Alternatives Decoded: Due Diligence and Deployment

If you’re still pretending 60/40 will solve everything, this episode is your wake-up call. I brought back the Queen of Alts, Shana Orczyk Sissel, to rip through the reality of alternatives: what works, what doesn’t, where the real yield is coming from, and the cost you actually pay for it—hint: liquidity, not magic. We get straight to it. No fluff. No sales pitch. Just the truth. 

We break down why alts are finally everywhere—regulatory changes, active ETFs, and the rise of interval funds—and why access is easier but the learning curve is still real. Shana explains the tradeoffs in plain English: higher income often means less liquidity, leverage multiplies both gains and pain, and “complex” doesn’t automatically mean “risky.” Complexity just means do the work. 

This is a masterclass in due diligence. We walk through what to ask a manager, how to sniff out conflicts, why structure and third-party vendors matter, and how to judge a product beyond marketing sheets. We also hit the advisor problem: most fear is just lack of information. Your job is to learn what your clients don’t have time to learn. Period. 

Who are alts for? Shana’s take: everyone, but not every alt is for everyone. There’s a spectrum—from Bitcoin and venture to sober, income-producing private credit. Your job is matching goals, risk, taxes, and liquidity. We close with a simple portfolio checklist so you can stop guessing and start allocating with intent. Watch the full conversation on YouTube: https://youtu.be/coZJKOUwaFs

As always we ask you to comment, DM, whatever it takes to have a conversation to help you take the next step in your journey, reach out on any platform!

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DISCLOSURE: Awards and rankings by third parties are not indicative of future performance or client investment success. Past performance does not guarantee future results. All investment strategies carry profit/loss potential and cannot eliminate investment risks. Information discussed may not reflect current positions/recommendations. While believed accurate, Black Mammoth does not guarantee information accuracy. This broadcast is not a solicitation for securities transactions or personalized investment advice. Tax/estate planning information is general - consult professionals for specific situations. Full disclosures at www.blackmammoth.com.

Chapters

• 0:00 “Chasing yield vs. budgeting liquidity”
• 1:10 Why alts are everywhere now: access, regs, and wrappers
• 4:00 Private credit’s rise and the true cost of higher income
• 7:05 Interval funds 101: mechanics, gates, and behavior
• 11:10 Complexity ≠ Risk: how to separate stories from structure
• 16:00 Leverage explained: the good, the dumb, and the dangerous
• 20:45 Incentives and conflicts: who gets paid and for what
• 24:30 Due diligence that matters: valuation, admin, audit, data
• 31:00 Who alts are for (and who they’re not)
• 35:10 A practical checklist for integrating alts into a plan

Transcript

Shana Orczyk Sissel: 0:22

Well then it's time.

Stoy Hall: 0:29

We got to all Queen back. Of course she's here. Uh, queen of Vaults, and I cannot tell you guys enough about how much just I love Shayna in general as a person, but also what she's doing for our markets. And I think this conversation today is timely. We're in a government shutdown goals at all time. Highs, markets, all time highs. Bitcoin was all time highs. Now it's doing its own thing. What better time, in my opinion to talk about alts and figure those things out? So without further du, welcome back to the show and welcome to the Collective.

Shana Orczyk Sissel: 1:00

Always good to be here.

Stoy Hall: 1:02

So during these times of events, everyone always is looking for yield. They're always looking for safety. They're always looking for something else than what's going on, and it's tough. It's not the easiest thing to do when we are at all time highs across almost every asset class that you can think of. Mm-hmm. But that's where I think thinking differently, being alternative and bringing those out comes into play. Because the majority of people, we've talked about this at nauseam on every episode, and why you have a, your business is because people don't have access. They don't know what's out there. Mm-hmm. And, and that's vital important. So with that being said, let's first answer the question of why are Alts coming more into the spotlight during these types of times?

Shana Orczyk Sissel: 1:47

Uh, um, I don't know if it is causation, is this correlation kind of thing. Um, I do think part of the reason why we're having a lot of alt conversations is because they're more accessible than ever, and that's a fairly new phenomenon. And so it's just a topic of conversation every day. More and more things that were once unavailable to the average investor are now available to the average investor, and that, that trend really started a couple of years ago. Uh, like I could give you the history lesson, but I would say the first opportunity for alternative type strategies to be available to the masses started with regulatory changes in 2007. That allowed mutual funds to start to have all to have BDCs and private REITs, which have always kind of been around, but then platforms like iCapital and Case came to market that allowed for those types of products to be. Found and more accessible through, you know, just being able to be platformed. Um, and also I think people were more willing to take a look at some of those structures, yet SPACs come in, which kind of disrupted the IPO market in some ways, again, making, you know, some of that stuff more accessible. 2019. 2020 is when active ETFs really. Got all the necessary approvals to take off. So then you start to see alternative active ETFs because going long, short and stuff was really difficult before then. Um, and then in the last, I would say three years, really the last 18 months, you've seen the rise of interval funds and. The desire to bring certain specific asset classes to this market in an accessible way. Private credit being the biggest and most obvious one. Um, but also we had changes at the NFL level that, uh, you know, put sports rights. And the the crosshairs, and you had the Kaitlyn Clark effect with the WNBA, which suddenly made people realize, hey, maybe that's a good investment. So then sports rights fund. So some of it is that people see a broader availability. So much stuff that wasn't even available like five years ago that's available today. Discussions of like private product in a 401k plans. It's just in the headlines. It's all the networks are committing significant airtime to it. Um, more and more products are coming out, so it's just everybody's paying attention. All of that said, we also have a market that, um, you know, stocks and bonds are behaving in concert with each other in a way that they typically hadn't. So that really puts under the microscope this idea of is. 60 40 gonna do. Okay. If there's any kind of stress in capital markets in general, and I say capital markets'cause I wanna that to encompass like any kind of investment interest that's publicly traded, that includes fixed income. We have volatility in fixed income markets'cause the fed and inflation and tariffs and you name it. And so people are more and more looking to these private markets that now they can access for potential ways to. Add diversification into their portfolio, add income to their portfolio. And um, on the advisor level, it's really a place where you can customize and find more nuanced and niche opportunities to align with your clients to help you stand out from the rest. Because let's be honest, everybody can access. Blackstone Carlisle Millennium, um, every advisor on Earth can send an email to Case or ICAP and get a login to access anything on those platforms. So that's no longer something that is a, um, um, differentiator. If everybody can do it, then, you know, how does that make you different? Um, model marketplaces, tamps wrap programs have kind of streamlined. Resulted in these models that everybody accesses because Fidelity's model that's on Orion's, the same one that's on in Investnet, it's the same one that's on the UBS wrap platform. So how do you differentiate yourself from the peers? It really does come down to some of this stuff in the alt space because at the end of the day, it's really the only area individuals need a financial advisor to access. Yes, I've mentioned access is easier today, but it still doesn't change the fact that it's super complicated and a lot of the access point is at the financial advisor level, not the retail investor level. So, you know, as an advisor, if you wanna bring in new business, this is, this is your path to do so.

Stoy Hall: 6:50

Couldn't agree more, could not agree more. Our next segment is what society and media are saying. This is a fun one. I like dis spousal miss in everything that's going on. So first one is high yield solves all the problems.

Shana Orczyk Sissel: 7:04

Uh, I can that be a gray area. Um, so high yield can help in a society that's increasingly focused on income, right? Um. Higher yielding instruments can be, uh, a solution. Um, in the institutional world, especially in pension, we talk about something called liability driven investing. The whole concept of LDI is that you only have as much risk in your portfolio as you need to get the balance to a point where you can just go to yield instruments. To generate the necessary cash flow you need to meet your obligations. If we take it down to like the individual level, it's no different than I need to be able to meet my household expenses, and I will only take as much risk as I need to to be able to get my portfolio to the place where like I can literally just get a monthly check of income from my portfolio, um, to meet those needs. And move on. The, the less you have to put at risk the better. So taking an LDI approach makes sense. That's what target date funds do. And all, I mean all that stuff, that's the goal. So high yield obviously, and yield instruments can provide you cash flow and, um, stable cash flow to meet whatever your. Goals are if, if your goals are related to income generation, retirement, things of that nature. Um, however, understanding the risks associated.'cause everything's a risk return, right? Um, there's always a trade off. So to get more yield, there's a trade off. It could be risk, but it also could just be liquidity. Um, and there's, right now in the alt space, that's where we land. So there's a number of awesome. Income generating products that generate substantially more stable and higher income rates than traditional fixed income and bonds and mutual funds with bonds in them and things of that nature. Uh, the, the distributions are monthly and steady and, and very consistent, but the trade off is liquidity, right? The trade off is liquidity. Um, it is, uh, being generated from assets that are usually private credit or some sort of floating rate vehicle. Um, and the risk, um, depends on where you are in the space. So I like to say the vast majority of the products that get all the headlines that people have the most interest in are like the high flying ones that come from the big sponsors, like of Hollow and Blackstone and the big guys. Um, but those funds raise billions of dollars of assets and, um, they're not gonna be able to put. Billions of dollars of assets at work, like million dollar fi, um, uh, million dollar loan by million dollar loan. So they, they're only playing in, in a pond where the, the potential, uh, issuance, uh, that the lending opportunities are in the hundreds of millions of billions of dollars. And that's not the majority of businesses. Most businesses in the US I think it's something like 75 or 80% of businesses are small businesses, so the kind of lending they need is in the one to$2 million range. And there's plenty of opportunity there, but that's not what is vastly out there that people are paying attention to. Um, those. Those lenders, the lower middle market, um, are increasingly more important and can be far more judicious and, um, decision making of what they wanna do. We have one on our platform, Merriweather, uh, group Capital, and, um. They do, uh, one to$2 million loans to small businesses that are asset heavy and specifically in the Pacific Northwest. So very narrow. But um, Jamie tells us all the time, he sees anywhere between 75 and a hundred deals a month, and he does maybe one. And when that's your pool of opportunity and that's the kind of demand you have, you have a lot more. Uh, ability to dictate the terms of those loans and the stability and the risk profiles. Um, and no one's gonna fight you on the higher than average interest rate'cause you are their only option. And so, you know, but you give up liquidity and so that's, that's the, that's the trade off.

Stoy Hall: 11:20

Next one, kind of. Pulls into a little bit of about the risk overall investing in, in alt it says investing in ALT is inherently more risky than anything else that we invest in with our 4 0 1 Ks. Stocks, bonds, mutual funds,

Shana Orczyk Sissel: 11:35

false, inherently more complex, but not necessarily risky. And, um, if you look at ALT as a collective, that includes private equity and private credit, you know. Perhaps because e private equity and private credit have the same risk profiles of their public market counterparts. Private equity is inherently as risky as public equity just is. It can mask it because it doesn't have to mark to market, and so it can look, it's called the smoothing effect. That is the polite and respectful, educated way to say it. Cliff Asness likes to call it volatility laundering, but it's the same concept. It's, you don't have to price it every day. So you don't have to re, if you have to price things every single day, you're gonna inherently have more volatility than if you get to put, pick the point in which it smooths everything out.'cause you don't have to experience, at least on paper, the ups and downs that occur in the markets. Um, but then they're called hedge funds for a reason. Head, the hedge and hedge is just that things that are in that space are inherently trying to mitigate risks somehow through a hedge. How they achieve that varies and some ways are riskier than others. Anytime you start bringing more and more leverage and it's synthetic leverage. So a perfect example of that is anybody who's ever read any book that has to do like Liar's Poker or something that has to do with long-term Capital Management, um, long-term capital management and inherently was investing in a very low risk investment. They were investing in treasuries, um, and sovereign debt, but they were doing it with like 50 times leverage. So they were magnifying their exposure, which when you're dealing with something that at best can give you. 50 basis points of monthly return. You need to do that to get meaningful return, but that also means that you magnify a small 50 basis point drop 50 times too. And so. Leverage inherently magnifies your exposures. Uh, and so even for every dollar of leverage you have, you might have, if it's two time leverage,$2 of exposure,$3 of exposure. In Europe, you can get ETFs that are 20 times levered. Here, I think it's limited to three, but that's just a reminder. In fact, I did a interview yesterday where somebody was like, how is it, there's only a hundred million dollars in equity leveraged EV ETFs? And I was like, yeah, but if they're all three times. The actual magnified impact on the market is that it's$300 million. And so, but there's other kind of leverage too, like leverage through debt. So there's ALS that use this concept of return stacking, right? That's actually not using synthetic leverage. That's using the kind of leverage you and I use every day. When we buy our house or buy a car, we're simply borrowing some money at a rate. That is lower than we expect our return to be. I mean, not necessarily with a car, but with a house maybe. Um, and return stacking is that idea, and that's actually what a levered buyout is as well. Like you borrow money to do the buyout, how much your loan to value matters. Same thing with a house. But at the end of the day, if your expected return on a portfolio is 10% and the cost to borrow. To make that investment is 2% or 3%, or let's just say 4%. If we wanna look at current rates, right? You have a 6% spread so you can pay off the debt and still make 6% on top of it. And that's the concept of return. Stacking. That kind of leverage is inherently less risky. Um, and so what kind of leverage matters? So alts can actually be less risky. More complex or far more risky. It depends on the use of leverage and sometimes there's no leverage being used at all. You're just playing in a market that's inherently less liquid.

Stoy Hall: 15:39

Agreed. Next segment is your point of view, and I'm gonna roll right into what we had just ended with there. And that is one you work with a lot of advisors. Obviously I'm an advisor. I have a lot of advisors. Inherently though, the, the, the media, the market if you will, and the general public. Is gonna listen to what you just said, glaze over their face and their eyes and go, what the hell did she just say? I don't wanna deal with, it's too risky. Right, right. Because that's how their brain works. Complexity equals risk, and it's not the truth. How much of, obviously what you do every day, but how much is it the lack of understanding the complexity in an advisor, since it's gonna be driven by us? Mm-hmm. Not willing to learn something maybe different or somewhat new to them to provide this to, uh, end, end users.

Shana Orczyk Sissel: 16:28

It's a lot. So I would like to challenge the advisors listening to this podcast and say, your superpower is your ability to learn these things. So that your client doesn't have to be scared of them. Um, I remember when I was sick and in the hospital, my brother-in-law said this to me and it was so right. Fear is basically lack of information, right? The more informed you are, the less fear you feel. Uh, and so as an advisor, I think your superpower and your opportunity here is to be intellectually curious and be like, look. I may not understand this and I'm scared of it because I don't understand it, and I might have reason, right? But the only way I can address whether or not my fears are warranted is to educate myself. These are more complex things, but that's what they pay you for, right? Like if they could do it themselves, they would. And if there's stuff that's not complicated that they can do themselves in this world today, as it stands, where I would argue the general public is more. Financially literate than it's ever been in the past. Right? Um, you need to be able to provide some sort of knowledge or understanding beyond what they would be capable of doing on their own. And you know, with every app that's out there that's seeking to like do this and all the influencers and like my friends over at Wall Street, skinny, do great work. There's so many out there that Mrs. Dow Jones, there's so many good influencers out there that make finance and financial concepts accessible to the average person, um, where you can learn and understand and people are just more interested. I think that came out of COVID because when there was no sports, like everybody went to the market.'cause it has a similar like gambling, like look and feel. Um, and you know, same idea of like just being educated and figuring out probabilities. Um, but my point here is as an advisor, I challenge you to take on that task and also to go in with the understanding that there are people who want you to be uninformed. There are a lot of people in our business that benefit from you being uninformed. And so anytime, and I'm not gonna mention the firm, but I recently heard this from an OCIO, uh, firm that, um, reached out to us about helping them do alts.'cause that's not what they do. They said that they had recently lost three clients to a tamp. Because a very large asset manager had put on their model marketplace models of interval funds, high fee interval funds, but the trade off was if you invest in our model, we will pay the platform fee for you to be on the tamp. Which is fine, but when things are like that, you have to ask yourself where, what's the incentive for them to do that? Right. Um, and a lot of times if something's being given to you for free or if somebody's offering to pay a fee, uh, on your behalf to, to get you into it, there's a. An incentive there to do that. And usually it's because they don't want you to be educated to see through that. Um, and so go in with that level of like skepticism and understand that the industry as a whole, and a lot of the custodians don't think you're very smart. Correct?

Stoy Hall: 20:10

Correct.

Shana Orczyk Sissel: 20:10

So they feel like they need to protect you from yourself. Those of you who work for big aggregators, your home offices make you take all those exams because, not necessarily'cause they think you're an idiot, but because they really don't want the one idiot to cause the SEC to find them like billions of dollars, right? And so they're gonna make you jump through hoops. It's not intended to just make it harder. Um, in fact, I would argue that if you're willing to jump through those hoops, you. Put yourself in a position to. Be a smaller percentage of advisors that was willing to take the time to go through that process. It's like anything like, I'm willing to take the CFP test. That means the sacrifice for that is gonna sit down, study and take the exam. Right? Yeah. Same thing I got. If if I make it a little bit harder for you, it could be the things like, yeah, I just don't wanna deal with it. Or it could be the 90% of people are gonna come against that roadblock and be like, eh, I don't wanna do it. But you are not one of those 90%, and that's why you're gonna be able to. Get through it and reap the rewards on the other side. And so anytime you hit a roadblock, I always like to tell interval fund companies I work with,'cause they're all like, well, it's a ticker and an advisor can just, uh, I was like, no, I need you to go and talk to Fidelity and ask them if an advisor wants to buy my product, is it as easy as just putting in a ticker? And they might go, well, yeah, of course. After they fill out x, y, Z forms after they change their client risk tolerance. And if the advisor knows that coming in, if I, as the interval fund sponsor says, Hey, it is as easy as just putting the ticker in. You might need to do the first time X, Y, Z and prepare them for that. They're much more likely to go through with that process than if they don't know, come up against it. They're like, dude, you said it was easy. And then they told me I needed to fill out this form. Forget it. And you've already started that relationship off the runway. So as an advisor, I just encourage you, be intellectually curious, the resources are out there for you. Bon Re has tons of'em. Go to our YouTube page. We have video after video of our podcasts. We talk about this stuff all day long. We have resources internally for our advisors for this express purpose. Get on our mailing list. We send out, like, I'm gonna be sending out something the other, uh, the other day, Michael Kitche put out a great thing about the importance of diligence and like what the regulatory regulators require you to have. I'm gonna talk a little bit about like how you can, um, find resources, um, either with us or with others that can help solve that stuff and make it less intimidating. But at the end of the day. Just be willing to be open-minded because it, that's what you need to do if you wanna continue to grow your business. I realize there are some folks out there that that's not their priority. They have a nice little business. They're retiring in 10 years. All they're really worried about is like to make it that far and then hand it off to somebody else. But for everybody else, we are now going into a world where we're, we're gonna change slowly but surely from an a UM based revenue model. To a fee-based for service or coaching model. If you are gonna justify that type of thing, you gotta do something that's worth paying for and um, and these are the things that will allow you to do that.

Stoy Hall: 23:28

Really what you're saying is advisors do your damn due diligence. Have an open mind and learn something. Yeah. Like at the end of the day. Right. And the due diligence part's massive. And I know we've talked about it and you guys do due diligence all the time and have to, when you're evaluating. A, a new offering or a new manager. Can you simply give us a little background of what you look for when you guys do your due diligence?

Shana Orczyk Sissel: 23:53

Well, I'm gonna start by saying there's a lot of people like Monro that do due diligence and provide it to advisors, and advisors can come and work with us and have access to it. The number one question you to ask anyone who is a provider of due diligence is, what is their revenue model or their incentive basis? If that provider is in any way receiving any compensation for fundraising, they have compromised due diligence and you need to remember that'cause the regulators consider it compromised. Not everybody has compliance departments that catch that, but many do. And therefore you're gonna have to do. Your own work and if you don't have the resources, that's a problem. Then there are others, Ian's one of them, but there are other firms where they are not, um, in any way compensated or get kickbacks for fundraising. Those are considered not in conflict and you can actually rely on those, um, what you want to focus on. And in any investment, we know suitability. Portfolio construction risk, um, mitigation or understanding the risk, uh, associated what could go wrong. I always like to start with, I wanna understand what could go wrong a lot more than what could go right. Even if it's a low probability risk.'cause I just need to know. Yeah. Um. Even if it's unlikely to happen, I just wanna know.'cause I wanna know what could, how bad that could be so I can be prepared. So I always focus on that because the, the issuer's gonna tell you everything that could go right. I wanna know what's gonna go wrong, even if it's a very small probability. The second thing you wanna focus on, and it's particularly true in alts, particularly if you're dealing with an unregistered product. So that is not an interval fund, not a mutual fund. If it's not registered with the SEC, then additional due diligence has to be done on structure. And that means you wanna make sure that whoever is the issuer or the sponsor of the product is using high quality third party vendors. So you wanna know who. Their outside legal counsel is who their third party administrator is. If they do their own in-house administration, you wanna know at least that they have a third party person that's doing their underlying valuation metrics and what that looks like. Like how do they value non-liquid securities? Like who does it, what's the methodology? You wanna understand that. Um, and you just wanna make sure that those things are also, you know, background checks of the individuals. Quick Google search has oftentimes found that somebody had like a major, major, um, fine on their U four, um, or an article that they're in, or just like a general background check that you can spend 30 bucks doing is helpful in those cases as well. And you wanna, you know, check references, things of that nature. Um, but those are the main ones you wanna understand, like how they do their performance reporting. What systems they use to do that, how they calculate the performance. Um, you know, that you wanna understand how they do their accounting, all that stuff. Um, that's the most important part actually in alts, especially private alts versus, you know, the registered stuff. But that's not to say bad things can't happen in registered product. It certainly does, but at least you have the cover of the SECA little bit. Um,'cause if the SEC missed it, then like, you know, I. It is what it is. There's plenty of stuff that the SEC misses that I've seen and I've just passed on, but like there's definitely been plenty of funds out there that blow up. I always encourage people look at the perspectives, the everything on the website, all of the fact sheets, all the pre it's marketing, the details are in the perspectives you wanna look at like specifics of like how they get exposures if they use derivatives, how. If they're making some sort of buffer funds, I love this. They're making sort of guaranteed outcome kind of thing. Defined outcome. How defined and how guaranteed is that like, and how are they achieving it? A lot of them have in their perspectives of like, yeah, this isn't guaranteed at all. Uh, we are just like hope and pray, um, and we think we do it in a way that will come to this outcome. And you wanna know that fees in the alt world, same thing. The SEC has some weird ways that they require anybody who does shorting or uses derivatives to calculate their fees. And some of it is phantom. Um, shorting is a good example of that. When you short a stock. You have two things that are cost. One, the cost of shorting. So there's margin interest, right? You have to maintain, um, um, a certain amount in your margin account, and if the value goes up or down, it adjusts. And then there's a, you're borrowing shares, so there's an interest rate associated with it, so you pay that. And then the other thing is if you're short of stock. Then, um, there's a dividend payment owe to the owed to the person you shorted, you borrowed the stock from that you have to pay the SEC requires. Those two things be calculated into the expense ratio for the fund, but it's not real because those exact same things are actually calculated in the value of the actual position. So it's already taken out in the position value. SEC just makes them put it in the expense ratio for math, it's not actually the cost. Um, um, and so a lot of times if you go to the prospectus of these funds and their breakdown of their expenses, they actually show you those things and we'll, and then you can clearly see what the actual expenses of the funds are

Stoy Hall: 29:55

and everyone listening, both advisors and um, investors, clients to be. It's a lot of work. Right? Like a lot of work. That's why does, that's why you do what you do. That's why, that's why I

Shana Orczyk Sissel: 30:06

exist. That's why people

Stoy Hall: 30:07

hire me because it's a heavy, heavy lift.

Shana Orczyk Sissel: 30:10

Mm-hmm.

Stoy Hall: 30:11

There's a massive value there, both advisors and clients, by the way. Huge, huge value there. And I think you've. You've nailed it. One'cause of what you guys do, but also I think the advisors need to take a little more ownership of, that's also part of the value you bring to the clients. Mm-hmm. That is part of why a UM is dying and we're getting into more fee-based because clients want to pay you to do due diligence things like figure all those things out for'em, simplify it, how does it fit their plan or does it not fit their plan. Mm-hmm. And ultimately that's what we're looking for. Um, exactly. Which gets us to this question, the final one of, of this segment, and that is who are Alts for and who are they not for, in your opinion?

Shana Orczyk Sissel: 30:53

So I would say alts are for everyone. Woo specific. Alts might not be for everybody, but I could argue that there's something in the Alts universe for everybody. Um, people with substantial risk, uh, tolerance, Bitcoin, you know, high flying, levered. Um, venture capital, that kind of stuff. Mezzanine debt, distressed debt. And then there's stuff that's just, you know, very low risk, income producing kind of stuff that is for others. Um, there's very liquid things and there's very illiquid things. So I would argue this is in massive universe and any, there's so much stuff. That falls into alts that like Bitcoin and gold are both alts on different ends of the spectrum. Different people invest in those two things. They're both in the alts bucket. Real assets, you know, everything and anything you could possibly think of. There's no such thing as a no risk asset, not even cash. But there's things that have d fall different places on the risk spectrum, um, in different, uh, areas of the liquidity spectrum. And it's all, uh, there's a, there's um, something, there's a cost to everything, right? You know, taking on more risk is the cost, is the risk. Less liquid stuff. The cost is the illiquidity. You should be getting paid for that. So your, you know, expected return should be better than. The alternative that doesn't have that. Um, and, and that, that's, there's trade offs. There's trade offs in literally everything you do in life every single day, even if you don't realize it. What you eat for breakfast, the route you take to take your child to school every morning. How you walk your dog, what time you walk your dog, what time you get up, you know, literally everything, how you go to sleep. Temperature in your house. You literally, there is not a single thing you do in your life every day that doesn't have some risk associated with it. However, small, same is true in the Alts bucket, so I would say altar for everyone. In fact, I like to always say one of the things that made me so passionate about Alts is'cause I got involved in them during 2007. Um, leading into the financial crisis and early on in the financial crisis and while Alts got a bad rep,'cause there was a lot of alts that blew up. Like the thing that blew up the hedge fund that I was working on was Muni, arb and Lehman. Um, and the, uh, prime broker issues that led to a lot of funds just not being able to get. The resources they needed from Prime, which is Bear or Lehman, that made them go under, um, or just everybody running for the door at the same time, and them having to do a fire sale and not have the ability to name, you know, the price they wanted and not be able to, uh, to trade the portfolio advantageously and thoughtfully. Um. But the one thing that stood out to me is at the same time, there was a whole lot of stuff that did really well in the alt universe during the financial crisis, like global, macro managed futures, anything that was short, biased, um, and crushed. And so I remember thinking at the time, like, there's stuff in here I wish my dad couldn't invest with because I could actually mitigate a bunch of risk in his portfolio if I could do this. And now. That isn't true anymore. Now those things are available to my dad and you know, I'd argue my 80-year-old dad could benefit from some of the private credit or income producing, um, alternatives that are out there in the interval fund market because he doesn't really need access to haul his assets. He just needs his assets to generate enough income to pay his household expenses, you know, and, you know, maybe have enough liquid that if he wants to do something or needs to do something in an emergency, it's there. But ultimately I would say alts are for everybody.'cause the universe is so broad and their risk, uh, spectrum is so broad, more so than even public equities and fixed income.

Stoy Hall: 34:50

See, they have it. Everyone alts get'em. Last segment, actionable steps. So we've just said everyone needs get'em, right? Yep. And we've been, we've we're on record of saying everyone should have between 10 and 50%, depending on your portfolio of als. So we've always discussed this before, but we've never really hit upon this part. And that is what, when you're looking at a portfolio, and I know you're not an advisor, like. I am in our job. Mm-hmm. But still, you look at portfolios,

Shana Orczyk Sissel: 35:17

right?

Stoy Hall: 35:17

When you look at a portfolio, what are some, what's it like a checklist, like a maybe a three step thing that when someone's going, and as an advisor, I need to add alts or I don't need to add alts. What's kind of a little checklist in your mind that you do when you're, when you're viewing a portfolio?

Shana Orczyk Sissel: 35:32

So I love the way you team me up for this, because I am gonna. Tell you a little something about how Bon ran approaches this, um, which I think is really unique and it gets to the heart of what you just asked me. What Bon Ran does as a resource to advisors is we do the due diligence and we, we create a research report. Now, typically, if you were to go and get a report on a product from say, Morningstar, or you know, anybody, they would rate that there's a rating. I always hated that.'cause when I worked at, uh, a large, um, OCIO that was also part of a firm that had like investment consulting research, I always used to be like, okay, you are giving that rating unlike a vacuum. Like with no, because something may work like. It's the best performing large cap value equity fund out of the entire universe. But what if I'm only doing a portfolio of large cap value, right? There's gonna be stuff that maybe on its own solo isn't the best, but if I'm putting it together with other stuff, it actually is a perfect fit. For what I'm trying to achieve. And so when we do investment research reports, we understand that only the advisor knows that stuff about their client. Liquidity tolerance, budgets, you know, tax cons. I don't know any of that stuff. So for me to tell you like, this is the best private credit fund out there, taking none of that into consideration, I'm doing you a disservice. So our reports don't include a rating. What they do include is our general suggestions on how we would use this in a normal portfolio without knowing any of that risk. Stuff like maybe position size, we're not really sure, but we know where we would put it and what it would compliment. And then we can tell you the things that you also need to have a conversation about. So if it's an interval fund, I might say you should probably have a conversation about liquidity budgeting to make sure that your client is comfortable with illiquidity and how much of their portfolio they're willing to make. Illiquid. I might tell you there are some weird tax consequences to the distributions that this fund's paid, and you should probably talk to an accountant so you're not surprised. Because it's gonna depend heavily on like all kinds of factors about your, uh, client's financial situation as it pertains to how they are seen taxes wise and what other things they have that might impact that I might tell you, um, for example, we did this with somebody. There's, they were a fund to funds and they were investing in other funds. Um, and there's two ways to do that. There's the way where you hire another fund to be a supervisor, so I am allowing that. Manager to manage an account that I own, and then there's the, I'm just going to put money in a fund that already exists and that anybody can put in. So I'm co-mingled with everybody else. Those two things have consequences. Um, if I own the account, there's a less third party risk there'cause I can shut that manager out of the account at any given time. Take control. And if I don't do that, then I have complete there. There's a hundred percent risk, third party risk there, right? So counter party risk. So that's how we do it and that's how you gotta look at these things. I would say the number one things when you're talking to clients about ALS is you wanna understand what they're trying to achieve and liquidity tax consequences. And overall risk profile of a client, um, is the three things that you gotta start with. Um, the liquidity budget conversation, I feel like needs to just be a normal part of an onboarding process with a client. And I, I don't believe it is, but it should be. Um, and the same is true with the tax stuff. So you should be working. If you're not their accountant, you should be working closely with their accountant. Um, because in the alt world, there's like weird things that get distributed that have different. Tax, um, the way they're taxed is different than just like qualified dividends or capital gains. So those are the, those are the big things. That's where I would start.

Stoy Hall: 39:37

I love it. And that's advisors. The ones that are just advisors and haven't dipped their toe into the financial planning side of it. You, but you might wanna get started, right? Because those questions are what we ask on onboarding. We have that knowledge, we're making decisions based upon that. And if you're missing that. Then, yeah, you're probably terrified of alts. Yeah. You're probably not gonna look into something deeper. And guess what? You're missing opportunities for your clients. Mm-hmm. Because you are not, in my opinion, doing your duty of learning these things because it is prevalent to everyone. Everyone should be an alts.

Shana Orczyk Sissel: 40:08

Yeah, I would. I would argue that if somebody's coming to you to be their financial advisor. It's almost certainly not because they want you just to manage your money, because if they just wanted a money manager, there's plenty of ways to do that that doesn't involve an advisor. Um, in fact, most advisors are definitely not better money managers than like the money managers that do do that 24 7 as a living. Right? Um, so. At the very least they're coming to you'cause they have some sort of goal or some sort of like problem with their budgets or whatever that they're trying to solve for and they're coming for you to help solve a problem. That problem is not, how do I beat the s and p 500 a hundred percent of the time? It is not, how do I beat the s and p 500? Uh,'cause there's a, they can like buy newsletters to do that. Um, they're coming to you'cause there's a problem that they need to have solved that they need your help with. So. You may not be doing full on financial plans, but you're certainly helping your clients address a problem or a goal that they have, and you should know what that is and you should know what they are willing to do to achieve said goal and what you know that will affect suitability.

Stoy Hall: 41:19

Absolutely. Well, Shana, again, another amazing episode. Everyone listening. Stay tuned in. Um, coming here, the first part of next year, we're gonna dive deeper into some of these instruments, some of these alts and, and dive deeper into them for you. But we wanted to give you another little taste, right? We, we've been a little deeper today, but next time we're gonna go a lot di rash. Shana, I appreciate you, uh, everything that you do. And everyone go ahead and check out the bio. It'll be somewhere around here. I don't do that social media stuff, but someone does for me. It'll be there. Go check out the website and make sure you check out by Ryan Capital as well. Again, Shannon, I appreciate you.

Shana Orczyk Sissel: 41:54

Thanks for having me.

Black Mammoth: 42:09

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