Partner perspectives

MS: Hello, I'm Madeleine Sinclair, Head of Private Wealth Distribution here at Blue Owl Capital, and this is Partner Perspectives. And I'm joined today by Drew Freides to have a conversation about how he's utilizing alternatives in his practice.

So Drew, would love to know how you became a financial advisor. Tell us a little bit more about that journey and your practice itself.

DF: When I graduated from University of Virginia Business School, I was trying to figure out what do I want to do, and I'd always had passion for investing, enjoyed working with people, was very analytical. And to me, it just kind of fell into the business.

When I started interviewing in different areas while I was in business school, I just kind of fell into private wealth management, and had to give it a try. Did it for my summer internship, and the rest shall we say is history, twenty some odd years later.

MS: You were an early adopter to private markets with your clients. You say you're an engineer, what led you to decide that was the right choice? How are you making those decisions for your clients today?

DF: Good question. I think being analytical, being an engineer, being very much of a numbers person, when you dug into the role that alternative investments play in portfolios, it really became obvious. The diversification benefits, the unique return stream, whether it's income or whether it's appreciation, and the differentiating characteristics of alternative investments make it a natural fit if you take the time to learn and understand what they're there for, and how they add to the portfolios and how they actually can drive down overall risk.

And again, we always try to break stuff down and understand the rationale behind it and how it fits into the portfolios. When you take that time, I don't want to say it's obvious, but the numbers speak for themselves. Sometimes you have to overcome people's apprehensions with the liquidity and their lack of understanding, and it takes more time from an advisor standpoint, I think, to explain and to really illustrate to people why it's there, what we expect it to do, the role it plays. But when they really take the time and understand it, the clients, they realize that it fits in well.

MS: So, education is something that comes up all the time. When you move past that education, let's say you have them understanding what it is, then the actual allocation of the portfolio. How are you positioning that with clients? Where does it go from an asset class perspective?

DF: So, to us, really the first issue we try to determine when we create allocations to alternative investments is how much illiquidity can the client withstand, how much is appropriate. We love the return numbers out of alternative investments, but to us, the real risk to alternative investments is just illiquidity. We want to make sure that they're comfortable with that and that their overall goals in life permit them to lose that liquidity for a while. And so, I think that's really important to make sure they understand that.

And that really, to us, more times than not drives the percentage. We've got some really wealthy clients who don't spend a lot, almost 50% of their portfolios will be in alternative investments because wego know we're going to have great returns for them and it's going to really provide a nice stable return flow. If they don't need the liquidity, then that's typically what we'll recommend.

MS: What's the most important question you think? Or maybe the most frequently asked question you get from your clients?

DF: We almost tell them because they'll ask us, “What should I be asking?” And to us, the most important question is, “What are the risks?” To us, again, for our clients who are typically already wealthy, we're more risk-focused than return-focused. And so, in any investment we try to make sure we outline, ‘Here are the risks involved.’ Whether it's illiquidity, whether it's downside in a volatile time, we just want to make sure that they're aware of what could go wrong so they're prepared. Again, when clients understand what could go wrong, then they're happy and the results typically speak for themselves.

MS: So many entrants into private wealth in terms of alternative asset managers. What's important when you look at managers and make that selection?

DF: Good question. I think most importantly for us is consistent returns. And one is I would say that the manager sticks to what they're good at, they've got an expertise in a certain area. We sometimes push away from kind of the be-all alternative investment managers because they just don't have an expertise and a specialty.

So, we want to be able to show our clients that this is something this manager focuses on and then that they've just got a consistent track record, not necessarily knocking the cover off the ball, but when things get volatile or things get difficult, that they do a really nice job of managing risk. To us, risk more than anything is important.