, Connecticut. And a big focus here of the speakers today and of the subjects of conversation is on alternative investments, those outside sort of stocks and bonds.

And my next guest knows a lot about this area. He's Matt Brown, founder and CEO of CAIS, which is a firm that basically provides a technology platform for many of those alternative investments. So before we dig into it, can you just tell me a little bit more about what you guys do?

MATT BROWN: Absolutely. And first of all, thanks for having me.

JULIE HYMAN: Sure.

MATT BROWN: It's great to be here. CAIS, as you said, is a technology platform. And what we do is we connect the very fragmented universe of financial advisors across America with the leading alternative investment funds. So think private equity, private credit, hedge fund strategies, real estate strategies. And the reason that's valuable is because those two communities really didn't have access to each other prior to a technology that allows it to be easy and simple to connect.

JULIE HYMAN: Well, and I feel like retail investors writ large didn't really have access to these kinds of investment. The thinking always was you had to-- well, you have to be an accredited investor, which, you know, means, among other things, that you have to have a certain amount of money. Do you think all of that needs to change? Do you think we need to have sort of radical accessibility to these kinds of investments?

MATT BROWN: Well, the world is changing. And there's really a moment in time now that we're seeing a lot of forces come to play. There's really four major trends that are coming together. And you mentioned one of them, and so why don't we just start there, which is the regulatory environment on who governs who can access alternative investments.

I think previously, as you said, you know, the bar was quite high. The SEC's view was if you, you know, invest in alternatives, we want you to have a lot of capital, just in case it doesn't work out. I think what they realized over the last 10 years is that alts have really done their job.

And what they've done is be able to take advantage of unique opportunities that the public markets don't offer, while protecting the downside of investors in turbulent times like we're having now. And the SEC now is kind of saying, wait a second, maybe we've excluded too many people and not made it more broadly available. So they're changing and modifying their stance on that, which is creating a much more inclusive investing environment, and very much along the themes of democratization of access.

JULIE HYMAN: Yeah, and to your point, it's not as if you're insulated from downside if you're in the equity market. So--

MATT BROWN: Well, I mean, that's the-- you know, the 60/40 portfolio, I can say it here, I think is officially over. I think markets like this have really just once again demonstrated that, you know, you can't just have a portfolio that is only equities and fixed income. The modern portfolio is really a three-dimensional portfolio. It's stocks, bonds, and alternative investments. And most people are talking that it's going to be 50-- you know, 50/30/20, and 20 being, of course, alternative investments.

JULIE HYMAN: That said, do you think that there is a risk with more people getting involved in alternative investments?

MATT BROWN: I see just the opposite. You know, we look at some of the greatest asset managers in the alternative space, many of which are on our platform and available. You know, decade after decade, they've delivered. I would argue that, if you're a financial advisor and you're not allocating your clients' capital in alternative investments, you're at risk of losing your business. That's the impact-- positive impact alts are having.

JULIE HYMAN: I mean, at the same time, if we are headed into a downturn, during the financial crisis, certainly alts were not immune. If anything, some of them were the sources of some of the, you know, fractures that we saw within the system.

MATT BROWN: Well, I think when you look at the track record of how portfolios perform in good times and in times like we have right now, with high volatility, their added value far exceeds any kind of negative impact that one or two could have. You know, you look at the largest and most sophisticated investors in the world, institutional investors, average allocation rates to alternative investments, 30% to 50% of their portfolio overall. Interestingly, look at that same lens on wealth management in America, which controls $40 trillion, less than 5%. Probably closer to 2% to 3%.

But it's rising. Advisor demand is picking up. Asset managers see wealth as a huge market of new clients for them and new investors. Regulation, as we mentioned, is changing. And now, with this technology, that's going to make it all easier.

JULIE HYMAN: So all of this implies that, even if we're seeing a pullback generally, potentially, in things like software spending, that maybe you're not seeing that in your business. Or are you? What are you seeing right now among your clients, at a time where we're seeing that increased volatility?

MATT BROWN: So it's interesting, as a platform provider, we're neutral. So we don't really have a dog in the fight. We observe. We want to provide the service.

JULIE HYMAN: Well, you're neutral, but your clients who make their money on it are not necessarily neutral.

MATT BROWN: Right.

JULIE HYMAN: So are they pulling-- are they retrenching?

MATT BROWN: Yes. So what we're seeing is three or four really defined areas. With the European uncertainty, with the Ukraine situation, with an energy crisis, with the political environment here in the US, all that, rising interest rates, rising inflation, all that's factoring into the psyche of the advisor and the end client. So what we are observing on our platform is where the money is going.

So we're actually standing back and saying, OK, where are the advisors allocating? So they're allocating to macro strategies right now, hedge funds strategies that are nimble and opportunistic. They're allocating to private credit and real assets. So it's quite interesting to see the ebbs and flows of capital flows into different strategies based on the current economic environment.

JULIE HYMAN: Well, we'll have to catch up with you again in a few months and see where those flows are going. Matt Brown, founder and CEO of CAIS, thank you so much.

MATT BROWN: Thank you so much.

JULIE HYMAN: Appreciate it.