Animal Spirits Podcast - Talk Your Book: Infrastructure Investing

Starting point is 00:00:00 Today's Animal Spirits is brought to you by Sion Investments. Go to sioninvestments.com. To learn more about the Siongrovner Infrastructure Fund, which we're talking about today, that's sioninvestments.com. Welcome to Animal Spirits, a show about markets, life, and investing. Join Michael Batnik and Ben Carlson as they talk about what they're reading, writing, and watching. All opinions expressed by Michael and Ben are solely their own opinion and do not reflect the opinion of Riddholz wealth management. This podcast is for informational purposes only and should not be relied upon for any investment decisions. Clients of Britholt's wealth management may maintain positions in the securities discussed in this podcast.

Starting point is 00:00:42 Welcome to Animal Spirits with Michael and Ben. Ben, one of the themes of the year for advisors anyway are the rise of private investments. It feels like it's a title wave, doesn't it? It does. And you have all these companies. who have spent their careers focused on institutional investors. A mission accomplished. Great success.

Starting point is 00:01:08 Institutional investors have, call it, 30% of their portfolios invested in private assets. And retail investors have effectively, let's call it zero. And so the shift has focused or the shift has turned or the focus has shifted. That's what I'm looking for. To individual investors. And on today's show, we're joined by a company, Sion Investments, that has been, they were early to this. They started with a focus on individual investors as opposed to institutional clients. And one of my big pushbacks against alts when I worked in institutional space was operationally, they were inefficient.

Starting point is 00:01:49 I was like helping with the operations of these. And I said, there's no way advisors can run the funds like this, where it's a private equity fund and you have capital calls and put money in occasionally. It's way too cumbersome for all these different clients you have. And a lot of these places figure out, like, you're right, that won't work. So they've created these interval funds that make life easier for the advisors. It's easier to put it in. The liquidity parameters are known ahead of time. And so I feel like the alternative space has decided to, like, open arms for the financial advisors. And on today's show, we talked to Mark Gata, who's Mark's the co-founder and co-CEO of sign investments. And then

Starting point is 00:02:27 John Levin, John is the CEO of GCM Grovener. No S in there. See that? I got it. And they partnered up to put out an infrastructure fund. And it's on science platform. Grovener is the manager. And they run it. And it's, you have to be an advisor to get your clients into this fund. But it's another arrow in the quiver, I guess, of all it's for advisors. And this is a, we talk about it today on the show. It's an asset class that not a lot of retailer advisors are in. And it's got, I would consider it pieces of fixed income and pieces of equity in a way. What, infrastructure? Yes. To me, the most interesting thing and sorry for stepping on the material, but I asked a question about valuations and is there too much money chasing too few deals, which seems to be a

Starting point is 00:03:14 theme in the broader private space. But with infrastructure, his answer is, no, it's sort of the opposite. There's such a gigantic need for capital that we're actually under-invested in infrastructure. And you know what? I buy that. I do buy that argument. Based on the roads I drive every day, I buy it too. Yeah. So, all right, here is our conversation with Mark from Sion and John from G.C.M. Grovener. John and Mark, welcome to the show. Thanks, guys. It's a pleasure to be here. Thanks for having us. Yeah, you guys. Got it. So we're doing infrastructure today before we get to it.

Starting point is 00:03:51 The topic at hand, tell us about the partnership between Sion and Grosvenor. How did this come about and what are you guys looking to solve for investors? Okay. Well, I'll take that one because this type of partnership is something that we created many, many years ago. Sion Investments is an alternative investment solutions provider for individual investors. We've been around a long time. The company started.

Starting point is 00:04:18 back in the 90s, if you will, under a different brand, under different management. And my partner and I, Michael Reisner, we acquired the company in 2008. And we've been focusing on individual investors since day one. There's a lot of attention on this marketplace today because there's a lot of big names that have entered into the space. But we are one of the few firms that have been around since that time. And we're certainly one of the few firms that are are independent in the sense that we're not part of a big public company or we're not part of a larger asset management group that historically has serviced institutional investors. So we had tremendous success in the early days, if you will, when we launched our BDC Sign Investment Corp. And that

Starting point is 00:05:08 initially started as a partnership, very similar to some of the other partnerships that had been launched at that time, but that was structured around a sub-advisor. And we, and we, found that that type of structure really wasn't conducive for the type of business that we wanted to do. We didn't feel that it was investor-friendly and really align the interests of the two partners. So we created a joint venture with ARIES management back in 2016, and that was to launch our first Interval Fund sign Ares diversified credit. And what we did was really we took best in class in two categories. One was investment management where we had a firm like Aries, who was best in class of what they did, and our firm side investments, where we considered ourselves a leader

Starting point is 00:05:57 in manufacturing, managing, and most importantly, distributing alternative investments. And what we decided to do very early on was to be an open architecture firm, meaning that we wanted to go out and partner with the best managers in their respective strategies. We felt that the industry was evolving whereby large institutional managers were coming into the space, and they were pushing product, and they continue to push product. And quite frankly, firms are not good at everything. So the big firms that we know very, very well, they're on the front page of the Wall Street Journal every day, they're not necessarily good at everything. They're good. They're great at certain things.

Starting point is 00:06:39 They're good at other things and maybe not so good at some things. we felt that we could go out and identify the best players in specific strategies and partner their investment expertise with our understanding of the individual investor and our ability to manufacture these products and ultimately distribute them to financial advisors. So the joint venture was born out of that. And today, sign investments is an open architecture firm where we are delivering on that mandate to give access to individual investors, what we believe are the best available matters in a specific asset class. And that's what kind of brought us to Grover.

Starting point is 00:07:19 We consider them one of the best, if not the best, in terms of infrastructure. And I think they really understood and appreciated what we do in terms of delivering these types of alternative investments to the client. And what's really different about this is it's not a relationship where we're a third party distribution firm or they are a sub-advisor to a product. We are technically married at the hip, and we both have skin in the game in this product. So we jointly own the advisor, we're jointly fiduciaries to our investors. And I think that's important when you consider a lot of the other players in the marketplace that really were born on and built on and continue to grow as large institutional asset

Starting point is 00:08:06 managers, the retail investor, the individual isn't top of mind all the time. Well, when it comes to Scion and the partnerships that we develop, we can say without a doubt that the investor is the most important thing on our mind. And I think that's what's really enabled us to be successful in a marketplace that is now crowded with big brand names that have a lot of resources and we don't, you know, we don't have those types of resources that they do. But what we do have is an allegiance to our investor and a focus on our investor. And that's what these joint venture partnerships do for us and ultimately the clients that we serve. And we are, you know, we're really excited about the partnership with Grovenor because they have a firm that have been around a

Starting point is 00:08:53 long time. They're great at what they do. They have a particular expertise in infrastructure. And we think that their experience in that asset class and their track record over the years, coupled with our ability to offer these types of products and explain these types of products and educate the financial advisors and their investors on these types of products is really going to make a winning combination that will ultimately help investors diversify their portfolio and do so in a thoughtful way and allow them to access alternatives in a way that they haven't before. I want to talk more about the platform in a minute, but I came from the institutional world where there were infrastructure investments done, you know, in the Endowment Foundation world.

Starting point is 00:09:37 And I know that these kind of funds are pretty big in like Australia for retail investors, but I think it's still relatively uncharted territory for a lot of investors in the U.S. So, John, maybe you could just talk through infrastructure as an asset class and explain how it works and explain maybe how it has parts of like fixed income and equity in it and just how the asset class works for the people who don't understand it. Sure. Ben, I'm happy you brought that up because it's actually interesting when you think about the history of infrastructure. Infrastructure assets are as old as the world. We've always had essential services. We've had roads. We've had other modes of transportation. We've had social

Starting point is 00:10:11 services, infrastructure assets. But infrastructure asset management is actually relatively immature in the context of all the different alternative strategies. Whereas you think something like private equity being four or five, six decades old, I would say the infrastructure asset class is more one, two decades old. And so for our experience, doing it for two decades, decades, we're actually very experienced in the infrastructure space. And one of the most exciting parts about the infrastructure asset class is the growth opportunity. And the growth opportunity is a function of massive need for infrastructure capital from all sources, public capital, private capital. But the other part of it is what you were just alluding

Starting point is 00:10:49 to, Ben, which is the characteristics of infrastructure as an asset class, the idea that you have long-term cash flows, the idea that you have high degrees of confidence around those cash flows, the idea that you have yield component, the idea that you have inflation protection, the idea that you have dampened volatility, these are the types of things that any investor, whether you're an institutional investor or an individual investor, covets very much in terms of having a key part of their portfolio. So we're super excited about where infrastructure is going in terms of the need for that type of capital generally, but also where it's going as an asset management asset class and

Starting point is 00:11:26 the continued maturation of it and how it's going to play out in portfolios, largely driven by some of those really interesting characteristics that you point out, Ben. I was listening to Black Rock's most recent earn and call, and Larry Fink said something to the tune of like there's going to need to be $75 trillion worth of infrastructure spending out to, I forget the year was, but where's this money coming from? And what is infrastructure? I mean, it just sounds so vague. Like, are these roads or these, what do we talk?

Starting point is 00:11:55 Are these airports? What are we talking about here? Yeah, it's a good question. So first of all, the need for capital, whether it's $75 trillion or something half of that or something double it, it doesn't matter. It's a lot of trillions and it's a lot of money that's needed. And I think that depending how big that number is, is whether you want to include the capital that's needed to transition the energy sector to cleaner and more renewable forms of energy and the numbers are just massive. The answer to where it's coming from, it's coming from everywhere. And it needs to come from everywhere.

Starting point is 00:12:27 That's how big the problem is. It needs to come from private capital. It needs to come from government sources. It needs to come from kind of muni finance type markets or similar markets in other countries, project finance markets, public-private partnerships. The capital need is so big that everyone's going to be part of that participation. I think your question on what is infrastructure is an interesting one because I think it's an evolving definition. The reality is when infrastructure first started out, people thought exactly, Michael,

Starting point is 00:12:54 about the couple things you just said. They thought about roads. They thought about airports. Those are definitely parts of infrastructure. But I think it's a much bigger world. So start with the characteristics. The characteristics are these are tangible assets. These are essential services. You're talking about transparent and highly certain cash flows. You're talking about assets that have high barriers to entry. And you're also often talking about assets that people interact with in their daily life, maybe not directly, but kind of maybe then indirectly. So you could, yes, have roads and airports and things like that, but you could also have pipelines that transfer energy.

Starting point is 00:13:31 You can have data centers, which has become a part of infrastructure, maybe sometimes it's real estate, but data centers is a huge part. You could have ports. You could have courthouses and other social services like education, depending on who your counterparty is if it's government. So there's so many different types of infrastructure, but when you think about the parts that are important, it's what Ben was alluding to. It's for it to be considered infrastructure in our minds, and for it to be considered infrastructure as an asset class from an investment management

Starting point is 00:14:03 perspective, from an institutional or individual investor allocation perspective, it needs to have these characteristics around cash flow, inflation protection, high degrees of confidence, long duration, things of that nature. So when investors are coming into these structures, whether it's, and we could talk about the different investment vehicles, actually I'll defer to you guys on that. How do, so one of the challenges, and Mark, you hit the nail on the head that you alluded to a lot of larger players coming to your turf and your turf being the end investor. Now, wealth management is like the hot thing with private investments. It's difficult for advisors to evaluate these potential investments on behalf of their clients because guess what?

Starting point is 00:14:46 We're not experts in infrastructure. So when we're hearing the story, everything that you're saying on the surface, John, makes a lot of sense. Oh, yeah, bro, it's cool. Got it. But like, what questions should advisors ask? How do we actually that your product versus the competitors, what are some of the questions we should be asking for? What are some of the, like, just what are we looking at here? What are we talking about? Yeah, it's, it's a great question. And it, it perviates not only infrastructure, but it's the whole asset class of alternatives today. There's a lot of education that needs to be provided to advisors and their clients in order to truly understand what they're getting into. And I think too often people paint these products with the same brush

Starting point is 00:15:34 or they characterize them under a particular wrapper or structure, whether it's an interval fund or BDC or REIT without really understanding what the underlying investment strategy is or how they're doing the investment strategy, who the manager is. So there's a lot of lot of things to be diligence. And that's why accessing these types of products really starts with partnering with a firm that's dedicated, high quality, can provide the service that you need as a financial advisor to better understand that. And that's where we come in. And I think that's, again, why our partnerships really flourish is because you have an institutional asset manager that knows the ins and outs of their strategy. And they're really good at what they do. But they're not

Starting point is 00:16:20 accustomed to speaking to individual investors and financial advisors, right? They're accustomed to working with large institutions. And that relationship is much different than the relationship that we have with our advisors and their clients. So it's something that really starts with education. And we really pride ourselves on providing that education in a thoughtful, understandable, digestible way. And then it's about really guiding financial advisors on what they should be looking for. Part of the process is for us to tell them what they should be looking for because we're very proud about what we have and what we're going to present to them. But it really is a function of first and foremost understanding these vehicles. Are you investing in a BDC or are you investing

Starting point is 00:17:07 an interval fund? Is it a closed end fund? Is it a REIT? What are the liquidity features? What are the minimums. Well, let's start there. Mark, what are some of the differences for our audience between those three structures? I think most people are probably familiar with the REIT. But you said, close that fund, interval fund at a BDC. What are some of the differences that investors need to know about? So if they're a registered product, and that's what we are distributing and manufacturing at Cyan, those are the types of products that are raising a lot of capital today. And if you look at the various vehicles, there's a lot of similarities to them, in terms of a BDC and Indible Fund where a lot of credit managers and other asset classes

Starting point is 00:17:46 are utilizing those vehicles to get to market, they're similar in a lot of ways, right? They're transparent in the sense that they're registered, so you have public filings that you can read. Typically, they're going to have low minimums, which is something that really is enable alternatives to flourish in the marketplace because historically there were very high minimums for individuals to get into alternative investments, it was virtually impossible. So the low minimums have changed the gain. Additionally, these products offer some sort of liquidity. I like to say in many respects, it's appropriate liquidity for the individual investor in these strategies. So a BDC and an interval fund, many of the REITs today, they offer quarterly

Starting point is 00:18:33 liquidity. Typically, most products offer approximately 5% of the net asset value of any fund for purchase or repurchase by the fund itself to investors on a quarterly basis. And that is what I call appropriate liquidity because we're trying to match the investment strategy with the capital that we're raising. So far too often we've heard about a mismatch of capital where Investors were putting money to work in long-term investments or long-term securities, but the capital they raised was daily liquid or much more frequently. Makes no sense. It makes no sense.

Starting point is 00:19:14 And there's been a lot of problems with that. So what we do with these types of products, we're trying to match that capital up with the type of investing we do. And as investors, we're able to think more long-term, knowing that there is some limitation on the type of liquidity that's available in the fund. But at the same time, it allows a investor to invest in alternatives, access the premium yield that's provided, the diversification that they provide, but still have access to their capital. And we see that as a great characteristic of these products. And typically, at least for our franchise, you know, we have not seen the tender process result in an over-subscription.

Starting point is 00:20:01 So our investors have had the ability to access their capital if they need it. And if it's a situation where there's more demand for capital than the limitations provide, we feel in a certain way that's a good thing, right? Because we don't want investors to make rash decisions and pull their capital out when there could be a recovery on the horizon. And that's what we've seen in the past with liquid products, where investors panic and they take their capital out and then there's a, there's a recovery. So it really is the secret sauce, if you will, to these types of products.

Starting point is 00:20:41 It allows, again, as I said before, it allows us to think long term, investable capital, long term, but they have a pathway to exit. If you look back 15 years ago, 20 years ago is in this business, the alternatives that were provided to individuals had very little to no liquidity. and they were locked up for many, many years. If you look at a traditional all for institutional investors, there's a seven to ten year hold. So the liquidity features have really enabled us to mainstream,

Starting point is 00:21:11 if you will, these types of investments. John, one of the most important jobs as a financial advisor is setting expectations for clients. So for those who are one aware, maybe walk us through some of the different expectations for risk and reward, and what can change the returns on an infrastructure asset or investment, both positively and negatively.

Starting point is 00:21:31 Yeah, it's a great question, Ben. And I actually think where you started is worth us emphasizing, because it's something we in our partnership, Zion and Grovenor, believe in really strongly, which is education, education, and transparency and transparency, and transparency. We want to make sure, just what Mark was just talking about, people understand the nature of the investments that they're investing in. They understand in detail the structures that they're using to make those investments and that there is no expectations mismatch.

Starting point is 00:22:02 That doesn't mean that things don't happen down the road where we all need to pivot or there aren't bumps in the road where you wish he had done something different. But it wasn't because of an expectations mismatch. And so we're huge, huge believers in it. It's something that we've driven in a real serious way in the institutional investor world for five decades and something that we hope that through our partnership with sign around the infrastructure asset class, we can help drive in the individual investor market as well. I think specifically when it comes to infrastructure, what people should expect and what we

Starting point is 00:22:34 hope to deliver is something that is consistent with the historical experience we've had doing this in a really global diversified way for the past 20 years, which is mid-single-digit type of cash yields, double-digit type of total returns, minimum. minimal volatility, inflation kind of hedging or inflation correlations to the extent that there's inflation protection through the assets themselves, downside protection because of the essential nature of these assets. And that's what we've been able to deliver for our investors historically. And that's what we hope to be able to continue to deliver for investors going forward.

Starting point is 00:23:12 That doesn't mean that you won't have bumps in the road along the way. but we do expect the nature of infrastructure assets and the nature of infrastructure asset management done well should be a very kind of comfortable and consistent experience for investors. What does a poor outcome look like? And I guess what are the, I know it's not liquid, so it's not apples to apples,

Starting point is 00:23:35 but what does volatility look like or what does a bad year look like? And what would cause a bad outcome? Is this the type of thing where, oh, we're building a pipeline and it burst and it needs more money and so your yield is going to be lower or, I don't know, I don't even want to make up scenarios. You tell me, what does bad look like? The first thing I would say is that the nature of infrastructure assets that we invest in

Starting point is 00:24:02 are generally of a operating variety. And what I mean by that is you're not doing a lot of new build, green field, engineering risk, construction risk, things of that nature. So it's not to say bad things can't happen. But the example you gave around building something and it not working or blowing up less likely to happen through the nature of the infrastructure assets that we're looking at, which are generally assets that are already developed and already in operation. I think that what bad can happen depends on the nature of infrastructure, but it usually is something related to the kind of demand side of it. So, for example, sometimes when you are a infrastructure owner of a road asset, it might be that your payments from whoever your counterparty is, let's say a government, are simply based

Starting point is 00:24:54 on having the road available. And as long as the road is available, you get payments. There are other types of infrastructure investments where it might be usage-based. So there's an element of availability, but then you're happier as an infrastructure owner if more cars go on your road. Generally speaking, you underwrite these assets such that you are comfortable with kind of low usage assumptions, but you'd be happier with higher usage assumptions as well. And those type, that's an example of something that can lead to differentiated outcomes. The one thing I would tell you is if you're doing infrastructure right, you wouldn't, for example,

Starting point is 00:25:33 build a brand new road that no one has any idea if anyone's going to use and make it usage-based. that's venture capital. That's risk. That's not a true infrastructure investment, even though there's a road in the word of that investment. So I think the devil is in the details, and there can be some variability, but you tend to underwrite these investments with pretty conservative assumptions. And do you have specific allocations you're looking to hit on certain types of infrastructure? Or is it just kind of what becomes available and what the different yields are? It's a good question. So Mark made the, this point, and I cannot emphasize it enough, diversification is really, really important.

Starting point is 00:26:15 Diversification geographically, diversification just by sheer number of assets, diversification based on different types of drivers, meaning travel or transportation infrastructure versus energy-related infrastructure, et cetera. And so, yes, there's both a bottoms up and a tops down component. The bottom up, Ben, is making sure that each individual deal and each individual underwrite meets those standards. And the top-down portfolio construction is making sure that you have diversified exposure. So you would not want a fund to be all transportation or all energy related or all data center related or all supply chain logistics related. And so when we think about constructing an infrastructure portfolio, we look at what we call the different kind of sub-asset

Starting point is 00:27:04 classes, or we look at what you could call kind of the different food groups of infrastructure and make sure that each of those are represented in a portfolio. Where do these deals come from? Like, is this all government-funded projects and then they go looking for capital? Or it sounds like that's not because it sounds like these are like finished projects, it's not venture. But how do you source these investments? Where are they coming from?

Starting point is 00:27:23 How do you, quote, like, win? Is it a bidding process? Take us under the hood. It's all different is the answer. and one of the aspects of the infrastructure market that I find interesting is, and it's changing today, but if you look at U.S. infrastructure investing, it is dominated by energy-related infrastructure. And the reason for that is there has not been a lot of privatization of government assets. There is a very well-functioning municipal bond market. And so a lot of the assets that are

Starting point is 00:27:58 winding up in private capital funds and private capital forms are energy related because those are the assets that are tradable. Whereas if you look outside the U.S., if you look in Europe or if you look in Australia, you get almost the inverse of that. Energy related infrastructure is just a piece of the pie and you get tons of other types of infrastructure. And I think that's a function of history. It's a function a little bit about how government works. It's a function of the different municipal type financing markets. But I think in the U.S., because of the massive needs for infrastructure capital of all types, you'll see that change over time. In terms of how we source the assets, I think a huge, huge part of it is our experience in the space. I really believe that.

Starting point is 00:28:38 I think it's the fact that we've been doing it for 20 years. I think it's that we have a big global team that is experienced that have a number of different relationships, relationships with investment banks, relationships with other infrastructure investors, relationships with government entities or public-private partnerships where that's relevant, relationships with corporates that sometimes want to do some of their infrastructure investing that they need for their business off balance sheets so that they can kind of preserve capital. And it comes from all those different sources. I think one of the keys to our infrastructure approach, our infrastructure mousetrap, is being super open to implementing our infrastructure investments in different ways. Sometimes we

Starting point is 00:29:23 take control of the asset. Sometimes we're a minority investment. Sometimes somebody else may be controlling governance day to day and we're participating in the asset. Sometimes we buy the asset from someone that's already owned it in what's called a secondary transaction. And if we can simply be focused on the risk return outcomes and the portfolio construction outcomes for our clients and not worry so much about, frankly, the ego that sometimes comes in this industry with my deal or I only do control deals or I only do deals that look like this, we think that puts us in the best position to source the most diverse portfolio of infrastructure assets that can deliver value to our clients. And Mark, how are these purchased? Do people come on your platform and retail investors

Starting point is 00:30:03 combine? Do they have to go through a financial advisor? How does that work? Yes. So currently, they have to go through a financial advisor. And we think that's a good thing because there is some complexity to these types of products that need to be vetted by a professional. And when we support that process currently. The interesting thing about certain of these products, particularly the interval fund, is that there's an ease of use to purchase these products, unlike other alternatives, whether it's traditional or even a BDC or a REIT where you have to fill out paperwork and you have to get signatures and things of that nature. The interval fund is something that is very efficient to buy and sell where you can, you can purchase via a ticker symbol, just like a

Starting point is 00:30:50 stock. So that's something that's also helping the demand for these types of products is that financial advisors can easily buy and sell these products. And that's something that's also promoting the Interval Fund as probably the number one structure in alternatives and something that we use widely on our platform. would look at my inbox or probably the inbox of any financial advisor in the United States, we're getting a lot of emails, a lot of emails of private asset management companies like yourselves. And so I would have to imagine that because there's so much money coming in, just like in public markets, valuations are up. I would imagine that returns on a go-forward

Starting point is 00:31:39 basis have to be lower just based on the price that you're paying for assets that you would have paid a lower valuation probably 5, 10, 20 years ago. What are you guys seeing in terms of competition and potential yields and investor expectations going into these things? Yeah, you know, we just met today. So at the risk of disagreeing with someone I just met. Right on. If I figure you're used to that. Given the industry, right? I think there's a few things. So one, let's start from the infrastructure standpoint first. You know, we just spent time talking about, you know, Larry Fink said 75 trillion. I said, I don't know, but it's a lot of money. There is more capital needed than there is for infrastructure assets for the foreseeable future. And I don't,

Starting point is 00:32:29 I really truly don't see that changing for a long time to come. There are so many projects out there. There is so much need. I mean, you can just look at little things alone, like, data centers. Everyone thought that data centers were needed in huge scale because of cloud computing. And then everyone woke up one day a year ago and realized, oh, there's AI. And whatever number they thought was needed is now multiples of that. In order to have all those data centers, whatever amount of energy production or electricity production you thought you needed to service that is now multiples of that. And every one of those things has, knock-on effects. There's all the infrastructure around it. Well, if you need more energy,

Starting point is 00:33:14 you need more ways to transport it. You need different sources of it. You need it in different geographies. So I think the reality from a return perspective, an infrastructure in particular, is not at this point in any way affected by the growth of the infrastructure asset management or the growth of capital going to infrastructure. And I don't think it will be for a really long time. And in fact, I think for firms like us that have been doing it for a really long time, capital is actually an asset. The more capital you have, I actually think the more you can actually drive return. And we've actually seen that. We've seen our infrastructure practice go from $2 billion, 10 years ago to $15 billion today. And I think that we've seen actually our

Starting point is 00:33:57 capability set and our opportunities that grow as a result of that growth. So Mark, you've served, sorry, I'm sorry, John, go ahead. No, I was just going to say quickly. There's a second piece of this, which is what you were alluding to in terms of your inbox. Today, my inbox, it's only political emails. So I wish I was in your inbox, but with the election coming up. But, you know, today the idea that there is more product and there is more communication going out to individual investors for them to increase alternative exposure in their portfolios, it's still coming from such a low base. The typical mature institution in the world might have 30, 35, 40, 45 percent of their portfolio. alternatives. And the goal is to try to deliver that same experience to the individual investor.

Starting point is 00:34:41 The individual investor today is at two, is at three, maybe if they're super sophisticated, they're at 10. So there's a lot more room to grow in terms of those individuals getting to a place where they have a proper, mature, diversified alternatives investment portfolio. Yeah. Why should, why should only the institutional investors be able to underperform the S&P 500? I kid, I kid. So, John, it sounds like you comfort. from the side of serving the institutional investor. And Mark, you serve the retail investor. So talk to us about just the blending of those two different skill sets. Well, I think that's the beauty of the partnership, right, is that we understand the individual

Starting point is 00:35:21 investor extremely well. And John and his team understand how to invest for institutions. And we're bringing that expertise to the individuals. There's no reason why individual investors shouldn't have the ability and the same access that institutions do to certain asset classes for their portfolio. Wait, when you say same, sorry to cut it, but this is important. When you say same, I want to make sure that the institutional investors aren't getting the good stuff and the individuals are getting the crumbs. Absolutely not.

Starting point is 00:35:53 Absolutely not. That's the most important aspect of this business and this relationship. And one of the reasons why I mentioned that feature of our relationship before, where you have a firm like ours that is a partner within the venture, we have skin in the game, we are fiduciary to our investors, and we, by virtue of this joint venture, create a fiduciary responsibility for the manager to the investors. And we 100% are focused on, laser focus on that, because it could happen, right? People can say, oh, no, you get the same deals, but ultimately it could happen. But we're very conscious of that. It's one of the most

Starting point is 00:36:36 important aspects of the partnership when we start negotiating. Yeah, Michael, let me be even more specific on that because I think it's really important what you asked there when Mark said. In the vast, vast, vast majority of the deals that we're going to do together in our partnership that will ultimately be delivered to individual investors, our longstanding large blue chip institutional investors that have been clients of ours for years or decades in asset management and infrastructure in particular will be investing in the exact same deals. So that was hugely important to Mark and his team. And it was hugely important to us that we would not deliver an experience that was different from the experience we're used to delivering. And the reality is

Starting point is 00:37:22 today, when you look at our 80 billion dollars of assets under management, 95% of our, of it as institutional, 5% of it is individual investors, but it's been about 10% of our capital flows more recently. So the individual investors are growing as a piece. But we don't have nearly the expertise and the knowledge and the experience around registered product distribution that Mark and his team have. And so being able to kind of one plus one is something greater than two, we each bring what we're really great at to the table. And hopefully as a result of that delivers something that's super powerful and something that delivers value to the individual investor. I love that idea because these are very different muscles and different investor groups.

Starting point is 00:38:05 So, John, as we come to a close here, that's very professional podcasting right there. How should investors think about the changing in interest rates and the potential change in, not potential, the change in whoever's going to be in the White House? Does that impact how you think about investing or how investors should think about the world? Yeah, look, I think when you're an investor, you obviously have to be very cognizant and aware of capital markets factors like interest rates, which I think is obviously the most powerful capital markets factor out there. They have to be aware of near-term events, geopolitical events, political events like the upcoming election, and have to think about those matters. The reality, however, is for long-term investors, for long-term thinkers, and there is no better. example of being a long-term investor than the infrastructure asset class where your hold periods

Starting point is 00:38:59 are quite long. The duration of the cash flows is quite long. You're really a long-term thinker that's thinking beyond that kind of stuff. The tailwinds that we talked about, the need for infrastructure capital, the elements of infrastructure investments themselves in terms of yield generation, inflation protection, long-term total return, minimal volatility, those are factors that are persistent throughout market cycles and frankly are persistent regardless of who sits in the White House. And so what we're excited, you have to be aware of those things, but what we're excited about for individual investors is delivering a long-term experience that will outlast any of those

Starting point is 00:39:39 kind of short-term, more cyclical factors. And I think the secular trends behind the excitement or behind the positive aspects of infrastructure investment far away anything that's happening on a cyclical basis. Mark, if financial advisors are listening, where do we send them to learn more? So you could go to our website at sioninvestments.com. That's your best source to find out what we're doing with Grovener and some of the other products that we offer. Appreciate it. Thanks very much, guys.

Starting point is 00:40:08 Thank you, guys. Thank you. Okay, thanks again to Mark and John. We appreciate it. Remember, check on sionin investments.com. We'll learn more sign as C-I-O-N. Email us, Annal Spirits, at the CompoundNews.com. We'll see you next time.

Starting point is 00:40:22 Thank you.

Your Ad Here

Animal Spirits Podcast - Talk Your Book: Infrastructure Investing

There aren't comments yet for this episode. Click on any sentence in the transcript to leave a comment.