$1B AUM Reveals The Single Biggest Mistake in Fund Launches (And How Pros Avoid It)

"RAISE CAPITAL LIKE A LEGEND: https://go.fundraisecapital.co/apply"

Are you looking to scale your investment firm or launch a high-performance private equity fund?

In this episode of Making Billions, host Ryan Miller sits down with Kim Flynn, President of XA Investments, a leading firm with $1 Billion AUM. Together, they discuss the interval fund market and closed-end fund structures that are currently revolutionizing how alternative asset managers raise capital from the private wealth marketplace.

Success in private equity and venture capital is no longer just about having the best product; it is about mastering fund marketing and investor relations.

Whether you are focused on real estate debt, infrastructure, or healthcare innovation, this episode provides the "edge" needed to scale to $100M and beyond.

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[THE HOST]: Ryan Miller is a recovering CFO turne

Transcript

Kim Flynn  

Liquidity is essential in these semi liquid products, because, you know, you have a quarterly redemption feature, and if, if an investor wants liquidity, it needs to be ready for them to receive through a redemption process. It's unlike a private fund where maybe there's a 10 year lock on the capital. In this case, this is a feature of these funds. So the ability to invest in private markets, which tend to be less liquid or illiquid, you have to have a plan. And I think Ryan, the essence is that that plan for liquidity management needs to be built from the get go. This is not something when you find yourself in April of 2020, it's too late if you haven't built it in on the front end.

Ryan Miller  

My name is Ryan Miller, and for the past 15 years, I've helped hundreds of people to raise millions of dollars for their funds and for their startups. If you're serious about raising money, launching your business or taking your life to the next level, this show will give you the answers so that you too can enjoy your pursuit of Making Billions. Let's get into it. 

Ryan Miller  

You'll feel as a fund manager if you think the best product always wins. In this episode, I sit down with Kim Flynn, the president of a $1 billion AUM firm called XA Investments, and we expose the real secrets driving billions into alternative funds and why almost everyone gets it wrong. So if you're raising capital or structuring deals, this is the edge you need in your pursuit of Making Billions. Here we go.

Ryan Miller  

Kim, welcome to the show. 

Kim Flynn  

Thank you, Ryan, this has been a year in the making, so I'm excited to be with you, and I think I won some credibility with the analyst on my team when I told him I was going to be on Making Billions. So I really appreciate you having me here and looking forward to the conversation.

Ryan Miller  

Yeah, I'm looking forward to it too. It's it has been a year in the making, so let's jump right into it. So interval and close end funds, they solve real structural problems in accessing private markets. So what would you say is the biggest advantage that these vehicles give managers raising capital today?

Kim Flynn  

Well, it's ease of access. So we want to make it as an industry, that much easier for financial advisors and ultimately, individual investors to get the investments in private equity and real estate and private credit that they want. And historically speaking, you know, you had to be an institutional buyer, and you needed to go in through a private fund, which meant you had suitability documents that you would have to sign, and you might need to meet some minimum hurdle for investment, and then you'd get a K1 tax form, you know, months late, and this is not really pragmatic for individual investors, you know, like you don't want the hassle of the K1 and, you know, opening up access to a much broader audience is really what's going to move the needle for asset managers. And we now have the ability to do this in a way that not just institutions can get access to private equity and private credit, but everyone has access.

Ryan Miller  

Now, great. So, so does that mean, then, that this type of structure would allow emerging fund managers to tap into raising from a broader base then ?

Kim Flynn  

Absolutely. I mean, the market is actually fairly democratic in terms of small, you know, emerging and small managers on one end to the largest alternative investment managers in the world, and many of them are having success raising capital, partly because they're approaching investors who know them, who trust them. And there's many ways to be successful in this marketplace because some of these investor conveniences and investor protections that you can avail yourself of in an interval fund, meaning you can buy into one of these funds easily, typically with no minimum and no suitability restrictions. And there's all there's often interim liquidity that you don't get from a private fund, plus you're getting 1099 tax forms. So any asset manager can structure their private market strategy using this product structure. And so it really makes it that much easier to approach whoever your audience is. And I think for an emerging manager, they're going to approach family offices, or they're going to approach smaller institutions where they may have an edge, but these conveniences that are largely structural, they'll benefit just as much as Blackstone or Apollo or KKR.

Ryan Miller  

That's brilliant. Now you've launched and supported dozens of registered old funds. What would you say is the most common mistake that managers make on their first attempt?

Kim Flynn  

Well, I think that when you're going to market with any new product, you absolutely have to start with sales and marketing. And I think that, you know, maybe it's ego, maybe it's, you know, the portfolio manager says well this is what we do, and we're going to build a product that is the same way we run money in a private fund. But I think being thoughtful with sales and marketing and designing the Fund for the audience you're going after, and if you're selling private funds to institutions. And now you're approaching the private wealth marketplace, and you're targeting financial advisors, or maybe you have a direct to consumer product, and you're going to be targeting individual investors. You have to build the product with sales and marketing in mind. And so many times, if you don't do that on the front end, we've just seen funds fail because they don't have the product features and benefits thought out for that audience. And so you absolutely have got to start with sales and marketing. 

Ryan Miller  

You're spot on. You know, I've like you, I've had the privilege of coaching a lot of people to started funds, and I can tell you, it's not because they don't know what they're doing. For those that implode, they're really bright, whether it's real estate or hedge funds or whatever that is, it's typically not because they don't know their sector. It's because they don't know how to raise capital and that goes into the sales and marketing, which is saying, so selling and marketing to who? Well, it's investors. And so that's where it came in to say capital is the one thing that unlocks everything. And jokingly, I always say, without capital, it's just a bunch of smart people having coffee over zoom like, what? What are we doing here? Someone's got to put some money into the deal. We really know our real estate or whatever sector, private equity, whatever it might be. But if you can't, to complement your point, if you cannot get investors to A trust you and B to cut a check with that trust, then we're going to have a problem. It doesn't matter what structure you set up, if you can't fill it with capital, are you really a fund manager without funds to manage? And so I could not agree more that also, just from my experience, if we can triangulate on that for people listening, the number one reason why people struggle to get a fund into a respectable area, let's say 100 million, a billion dollars, under management. It's not because they don't know their sector. It's because they don't know how to raise or they're horrible at marketing their fund and getting investors to say, this is the one for me. And to that point, because this is obviously something I care deeply about. I've always of the opinion, and feel free to agree or disagree that finance is more about trust than it is transactions, and so funds and high finance is how we monetize that trust and so too often we will skip the trust and go right to the transaction. And by we, I'm talking about people who maybe don't know how to market. They'll buy a list and they'll mass email, everybody proposed marriage. Hey, you want to invest in our fund, they're like, I have no idea who you are. And so skipping that trust component in marketing, and showing that you're not taking a risk, you're riding a wave with me, that is so key. And if you can't tell that story through marketing, and you can't close investors, doesn't matter how well you know your subject, you're not going to have a fund. Can you add anything to that?

Kim Flynn  

Well, I think you're absolutely right and oftentimes, if you know it's not just a new product, you know, presumably you have a track record. You know that's table stakes is that the fund, you know has merit and has a particularly strong return profile, but if it's a new product, and you're approaching a new marketplace, you know you're introducing something that's unknown to an unfamiliar audience. And so you know you have to warm up that client base, and we're seeing this now, Ryan, because so many traditional asset managers in the US think about mutual fund shops or ETF shops. They don't really have private market capabilities, but they do have those trusted relationships with financial advisors. So some of them are being successful, like, I'd say, like a Franklin Templeton has been able to take those trusting relationships and introduce new product capability that they didn't really have. Sometimes these capabilities, you add them through acquisitions, you buy a private market manager. We're seeing BlackRock do that with infrastructure. BlackRock also acquired a direct lending manager. So I think it's interesting what you're saying, because thinking about your position of strength, the more successful you are, typically is because you have that relationship that's well established, and you continue, you continue to build on it. And I don't think that the relationship benefits, you know, when we're talking about product push here, you know. And so thinking about, you know, where is there white space in the market? You know, do, does the world need another private credit fund when there's already 10 good choices? That's how you show your, you know, client base that you respect them, because you're acknowledging maybe, you know, we don't need another one of those products. Let's do something that the client might want, or they don't have, you know, access yet in that area. So I think there's just more factors that go into what type of new product should we launch, besides just, you know, what can we manufacture?

Ryan Miller  

Brilliant, you know, and that makes me wonder. So liquidity design can make or break an interval fund. And I know when people are first launching their number one fund. You're like liquidity design, yep, you got to design it. You can engineer it and prepare for it. And that was your earlier comment is to say, mistake you make is you don't do that. So for you, turning the mirror back to you the professional what principle guides your approach when you're designing liquidity, or someone's asking you how to design liquidity? 

Kim Flynn  

Well, I mean, liquidity is central in these, what many people call them, semi liquid products, because, you know, you have a quarterly redemption feature. And if, if an investor wants liquidity, it needs to be ready for them to receive through a redemption process. So it's unlike a private fund where maybe there's a 10 year lock on the capital. In this case, this is a feature of these funds. So the ability to invest in private markets, which tend to be less liquid or illiquid, you have to have a plan. And I think Ryan, the essence is that that plan for liquidity management needs to be built from the get go, this is not something when you find yourself in, you know, April of 2020, it's too late if you haven't built it in on the front end. So let's say you're talking about a private equity fund that offers quarterly redemptions. Typical in the interval fund market is quarterly for 5% so what does that mean? You know, in a given year, you know, four times five is 20% so is 20% you know, is that sitting in cash? Is it sitting in, you know, credit, securities, you know, is there a then you have to think, is there a cash drag associated with it? So a feature can become a bug pretty quickly, if you don't think through what the implications are for the portfolio. So in private equity, potentially one solution, which I think, is we don't see it that often, but let's say you had 25% of the portfolio invested in public equity. And maybe there's for example, you equitize the investment into a quantitative strategy that might replicate private equity exposure, so therefore you have a liquidity pool to tap into, and you're not going to see the cash drag. And hopefully the equity replication gets you close to what the private equity is going to do. And I think there's a lot of consternation around doing that because maybe it's a second manager sitting along, alongside your private equity manager, right? That's not a skill set that most private equity firms have. So absolutely liquidity management for any of these products sold into the private wealth market that's a front and center issue.

Kim Flynn  

And one of the, we talked about make or break. So one of the breaking areas is when there's a massive amount of redemption requests that it could clean you out so you may have, you know, say, 10% of your total AUM held in cash for maybe an influx. So really understand and prepare and I'd love to get your opinion on this. Is understanding prepare that if and when that happens, how can that be handled? And can we engineer that to protect ourselves so we don't just get gutted when maybe people get spooked and they're not professional investors, but making sure that you are set up. Is there anything that guides you along the way when preparing for significant redemption requests?

Kim Flynn  

Well, I'd say there's a couple of different ways that firms have handled this issue, there is a firm, not a client of mine, but I like to refer to variant out of Portland, Oregon, because they're very thoughtful on the front end. When they have conversations with wealth managers, and they basically talk about having a long term investment horizon, and they will effectively tell people, it's not appropriate if you're only going to be in the Fund for one year or two years. So in that sense, they're flagging it and they're having the conversation before you find yourself defending from a position of weakness, they're doing it from a position of strength on the front end, and that's really important, because you're managing people's expectations as well. I think part of the disappointment when funds face redemptions and liquidity requests is that the expectation mismatch is huge. Because I think people assume that the liquidity will be there when they decide, but the when there's a crowd and everybody and the market moves in a particular direction, everybody's going to try to hit that exit, and that's the moment where you're not going to be able to get liquidity. And so there's disappointment you also might be in the fund longer than you'd like, because the exit is sort of uncertain. And so absolutely, I think a lot of this has to do with, you know, are you having the conversation up front? 

Kim Flynn  

You know, and I think the argument that a lot of sales people will make is, hey, you know these are we're talking about private markets, there's a lot to talk about here. I can't spend three minutes explaining to people how liquidity works and how the redemption feature works. And it's like, well, in the end, the asset manager is going to be better off if they do that. And I think as an industry, we used to see a lot of bad behavior three, four years ago, as interval funds were just getting going, I'd say people have especially with some of the real estate funds, not just interval funds, but also the non traded REITs, experiencing gating or experiencing redemptions. A lot of advisors you know are now asking the question, which really prompts the right kind of conversation? So beyond being thoughtful with the portfolio asset allocation, I think the advisors have to challenge. You know that one response, another example of an asset manager, I think that does this well, one of the market leaders in the interval fund space is Cliffwater, out of California. They are dedicated in terms of their sales efforts in the RA channel. And part of the reason for that is that there's comfort among investors that it's it's only being sold to RAs and to family offices, as opposed to having the product distributed into broker dealer firms or into wirehouse firms, where money might move more quickly. And so I think that an appreciation that the investor group has similar goals and similar time horizons, and Cliffwater has used that strategic positioning in terms of who which market that they target, and they've stayed very focused on that market. You see a lot of fund sponsors like a PIMCO or BlackRock, larger firms, they're all multi channel, and they're selling into every channel they have share classes accordingly and that's what causes, I think, additional concern. So some of the the ways to alleviate concerns are some of these decisions that are made that might be viewed as limiting, but I think you take comfort in some of those. So that's why I say advisors kind of have to ask those questions to make sure they're in good company and to make sure that everybody has similar expectations. And that doesn't mean you won't be facing proration in a redemption you might, but, but I do think it helps with that, that expectation mismatch that can happen.

Ryan Miller  

Yeah, I love that. And, you know, speaking of potential mismatch, we're talking about liquidity and distribution, having successful distributions, it requires alignment between product and channel. So what features make a fund easier to create those distributions?

Kim Flynn  

Yes, so I think the product features right now, we see this in our research. We track which asset managers and which funds are attracting the most flows, and to the extent that you make it easier for the financial advisor, meaning electronic ticketing, you don't have to go chase client signatures on a sub doc like you do with a private fund. Electronic ticketing, you can buy an interval fund the same way you can buy a mutual fund or an ETF, you know. And if you're going to spend the time to diligence and infrastructure interval fund, and you like it, you're going to try to put that as a small allocation in many client portfolios, not just your wealthiest clients. And I think that's the practice of old, which was, you know, our best clients get the best private equity funds, but frankly, we don't really have the time or the paperwork, and some of our clients don't meet the minimums or suitability restrictions. So in this sense, an interval fund is much easier to implement across the client book of business. So the number one feature is really electronic ticketing. And to have electronic ticketing, you must have a daily net asset value. And so then the question becomes, well, on private equity, things that are infrastructure, which are long duration, you know, how do you get to a daily NAV there, in the last three or four years, a lot of third party valuation firms have stepped in to help asset managers get to daily NAVs, and I think that the processes that firms are using on a daily basis are much improved. And there's always going to be questions about liquidity and the valuation, you know, is it is the valuation true, because there's various factors that you're going to take into account. And I appreciate those concerns around valuation, I think that there's, there's a lot of truth in that, but that the reason that so many firms are trying to get to daily NAV is because of the way the industry pipes are built, you know. And so a lot of our, you know, our business is built off, you know, a mutual fund chassis and so, so that's why, for access to alternatives to be easier, it's got to be electronic, you know, ticketed, which means it has to be a daily NAV which does provide some transparency, but it does beg questions about, you know, is the valuation actually changing on a daily basis, and what does that process look like? 

Ryan Miller  

Brilliant. I love that. You know, one of the things that, if I can add a candle to your bonfire, I would say also, in addition to that, is deal structure, as far as, say, tax advantage or tax deferred. Those are some of the areas. This is something that when I was building one of my deals right now, and it's very substantially sized deal, we said, well, everybody throws deals at these institution funds, and we're getting ready to pitch this trillion dollar fund without a structure. So it's not enough to ask an investor to invest in a deal. You have to go to an investor and ask to invest in a well structured deal. And when you are in. Able to tell the story back to what you were talking about, marketing and telling the story, communicating that to investors. It's so good because you get to also highlight tax advantage deal structure, and that's one of those areas that we hope kind of tips the domino in the right direction to help with investors. Anything else you can add to that?

Kim Flynn  

Yeah, I mean, you're so right. Because, you know, people are asking me all the time, like, where is white space in the interval fund market because there's now 300 funds. And I'm like, there's nothing really in the tax advantage tax deferred space. It's, it's ripe for new, innovative products to come to market. There is a small segment of municipal bond funds, because there are unrated muni bonds or high yield muni bonds. But I think a lot of advisors, you know, that's, you know, they have their Muni exposure, and they're looking for something more. And so I'm hopeful that we'll see more products that have some of those tax benefits built in. Because, you know, what's been so popular Ryan in the last two years is private credit, direct lending. That's kicking off all ordinary income, you know, taxed at very high rates. So, you know, I guess you know, if you're, if you're putting it into a qualified account, fine, but many of these investors are quite wealthy. You know, they have personal accounts, and they need more options when it comes to tax advantaged investments.

Ryan Miller  

Brilliant. You know, you bring that up, there's private credit, that's, that's the thing to be now. So it's, it's expanding inside of semi liquid structures in that private credit space, which segment do you find most compelling?

Kim Flynn  

Well, so we break down the market. Direct lending is absolutely, you know what you hear about in the headlines, it is the biggest part of the market. It's filled a gap where the banks used to be. But beyond direct lending, there's also structured credit. So you have collateralized loan obligation funds, you have a lot of interesting things there. And then asset backed lending has grown, I think, in 2025 largely in response to the fact that people are concerned about cracks in the corporate credit space. Asset backed lending gives you some assurance, because those loans are backed by specific assets. You know, think like aircraft leasing is a good example. And then the fourth category is like multi strat credit, some of those are tactical, because they're going to move between different segments of public and private credit markets. There's quite a few multi strat credit so we're starting to see beyond private credit. Income investing is is not going away. So that's why we're now starting to see real estate debt and infrastructure debt. People are always looking for yield, and that's really dry, driven a lot of the momentum that we've seen in private credit the last few years. Brilliant.

Ryan Miller  

Yeah. I'm also starting to see a few friends that are getting pretty excited about asset backed lending. So that seems to be, I'm very curious. I'm gonna watch that and applaud from the sidelines, but it certainly looks very, very exciting. And who I mean, you reduce the risk you have secured loans. I mean, this sounds like a really good product, especially for investors or emerging fund managers that want to do it.

Kim Flynn  

It absolutely sounds brilliant, I think with asset backed lending, just one sort of thought, which is asset backed finance, asset backed lending and asset backed securities, you know, so ABF, ABL and ABS. So it's sort of alphabet soup. There's a lot of flavors, lot of varieties, so definitely look under the hood and make sure you know, it's the asset of choice that you're looking for. Because I think there, when we look at competitor funds in that space, each one is a little bit different, right? Whereas, like in corporate credit, I'd say there's they're more homogeneous. So it's worth looking under the hood and kind of making sense of which assets underlie those loans. I expect we're going to see a lot more growth in asset backed lending in 2026.

Ryan Miller  

Brilliant you know, with that now we've talked about both ends, raising capital and distributions and liquidity. But what about governance? So that kind of mid, mid space in between money coming in and distributions going out. Its governance is really starting to turn from this sort of boring thing that you got to do, and you got to do it and that's fine, and everyone does. There's so many technologies and different things that are starting to get stood up. It's really starting to become a key differentiator with a lot of funds is how they manage governance. What standard is absolutely non-negotiable when it comes to governance?

Kim Flynn  

Well, so bear in mind that interval funds are governed by the 1940 Act, which basically mandates that you have an independent fund board looking out for shareholders. So there's a standard of care and duty that fund board directors who are providing the governance effectively, they're representing shareholder interests. So it's a checks and balances sort of system with the asset managers, you know, who are motivated by their own interests and desires. And so I think that having the integrity and the product it should do, you know, and. Should operate and behave the way that it's marketed. And I think sometimes there's a disconnect between what the prospectus says and what the sales and marketing people are telling, you know, clients. And so we want to see a harmonious story, you know, in writing, in terms of what gets filed with the SEC, and what the salesperson is, is pitching, and because you don't want to disconnect, you don't want people disappointed. And I think the challenge, and we work with a lot of asset managers on sales education these products, because you're talking about private markets, they're viewed by regulatory bodies like FINRA, which is the you know, and that the SEC has its own marketing rules. These are complex products, you know and so they're going to be judged that way by regulators. So, and if to the extent that you know, you don't want to have emails or sales pitches that are off book, you know, if you will. And so it's so important if you've got, you know, especially the larger the firm, if you've got 30 sales people out in the field, you don't want each person you know, sort of, you want them singing from the same hymn book, if you will. And so that's why we get brought in often to do that education, because you've got to educate, not just on, let's say it's an infrastructure fund. On, what are the risks of investing in infrastructure? What are the benefits? You've got to also educate that Salesforce on the product structure and make sure that they're able to answer accurately the questions that come up.

Kim Flynn  

So, so governance is so important. I think that you do get more transparency from a registered fund than you do from a private fund, you also have more the reporting cadence is more frequent. So these are all the benefits meaning, but you know, do most investors read the annual report or the semi annual report? No, and that's why it's so important that you know, asset managers are making information available to clients. It's not, it's not just at the point of the initial sale. This is an ongoing relay of really important information and being there when the product is working, but also when you're navigating a challenging market environment. And that will really, that's really what makes or breaks these types of products, which is that you know, if you had a private credit fund, or if you managed a BDC in the last two months, hopefully you were out there with white papers and doing public webinars to address people's concerns about first brands and tri color. But a lot of managers hide, you know, when there's, there's something happening in the market, and you've got to, you've got to be front and center with that, I think that's all an extension of what's appropriate governance. And how do you, how do you direct a sales team to communicate the right message, and then to be there to support the fund in good times and bad.

Ryan Miller  

So unity matters, like fund managers, product teams, investor relations, getting them all on the same page. I think the common thread that we're talking about here is impeccable communication. Don't you agree?

Kim Flynn  

 Absolutely. Yeah. I mean, the regulatory reporting is the bare minimum, but what an asset manager is doing to send the right message to investors in a way they want to receive it. It's all about frequent and, you know, thoughtful communication. 

Ryan Miller  

Yeah, I think you're highlighting the difference when you look at a fund manager who's playing to win versus one playing not to lose, and you can see it. And so playing not to lose, we'll do the minimum, we'll make sure, you know, we're not breaking any laws and obviously you shouldn't do that. But then the ones who are playing to win, they step it up another notch and those are those people that you're talking about with the total alignment, impeccable communication and not just doing the minimum. And investors aren't dumb, they're going to see it. They can tell that you're reaching out, maybe to an annoying degree. I say that jokingly, but to the point where you're just like, You know what? I'd rather over communicate than under and I think the best thing to do, and if you think about it, from a position of investor, nobody wants to throw money down a black hole and not ask questions. That's not a great feeling to just cut a check and then nothing. And so the funds that really do well, that get, especially the investor relations team, that get current investors to bring their friends or Ante up a little bit more, they're ones that build trust through communication. So what you're talking about, I wish more people would talk about this, because this is so important and it's so easy to do. This is not like you got to go build this new AI app or anything like that. It was like, just get good at communicating the results and the progress and everything that's going through, and celebrate with your investors. Have them celebrate with you on the wins and really pulling that forward. I absolutely love it. 

Ryan Miller  

Hey. Thanks for listening to Making Billions. If you liked this episode, could you do me a huge favor and go leave a review. This helps us to get the podcast to more ears, to help people raise capital, learn fund management strategies and serve our mission to help fund managers and deal syndicators to gain greater hope and focus as they build their empire. All right, let's get back to the show. 

Ryan Miller  

You know, registered alts, they're still pretty early in their innovation curves. Where would you say is the biggest white space opportunity?

Kim Flynn  

I agree. I think Ryan. I always say it's like second, maybe third inning in terms of where we are. There's 300 funds, private credit is probably not that much white space left. And that's okay, because we're seeing a lot of innovation in private equity. There's a number of public private combinations that have come to market. One example is leading private equity manager CO-2, which did a very successful capital raise with a tech and innovation focused fund, and it's a mix of public equity and private equity. They both, they have both of those teams in house. And so I think that we're going to see a lot more product focused on either a theme or a sector specific idea. You know, we see this right now 2025 has been the year of the thematic ETF. And so there may be some crossover, or cross pollination, if you will, because I think there's a lot of interest in certain areas of investment. And maybe a good example could be like, there's nothing yet in healthcare innovation, and so some of these new products may be more focused. 

Kim Flynn  

One fund that has launched, I think, is an example of this is a case brought to market a sports and media focused interval fund. And I think there's a lot of people clamoring, and I think that may be just a great conversation that wealth managers want to have with their clients, whether or not it's appropriate for people. So there's a lot of white space in those narrower ideas, there's also very little in quality venture capital. And so you may see firms combine private equity with VC. You may see public equity combined with VC. So and the reason you see these combinations is to address what we were talking about earlier, which is you still have to deliver some liquidity, and you can't necessarily have 100% of the portfolio sitting in long duration illiquid assets. So some of these asset blends help with that, in terms of delivering on the product sort of goal. And I think there's a lot of white space, I've got a few ideas of my own. We've actually in the US market. We really have seen very little global or European managers, and many of them are clamoring to get into the US marketplace. The only firm out of the UK that's had some success is Coller Capital, which is a leader in the secondaries market. And as you know, secondaries have been hot for the last couple of years, so I think we may see more from non US asset managers.

Ryan Miller  

Got it. Now, you bring up a good point, which reminds me, I've been thinking about this, and not every manager is ready for a registered fund. So what signals when you talk to someone who wants to launch a fund, or whatever that is, what are the signals that tell you that they are, in fact, ready to scale?

Kim Flynn  

 Yes. I mean, I think most firms are curious about the interval fund market because you love the idea of permanent capital or an evergreen product, but when a manager is ready to pursue it, I think they have an appreciation that this is not an easy road, and it's a costly endeavor. And so not only, you know, are legal costs high, you know, when you form one of these funds, you have to be very patient, because this is, it's a marathon. You're raising capital, you know, over a long period of time. And so I think sometimes firms you know that do launch, you know, with, without, without bearing that in mind, they might be, you know, disappointed. You know, when the fund is, in their opinion, not as big as it should be. So I think that being thoughtful on the front end making sure your product is differentiated. We hear so much from clients you know that they don't have any direct competitors, and we run competitive fund analysis all the time, and I'll say, not only do you have 10 direct competitors, you've got, you know, another 10 indirect. So in a, you know, an acute awareness for who are you competing against, and in which channel are you pursuing. You're going to be eyes wide open to what it's going to take to be successful. And so I think that having that, we try to be very direct with our clients, so they have all the information and they can make that decision, because it is a long term commitment to managing and growing an evergreen product like this. So I think that, I think that sometimes traditional managers will struggle because they make assumptions that it's going to be like launching a mutual fund or like launching an ETF. You know, this is its own animal, and we always say that success comes in a lot of different forms. And some persons, you know, view of success might be raising 300 million in the first three years. But another person, you know, if you're, if you're one of the largest asset managers, if you're a BlackStone or KKR, you know, you need to raise a billion or more, you know, in the first in the first year. So I think having the you know, resources and that that line up with the expectations of your CEO is really, really important. There's plenty of people that we work with. Once we do a feasibility study and their eyes are open to the reality of things, they either decide not to do it, or they decide to pause. And I think that for many firms, that's the right decision, because, listen, our time is so precious that you don't want to take on an endeavor like this, unless you think you can be competitive and having an edge or a source of differentiation is so important.  

Ryan Miller  

Yeah. And speaking of one of those edges, it's a lot of times, it's fee models. The model, the waterfall, all that. And they influence a lot of trust and alignment between the firm, the investors. Internally, there's a lot of things that are going on when it comes to fee models. It's not just an index that you put on your pitch deck. This is real stuff that governs how money moves throughout the fund. More importantly, how much you're going to charge investors. Yes, we have to charge them. Who knew that? So we have to charge them. We have to we have OPEX too, and we have to pay for that. So from a fee structure standpoint, which model best aligns managers with their investors today,

Kim Flynn  

I think that having some version of performance fee or incentive fee creates the alignment that you're speaking about, and it's actually an up market trend that we've observed in the last few years. As the interval fund market has expanded, there's an increasing number of firms. A good example would be like a Hamilton Lane that is charging a performance fee. Now it's not two and 20 the way private funds used to be these fees. An example would be like 150 base management fee, with either like a 12 and a half performance fee, or maybe a 15% performance fee. So they both of those fees have come down in addition to total return based performance fees that you typically see in a private fund. Those are common enough in the interval fund structure, but it does have an implication on who you can sell the product to, so there is a restriction there. What we often see because credit is about half the market, there's a growing number of credit firms and credit funds that are using income incentive fees. So it's capped in a similar way, it's not based off total return. But if you're a credit fund and your income is pretty much most of your total return, it has the same effect, if you will. Now the motivation there for the manager is going to be to increase income so that their fees are higher. I would say that because of this trend of firms using income instead of fees or performance fees, we actually haven't seen as much fee pressure in the interval fund market, the average fee is about 123, one, market wide. Obviously, that's higher than most mutual funds and much higher than ETFs. 

Kim Flynn  

Over time, I think we will see fees come down, but one of the things that I always push back on is firms like Morningstar, who rate mutual funds. They're very fee sensitive, and they want to see lower fees. But sometimes, if you've got lower fees, that might actually indicate, you know lower potential performance, or it might be a sign of a manager that's mixing public and private securities. So you need to look into that, because the lower the fee that isn't necessarily what you want if you're investing in private markets. So you do, I think Ryan have to get comfortable assessing these different fee structures and figure out if, if you are aligned, and make sure that the effective fee rate that you're paying is something you feel like is fair for the private market exposure, you know, if it's only half the fund, then you're going to have to do some math and figure out what the blended fee rate would be, you know, because you might actually being overcharged, you know, if you're paying a high fee rate on public market securities, if that's half the fund. So I think, yeah, I think there is in that's why we talked about there's more complexity in these products, because each one of them is doing something a little bit different. We may see more fee harmonization as this space grows and we get into later innings, but, but at this point, you know you definitely need to kick the tires on fees.

Ryan Miller  

I think I read a or I read an article, I believe it was by Carta, and it complimented exactly what you said, as well as the fee compression is real and roughly, everybody took a 1% haircut now for the 220 model, which I don't know if anyone does that or gets away with it now, but in that case, a 2% management fee most funds, we're now around 1% you sounds like you've got a refresh on that data, and then venture, sometimes it's 3 and now they're around 2% or less. And so there's a lot of creativity. You can have a declining balance, and there's many creative things that you can do, as you talked about is really just making sure that you're coming at your investors are coming to your market and not pricing yourself out of market because fees are it's touchy. And too low, it might send the wrong message. Too high, no one cares what your message is. You're too high. And so finding that sweet spot is absolutely crucial. So thank you for sharing those numbers. That's, that's brilliant. You know, when it comes to raising capital, as I always say, I've said it many times, and I'll say it again. Capital is the one thing that unlocks everything. So if you're once, you're raising capital for an interval or even close end funds, all of that's evolving. What tactic are you seeing that is performing best right now?

Kim Flynn  

Well, most new interval funds are starting with some form of contributed capital or initial capital. So five years ago, these funds started at dollar zero, and you know, you've got an interesting chicken and egg problem, because investors don't want to go into a small or subscale fund. So like the what we've observed in the BDC marketplace, then the amounts of initial capital, or seed capital, have significantly grown. So new non-traded BDCs will launch with 500 million or more in capital and interval funds. It used to be you'd see 25 million, maybe 50 million. Now we're seeing interval funds launch with 100 to 200 million in initial capital. And that helps with the invest up. It helps with the operating expenses, ultimately your expense ratio. So there's a lot of benefits, and if you can be thoughtful about that initial capital, you can use it to open up doors. It takes a long time for new interval fund sponsors to onboard on Schwab and Fidelity, and they need demand indications from investors to be able to open up the Fund for distribution in those channels. So many interval funds have like a soft launch period. Some of them are trying to raise that initial capital, or some of them are just trying to get onboarded at different platforms to make it available. Because while there's a lot of talk about direct to consumer, most of the interval fund market is advisor sold. You know, so if you're a Fidelity or a Schwab customer in terms of where your retirement accounts are held, you can't just go buy an interval fund directly on your own in time, maybe that's a possibility. It's strange in some ways, because there's no suitability restriction. I think, because this is a new part of the market, those firms have compliance concerns about making it available to anybody, even though there's no fund level suitability that the fund imposes or the SEC imposes. So it's a really interesting time, because it still is, you know, it still is early days, but I think a lot's about to change. Just as there's, there's going to be more demand from a broad array of customers. You know, it's been largely high net worth, but with the recent, you know, Trump executive order making alternatives more accessible in retirement accounts, and 401(k)s, I think there's a lot more investors that are considering alternatives that that would not have in the past. 

Ryan Miller  

Brilliant.You know, as we round third base, I have one final question for you, scaling into a registered structure, it's a major move. What's one piece of advice that you would give to managers to do first?

Kim Flynn  

Well, I always like to talk to the head of sales, because that client feedback loop usually the sales people know where the next product should be built. So it's, it's typically the person's usually deciding is the CIO or the portfolio manager. And you know, if you're the head of product development, it's hard to say no to the portfolio manager. And so what we want to do, especially because I'm usually coming at it, coming at it as a third party, I want to bring the right voices to the table. Because ultimately, you know, if you build the product in a way that is unsaleable, you know you're defeated, you know, before you've begun. So it, it, I think my advice echoes the conversation that we've had. And it seems like a simple thing to do, but you don't know how many firms get it wrong. And the firms that get it right is when the CEO or the founder is not only an investor, but they have that appreciation for how challenging the sale can be. And frankly, they're open to tweaking things as appropriate, right? Because you, you, we see where the flows are headed and you know, I think if, if you're testing something in a new market, you've got to be open to. To, you know, figuring out what might be a better fit for your strategy. And, yeah, so I think that that really is a common secret of success.

Ryan Miller  

Brilliant. Now, when it comes to service providers and all that back office, middle office stuff, do you have anyone that you would recommend because you've done a lot. I mean, you're president of a billion AUM firm. You've seen it all, and you've done it all, and I couldn't be more impressed. I'm trying not to be a fanboy, but a little bit, I'm a little bit of a fan. And from all of your experience, do you have any recommendations on, say, funded men, legal auditors, people like that, who really support a lot of the work with interval and other registered funds?

Kim Flynn  

You know, yes, this one's easy, because the number one expense, you know, and this could be a million dollars, but the main category of expense is legal, and you need a law firm that, you know, it's tough with most law firms, because, you know, the billable hour wins, and the law firm, frankly, is not necessarily there, it's not in their best interest to tell you no. So I, I, as a I'm not a lawyer, but I in designing products over the years. You know the your law firm or your 40 Act lawyer is your best friend, and what you need is a lawyer that will say, here's the answer to your legal question. But they also will say that's a business question or a marketing question, and they won't waste your time, and they won't charge you money when it's out of that, out of their realm, and into another realm. And so, you know, the firm that we often refer people to, my general counsel worked at a firm called Faegre Drinker. Faegre is based out of Philadelphia. They're one of the leading 40 Act firms. And you know what I love about it is they're also really thoughtful about managing the client relationship. And that shows up when you see the expense tally, which is, you know, sometimes you think, oh, well, the most expensive lawyers are going to be the best lawyers. And that's not necessarily the case, because, you know, what's just as important as money is time. And once again, most law firms, if they're charging you by the hour, they're not going to tell you no, even if what sometimes, and so sometimes you need a person to tell you no, like, let's not go down that pathway. Let's not explore that because, frankly, it's going to take us twice as long. So I really think that having, and maybe that's a product person like me, who can be like this is this is the pathway, and you eliminate unnecessary sort of avenues of exploration. So I think legal is so, so important. There's a lot of really great, you know, service providers. We've now worked with many fund administration firms, many custodians, and this is for them, this is a bright spot, you know, in terms of the expansion of their registered fund business. So I think that at most firms, this is a high priority growth area. And so I think most asset managers, there's a lot of firms that are trying to get into this space that don't necessarily have the reps, if you will, meaning they haven't done a lot of these deals. So it's really important that when you're working with service providers, could be any service provider. You've got to get their deal sheet, because you do not want them learning on your dime, and you want to make sure that the partner or the lead person working on your fund build is the person at that firm responsible for those, those past deals? So, yeah, we happy to, that's a long conversation, and we could, we can talk about it, but I, I think there's mostly good actors. It's just you have to be thoughtful about how you spend the time and how you spend the money. 

Ryan Miller  

All right, brilliant. And what about say, auditors or other funded men, anyone else that you would recommend, as far as setting up that original back end?

Kim Flynn  

Yeah, you know, we happen to work with Cohen & Co and Cohen, as you know, Ryan, they have really a rich history in doing private fund accounting and audit and tax. They've got brilliant tax people and, you know, The Big Four they play in this space, absolutely, and I think a lot of clients think they need to go with the big four, but we say, you know, once again, it goes back to experience and and you need service providers and auditors who understand private markets. You know, just because the big four will audit mutual funds or ETFs, a lot of that experiences is not actually that that helpful or relevant. So it may be a firm like Cohen, which has specialty or focus on alternatives. And so I think that bear that in mind. You know, the same is true for fund administration. We often refer people to UMB or Ultimas, and those aren't the largest players in the mutual fund space, but they've built a very good business in the interval fund space. 

Ryan Miller  

Brilliant. So before we wrap things up, is there anything else you'd like to say? Final thoughts, closing remarks, ways people can reach out or connect and learn more? Anything at all?

Kim Flynn  

Yes. So I mean, this market is growing at a 25% compounded annual growth rate. It's not going to slow down. I think there's going to be some really interesting opportunities. Now as the marketplace grows, I think one. Health managers are becoming a bit more overwhelmed by choice, you know, and we at XA Investments, we have research that can kind of help cut through this, and we're always helpful talking with advisors about their custom criteria. What are they looking for? And so we can cut through some of that noise with the research and the data that we provide to advisors. So please feel free to reach out.

Ryan Miller  

Brilliant so just to wrap up everything, Kim and I spoke about, watch your fees so you don't price yourself out of the market. The other one is, don't just throw deals at investors, but work with a good legal and tax team so you can provide well structured deals. And before you launch a fund or really any deal, be sure you know how to raise capital. And if you need to know, you can go to go.fundraisecapital.co to learn a little bit more. You do these things, and you too will be well on your way in your pursuit of Making Billions.

Ryan Miller  

Wow, what a show, I hope you enjoyed this episode as much as I did. Now, if you haven't done so already, be sure to leave a comment and review on new ideas and guests you want me to bring on for future episodes. Plus, why don't you head over to YouTube and see extra takes while you get to know our guests even better. And make sure to come back for our next episode, where we dive even deeper into the people, the process and the perspectives of both investors and founders, until then, my friends, stay hungry, focus on your goals and keep grinding towards your dream of Making Billions.