Passive Investor Spotlight #8: From Entrepreneur to Alternative Investment Guru feat. Andy Hagans

Hello, future billionaires. Welcome back to another exciting episode of Invest Like a Billionaire Podcast. I'm your host, Ben Frazier, and today we have a guest, Andy Hagans of The Wealth Channel. And this is a really fun interview. So if you've been following the show for a little bit, you know that every once in a while we have a different segment that we'll do called the Passive Investor Spotlight Series. And in this segment that we do in the show, we bring on a successful investor and we interview them and ask them all the questions that we're all curious about, right? What are your biggest successes? What are your biggest challenges and failures as an investor? How did you get into alternative investing and what does your portfolio look like? And how do you look at risk and return? And are you focused on income or growth? And so we dive into all these different questions and really the story of Andy, who is a serial entrepreneur who has started and sold several businesses. And so he's a successful entrepreneur that has exited multiple businesses and has really transitioned into full-time investor as well. And he runs a really cool community and a podcast called Wealth Channel and the Alternative Investor Podcast. And so you definitely want to check out this episode. Andy, He's got a lot of great thoughts, really cool story, and we really dive in probably in a way he's never shared before and kind of his personal approach to investing, especially in alternatives in real estate and private equity venture, all this kind of thing. So really cool stuff. You definitely want to tune in for this episode and I hope you enjoy. This is the Invest Like a Billionaire podcast where we uncover the alternative investments and strategies that billionaires use to grow wealth. The tools and tactics you'll learn from this podcast will make you a better investor and help you build legacy wealth. Join us as we dive into the world of alternative investments, uncover strategies of the ultra-wealthy, discuss economics, and interview successful investors. Looking for passive investments done for you? With Aspen Funds, we help accredited investors that are looking for higher yields and diversification from the stock market. As a passive investor, we do all the work for you, making sure your money is working hard for you in alternative investments. In fact, our team invests alongside you in every deal so our interests are aligned. We focus on macro-driven alternative investments so your portfolio is best positioned for this economic environment. Get started and download your free economic report today. Hello, future billionaires, and welcome back to another episode of the Invest Like a Billionaire podcast. I'm super excited for today's guest to be joining us, Andy Higgins. Andy is the co-founder of Wealth Channel, which is a leading community for high net worth individuals who are looking to place capital in alternative investments. And it sounds kind of similar to what we're doing. And the other cool thing is he runs a podcast called The Alternative Investor Podcast and just really a thought leader in this space of alternative investing. And just super excited to have him on and want him to kind of share his story. So we're going to do a Passive Investor Spotlight. So this segment of the podcast, we focus on talking with other passive investors and kind of their journey into getting into alternatives, what they're currently doing right now. And Andy has a cool story, like a lot of you listeners, to where he was a business owner, grew that business and eventually sold it and had a had a liquidity event, and then he tried to create, you know, turn that cash into cash flow and to protect it, to grow it. And, you know, a challenge that a lot of people that are newer to the alternative investment space have. So I'm going to shut up. I want to let Andy take it from here. Andy, thanks so much for coming on, man.

It's my pleasure. I've listened to your guys' show for a long time, so it's, it's awesome to finally be a guest on it.

Hey, this is, this is super fun. I was a guest on your show a few weeks ago, which was really fun. And obviously there's just a whole lot of overlap and kind of what we're trying to do, educate around this whole unique space of alternative investments. So I just love what you're doing. And before we kind of get into that, because I definitely want to spend time talking about, you know, your communities you've been building, the education you're doing, just so cool. But talk about, you know, go back 10 years, 15 years, kind of from the beginning of starting your business, what did that take? You eventually sold your business, had an exit. So just give us some background. Give us the story here.

Yeah, well, I just turned 40, so I actually got to— I have to go back 19 years. So my business partner Jimmy, who's co-founder at Wealth Channel, we are both serial entrepreneurs and we were college roommates at the University of Notre Dame. And we, you know, both of our dads were entrepreneurs, were business owners. So maybe it's, you know, in our blood or whatever. We started a little internet marketing business in our dorm room. Didn't make much money, by the way, you know, made a little pocket change, you know, but it doesn't take much to be excited.

So 19 years ago, this was early 2000s, which this is probably after the tech wreck, right? So the internet had a heyday, then it was, you know, blacklisted and you know, but then it started to have this resurgence. So you're kind of coming at the early kind of wave of that, right?

Exactly. And it really was like the Wild West. You know, you could, you could throw up a website and be ranking number one on Google for like a keyword like a month later. I mean, it was just, it was so different. And I remember even it was probably a couple of years later when YouTube came out and I was like, well, that's a really stupid name. Who would ever go to that site? YouTube, you know? So yeah, there's Totally different world. And that first business, it made a little money. It wasn't, you know, super successful, but we got a taste.

And what was your— what was your pitch? Internet marketing. But what were you trying to do? Because that was such the early stages of internet marketing. It was like, hey, we try to help you rank better on Google, or do you even know what it's like? Search engines were— or what was your pitch?

Yeah. So I eventually— Jimmy and I, we were experimenting with blogs. And then I eventually set up a little agency and worked for clients and made a little more cash that way. But our first big hit, so to speak, was in lead generation where we were publishing content and generating leads for other companies in the education space. And so we built that company up, you know, over a period of years, not that many years to be honest, 'cause like I said, it was a different world then. In a lot of respects it was easier because there were just fewer people, right? But publishers, internet marketers, there were just less competition and we were able to build that business up and sell it to a private equity group, or I should say a strategic buyer who was private equity backed. So that was our first liquidity event and it kind of gave us a taste. And, you know, you know, you buy all the books, you know, I, we bought like the Bogleheads books and that was actually my introduction to alternative investments because I bought Meb Faber's book called The Ivy Portfolio, which kind of planted the seed. I'll return to this now later, but I kind of planted my seed. I was like, wow, people are really investing in like timber and, you know, private credit, all this stuff I didn't really understand, but I thought it was kind of cool. But I ended up just doing like normal S&P 500, you know, aggregate bond funds, that kind of thing with my kind of initial round of investing.

And so what was that first exit kind of life-changing money you could have retired at that point, or was it was enough to kind of be meaningful but wanted to kind of go back at it?

The latter. Yeah, it wasn't enough to retire off of. But, you know, when you're in your 20s and you have an exit and you're like, well, I can, I can go buy a house now and pay cash. Like in a way it is life-changing, right? Because it gives you the ability to sort of say, well, I can't retire, but I can go work on another business now for like a whole year and without earning any other income. And so it does give you some freedom to take more risk, right? And I didn't have any kids at that point, so we were just like, let's go build some more businesses, you know?

So that's what you did then, right? You went and started some other businesses.

Yeah. And man, Jimmy and I have done a ton over the years, but officially we ended up building and exiting 4 different businesses throughout about a decade-long period after college. 2 of the other ones that we built were also lead generation companies. And then we also started— this was around 2009. We started— it was another website, an internet publisher called ETF Database. And that was, that was right around kind of the second wave of the ETF boom, I guess I would call it. I don't know. I'm sure most of your listeners are familiar with exchange-traded funds. Yeah. I mean, at this point they're very mainstream. But back then, you know, in 2009, they were kind of the new kid on the block competing with mutual funds still. They weren't really novel, but they were really gaining assets, tremendous assets year over year. Like the growth in the ETF industry was enormous and we really benefited from that because we were publishing content. We were, we were categorizing all of the funds in our own database and we had this screener that allowed people to go to our website and they could screen through all these funds based on whatever criteria. And at one point in time, we were arguably the largest ETF-centric publisher, uh, in the United States. Um, so, so yeah, so we built that up to like a good size, but then again, we sold it. And like, looking back, like, honestly, maybe we shouldn't have, uh, because the company we sold it to, it merged with another ETF publisher, and then it grew and grew, and then it then they exited to Lyrian. And so now there's like this huge ETF business that I own, like, you know, 1/100th of a percent of or something. I guess we got some stock in the exit. But, but Jimmy and I, it's like we had this pattern where we would get an idea, start a business, grow it, scale it, and sell it. And I mean, for me, that is part of the fun. Like, I like to, to start things. I like to launch things. I like to grow things. But what we realized, and it took me a long time to learn this lesson, so I'm kind of a slow learner, I guess, is you exit a business at 7x or 10x earnings and then you turn around and you look at the bond fund and it, you know, yielding what, 4% or 5%? And you're like, well, wait a minute, that's like a 20x multiple. Or the S&P, you know, the, the, the P/E ratio of the S&P is 18, 19, 20, 21, whatever it is. And you're going, wait a minute, I just realized I traded this larger earnings stream into a smaller earnings stream, you know, and you got the liquidity. And that was kind of the aha moment. And by the way, I still, you know, own ETFs. I still own publicly traded stocks and bonds. But I kind of realized over time that, you know, the private equity entrepreneurship alternative investment, that world just has more potential.

All right. So, Andy, let me just pause you there. I want to kind of put a pin in this because this is a really important concept that I think I want to make sure our listeners are getting. This is a pretty big aha moment. So what you're saying— so theoretically, say your business is generating $1 million of EBITDA per year. So net income, you know, before interest, taxes, all that stuff, you could sell that to private equity or strategic buyer for about a 7 to 10x multiple of those earnings. So that's anywhere from a $7 to $10 million purchase price for that $1 million cash flow stream. And I actually process probably on the high end, you know, of what I've seen because I used to be in M&A transactions when I was a banker back in the day. And a lot of it depends on the type of business you're in. But yeah, that's a good multiple. But then what you're saying is if you, if you use that same approach, it's called price-to-earnings ratio, right? Which people have heard the P/E ratio. What's the P/E of, you know, the whole basket of S&P 500 is about 18 times. So for that $1 million of earnings, you're now paying $18 million versus $7 to $10 million. And so you're thinking, wow, I've taken the money that I just generated this multiple on, I'm investing it into companies at about 50%, you know, more expensive or 5% more expensive to get the same amount of earnings being generated. And so that's where you're like, oh man, I need to think more about what's this alternative investment landscape? What is— what can you invest in at maybe better values? So I'll hand it back to you. What was kind of that next layer of—

Yeah, and just, just to hammer that home, you know, Ben, to use your example, let's say you had a private business earning $1 million a year and you sold it for a 7x multiple. So, you know, $7 million. Well, if you pay 15 or 20% capital gains, I think 20% long-term capital gains rate, now it's less than $6 million, right? And then if you have to go and pay 20x in the stock market for earnings, you know, I'm not perfect at math here, but I think you just traded like a $1 million a year income stream for like a $300,000 a year income stream. So I mean, once you factor in the transaction costs and taxes— sure, it can be even more dramatic. Now, I will say, you know, when you're a business owner, if all your net worth is tied up in one business, you know, there can still be value to say, you know, even though I know that, that the income stream will be going down, I'll have liquidity, I'll have diversification. So I wouldn't exactly say that I regret any of the liquidity events, maybe, maybe. But there's just, there's a part of me that kind of knows maybe financially that didn't make the most sense, you know what I mean?

Yeah, no, that makes sense. But to your point, you're now getting more diversification, you know, to grow a business, to scale something, you have to have a lot of focus on that one business, that one asset, and you're taking risk doing that even if you're doing it unknowingly. But then when you have a liquidity event, you can diversify that, which is a, you know, principal tenet of preserving wealth is diversification. So yeah, I see what you're saying, but you kind of go more from an active to a passive, you know, earner in that standpoint. So you have less risk. You don't have to grow the business, worry about employees, worry about you know, inflation, other things, and you can be passive. But it is an interesting, you know, thought experiment to kind of run through what did I just trade for? And we've talked about this on our podcast before, you know, that, that, that delta between those two is generally called the liquidity premium. So basically the publicly traded stocks trade for a higher multiple because they're actively traded. You could go buy Amazon in the morning, you could sell Amazon later that day. There's a market for that. And because of that ability to have liquidity, you're paying a premium for that. But the argument is, is the premium worth that big of a delta? Right. And that, that's where I think the disconnect sometimes happens. And real estate's a great example of that. We've talked about this many times, but like when you're investing in REITs, for example, real estate investment trusts, you know, there's There's some advantages to doing that because you have liquidity, you can make moves and position your portfolio a lot quicker than investing directly into real estate. But generally you're investing at price-to-book ratios over 1. So price-to-book is similar to price-to-earnings, except your denominator is now the book value of the asset. So the market value of what you're buying relative to what you're paying for that. So if you invest, like say, in a real estate syndication, you know, there's probably a little bit of fees or some other things, but you're pretty close to 1 to 1. Your $100,000 investment buys you about $100,000 of real estate. And, you know, this changes all the time. But what we've seen recently on average of some of the bigger REITs, they trade from a 3 to say 7 plus X price-to-book. So say it's, you know, a 5 is on the average, that $100,000 now is only buying you really $20,000 of real estate. And the rest of that is liquidity premium, right? With the premium you're paying to have liquidity if you need it. So not to go too much on a diatribe there, but I think it's such an important concept to understand why these alternative investments can be very attractive. If you're willing to give up some of that liquidity premium. So you made the point, hey, I'm not 100% in alternatives, in private alternatives. I still have some public because there's advantages to that. But the average high net worth individual is mostly all in public and they're not diversifying into alternatives. So any other thoughts on that?

Yep. Ben, it's interesting that you mentioned the liquidity premium. I've made this joke on my podcast a couple times, kind of a dad joke, but my idea, and I'm not a fund manager, I'm not an investment sponsor or anything like that, but I have a product idea. And this all stems from, you know, there's this huge liquidity premium, as you pointed out, you know, both with real estate products, but also just between private equity and the stock market. Huge liquidity premium. But, you know, statistically, the vast majority of investors make behavioral mistakes. Right. And liquidity can be their worst enemy, like they're paying a premium for that liquidity. But then if you look at their behavior, investors tend to buy high and sell low. So my dad joke, my idea for a product is it's going to be an illiquid private equity fund with a 10-year, 10-year hold, no liquidity. It's going to charge 50 basis points of fees. It's just going to buy and hold the S&P, right? Because a lot of them, honestly, a lot of investors, if they bought that, would still be better off than if they were owning like SPY or an S&P ETF or index fund because of that behavioral challenge. So as you point out, investors are paying so much for this liquidity, which number one, that liquidity is oftentimes their worst enemy. And, you know, again, statistically, if you're listening to this, you might be the 1 in 100, the 2 in 100, whatever temperament that truly, you know, can be greedy when others are fearful or fearful when others are. But most of us aren't, right? Most of us panic when the market draws down by 40%. So it's like you're paying for this liquidity that oftentimes doesn't help you. And then another question is, how much liquidity do you really need, right? If you're a high net worth individual and let's say, you know, you've built up a $5 million portfolio and you own your home, you know, with no mortgage, you paid off your mortgage. How much of that really needs to be liquid? You know, they talk about when you're first getting started, like in your early 20s, build up an emergency fund, right? Because you never want to be maxing out credit cards and paying 19% interest rate. That's smart, right? To keep 3 to 6 months or if you're very conservative, 9 months, maybe even 12 months in money market or whatever, just as that cushion, but, but you don't need like 20 years of living expenses liquid. Like, that's crazy. You just, you just don't need it. So I think just acknowledging that again, that's an aha moment that I had. And I think a lot of people really never have this moment. You don't need most of your portfolio to be liquid, you know, beyond the cash that you're going to need to access in the next 1, 3, 5 years. Like, sure, keep that liquid. But most likely, if you're a high net worth individual listening to this, you can afford to put a substantial portion of your portfolio into illiquid investments. It doesn't mean you need to or that you need to do a certain percent. It's just that concept that it's okay to be illiquid, right?

Yeah. I mean, that's, that's some really, really good points because I think you would think the liquidity premium is to your advantage, but because We're humans and we're emotional and we act as a herd a lot of times. It actually hurts us more. I mean, it's so contrary to what you think the benefit is. And, you know, we all need liquidity, but there's a great research study done by Bain and Company several years back to where they kind of looked at a lot of investors, like a family offices and also high net worths, and basically did the estimates that they have for liquidity— was it accurate? And by and large, it was inordinately way higher than they actually ended up needing. You know, through multiple ups and downs, cycles, people by nature just think you need more liquidity than you actually do. And so by investing in the private equity and the alternative investment space, you can, you know, protect yourself from those emotional mistakes, get better diversification, and likely better returns because you're not paying as much for that liquidity. You're paying, you have the illiquidity now. So what was, what was some of that kind of first transition into kind of getting into the investment side of it? And actually, before I get there, I had another question on the liquidity. What's kind of your— and this is again personal, if you don't want to share, you don't have to, and you get all the caveats you want for everyone else. But how do you kind of view your personal liquidity? Do you have kind of a a hard line like I want to have 9 months of, you know, living expenses just in cash at all times, or I want to have X percent in liquid, you know, public equities or bonds, or how do you kind of think about your own personal liquidity? I think this, I guess, is what your own decision is, but it's helpful for people to understand how someone like you thinks about it and is successful.

Yeah, you know, that's a good question. I don't know that I have a hard and fast rule. But I would say as an entrepreneur, as someone who's self-employed, if I had less than one year's living expenses in liquid funds, then I would get nervous for sure. So maybe I do have a rule. It's just I don't know that I've ever been like close to that minimum where I really like started getting nervous or whatever. But I think that, you know, because, because again, when you're in your early, early 20s, I think having like a 3-month emergency fund or 6-month emergency fund is great. But at a certain point it's like, hey, make sure you're maxing out your 401 or your IRA, right? So you kind of got to balance these things. So I also think personally, you know, there you pay a penalty. Like I've been conditioned to think like I don't want too much in cash or cash-like instruments because it's shrinking in real terms every year in terms of its value, right? Because of inflation. And now, you know, money market funds are paying more in the last 12 months. But like my, my whole investment career, really the past whatever, 18 years, that to me, that's an aberration, right? I'm used to money markets paying basically zero. And so I also kind of have that mindset. I don't want too much to be liquid. Like I want to play offense, right? I want to be getting 6, 7, 8, 9, 10, 12, 14% annual returns, you know, depending on what bucket in my portfolio. It might be bonds, might be stocks, might be private equity, might be real estate. I want it all to blend together and be generating an 8% or 9% annual return. So I feel like I can't have too much that is truly liquid, like in a money market or something.

Love that. So go back to the other question that I redirected from, but what was kind of your first kind of foray into the alternative investment space? Was it buying businesses like private equity, or was it real estate, or how did you kind of make that first, you know, investment into it?

So it was definitely with angel investing, and I would almost call it micro private equity. And I think it's just because I see this all the time, like with family offices, with other investors, they make their money in real estate and then they invest in other real estate deals, right? Well, I was an entrepreneur, so I felt like internet businesses, lead generation, financial publishing, these businesses I understand. So I feel comfortable doing angel investments, investing in other entrepreneurs. I did my first private equity deal, I would call it, you know, I would define it as micro private equity where, you know, I'm doing a partial buyout of a business and kind of what I've— I used to kind of look at it like either you're the entrepreneur, you're the GP, you're running the business. Or you're an LP, you're just totally passive. There is some gray area in here. And actually that's kind of where I got my start was in the gray area, which is like I'm going to invest in a business almost like an LP, but I might be like a strategic partner, you know, someone who can maybe give some advice or connections or help the business. You know, that's, that's kind of like what angel investing or micro private equity is to me at least. And one of those investments did very, very well for me and kind of whet my appetite, I guess. And it kind of really hammered home. And by the way, I should also mention some of my angel investments ended up with zero, right? So then that spectrum of investing, of alternatives, you know, venture capital and angel and micro private equity, you do have to understand it's much higher risk. But then the stuff that works out, you know, like, like my, my very best investment, I think the payback period was maybe 4 years, 4 and a half years. And then since that time it's grown and it's just like playing with house money. And for me, it's, it's, you know, one of my biggest holdings in my portfolio. So it's riskier, but for me it's a lot of fun. And as an entrepreneur, that's the first thing I was attracted to. And it was only later that I even kind of opened my mind to the possibility of real estate. Funnily enough, I love that though.

I mean, it's so refreshing because a lot of our listeners and, you know, me included, come from the real estate side of things. And so the natural thought and the comfort zone is just investing more real estate. But I love hearing the private equity stuff. I've invested a little bit in venture and, you know, myself, but it's Some of it's more just kind of fun. I don't really know what I'm doing. I mean, I got an MBA and I used to be a banker and underwrote businesses, but it's still a whole other world. And to your point, I mean, it's a different, you're taking different risks, but the upside is so much higher. Like on a real estate deal, a 20% IRR is insane, right? On a good real estate deal. 20% IRR on an angel investment is kind of like a ho-hum, you know, because it's good.

It's a single, it's a double.

Maybe it's a single, a double. But you want the 100x, you know, you want the 1,000% return, the 5,000%. And so it's a very different way you think about it. But those winners or the one winner probably paid for all your losses and then some, right? So you're actually net ahead. But again, it's a different, you know, risk-reward tradeoff you're making.

Exactly. And so that, that was, that was really my entryway. And I think for a lot of people, I see this with frankly almost every LP when they first get into alternative investments, it's like they don't buy a broad basket, like, okay, I'll put, I'll have an alt allocation and I'll put 30% of real estate and 10% private credit and 20% in venture or whatever. They usually just start with like one sector asset class that they already have passion for or, you know, understanding of. And sometimes that's— they never even go beyond that, which is fine. You know, it's, it's their money. But it's interesting to me, right? Because when people invest in, in the stock market, you know, a lot of times they'll buy SPY or an index fund or whatever. They don't just invest in like, well, I really know a lot about food because I'm a chef, so I'm just going to buy these food stocks. Or, you know, like you buy the broad basket, but with alternatives is very different, you know. Um, and I think that's part of the reason is, is that alternatives are just more opaque. They're, they're harder to understand. You know, I call myself an expert, and I'm making quotation marks with my fingers right now for people listening to the audio version, because it's, it's almost, it's, it's, it's almost impossible to be an expert in alternative investments. I mean, it— I I feel like by hosting the show and by talking to as many people as I do, it allows me to kind of see the whole landscape. But then if you zoom in on any one asset class or product type, you quickly realize like, okay, now I need the real expert, right? Like most people barely even know what private credit is. But once you decide, okay, I want to invest in private credit, like you're going to— there's, there's, there's kind of a learning curve to really being able to understand each of these asset classes.

I love that. I mean, it's so cool to hear kind of the evolution too of how you've even viewed your portfolio, because I feel like a lot of, a lot of investors, and it's not a fault of anybody because it's, I think, just how you kind of get into it where you start doing your first deal, you do another deal, and it's kind of, you know, I've called it on the podcast before, kind of just the sock drawer investments, right? You just kind of, they all kind of end up in there. It's a big, big pile of I like this one that day and this one that day. And eventually you kind of think that like, wow, these are all things I've invested in, but there's been no strategy behind, you know, my diversified cross-asset classes, right? Diversifying geographies, my diversifying, you know, in different strategies within the— I mean, there's a whole multilayered approach to portfolio allocation. I think that's where a lot of people can level up a little bit, right, is Understanding, you know, especially like in the real estate world, you know, the syndication boom over the past 5 to 7 years is just gone nuts, right? Everyone is a multifamily syndicator now. And so most people have invested mostly in multifamily. But we're seeing right now, you know, where we stand today in mid-2023, multifamily is, you know, having some challenges. And if you have a large portion of your portfolio and in your alternative portfolio in multifamily, you know, that's a risk that you're taking. Maybe you weren't even realizing it. So how have you kind of— what's your portfolio look like today? Just kind of from a broad standpoint of public versus private, different asset class types, you know, are you still pretty skewed to the, you know, angel private equity stuff? Have you done real estate? Tell me kind of what your broad allocation kind of looks like now.

Yeah, good, good question. And I mean, honestly, it's, it's almost— you're putting me on the spot. I'm like, well, geez, I have to, I have to value or evaluate some of these private holdings, which might be— it's hard to do that precisely sometimes with like a privately owned business. But I would say as time goes on, you know, I still believe in stocks. I still even believe in bonds, believe it or not. You know, like if you think back to 2008, 2009, the financial crisis, even just having some ballast in your portfolio, then number one, can, can help you withstand the psychological shock of like a 50%, 40%, 50% drawdown in the stock market. And then it can also give you that opportunity to, you know, buy the dip. You can rebalance. And so I still believe, you know, I'm not— I don't love bonds or anything. It's kind of like I— but I respect that they— I still think they have a place in most investors' portfolios. So I own some stocks.

And probably to your point, right now when yields are a lot higher, one, they're more attractive, and two, if you believe yields go down over the next 5 to 10 years, that has an inverse correlation to price. So you'll likely have a percent appreciation, you know, if you hold to maturity. So, you know, it's an interesting time to be reevaluating bonds specifically, but it's a great, great point. Well, what would you say to set up broad level public versus private allocation are? Is it 50/50? Is it 70/30?

It's not quite 50/50. It's just— but it's been moving there over the past, let's say, 3 to 5 years. It's been slowly moving more towards 50/50 public private. And, you know, things this year for me have slowed down in terms of reallocating because I'm looking for value. And I was, I was investing. I've been investing more in real estate in the past couple of years, and I made a couple of investments that I still feel good about, you know, even, even at, you know, the higher price levels a couple of years ago. But I'm having a hard time finding a lot of value in real estate right now, if I can be honest with you. But I bet it's, it's, but it's hard to find value in a lot of places. You get my, just my personal opinion. So let me just editorialize for a minute. With interest rates being higher, right? To me, valuations need to correct. And in some cases, I don't think they've corrected enough to compensate for the fact that interest rates are higher. That's how I feel. So I'm kind of— I'm in a little bit of a holding pattern where I'm happy with what the investments I've made and I have a little bit of dry powder and I'm like looking for the next deal, the next opportunity. And I think a lot of investors, a lot of family offices feel the same way. I think there's a lot of wait and see going on right now. Private credit is one example. I mean, that's an asset class that has been around forever, obviously. It's— but it's one I've heard more about even within the world of alternative investments. I've heard more about private credit in the past, you know, 9 to 12 months than I really had been hearing about previously. And some family offices— and these are, you know, ultra-high net worth investors with net worths of $100 million, $200 million and more— they're even tactically allocating to private credit. And it's not even a normal part of their portfolios. Right. But they're just— because not all the bond market, as you pointed out, the yields there are better. There might be future appreciation in the bond market. With private credit, there's also spread above what bonds are yielding. And so I think a lot of investors are kind of saying, you know what, I'm happy to earn 7 or 8 or 9% and just, just kind of wait and see. So I've been slowly shifting more of my portfolio into private and it's fun. Like for me, it's also enjoyable, you know, to look at different offerings, to be an LP in different funds. So at this point in time, I'm kind of looking forward to what, what's next. And when it comes to the economy, I don't want to say I'm I'm not cheerleading for a recession, like don't get me wrong, but a little bit of disruption can be a good thing, right? Like, I kind of want to see some repricing in really just in any sector.

Yeah, no, great, great thoughts. And I appreciate your sentiment and just what you're seeing because you're out there too talking with a lot of investors and sophisticated investors and hearing what's going on. I would make one kind of counterpoint, and not because I am biased, but I am biased to real estate. I think timing matters. I think interest rates are going to push valuations lower because they're, you know, there's an inverse correlation between yield and your debt cost and your price. But I do think it's in certain real estate asset classes, there's fundamental supply shortages that will bear out over the next 3 to 5 years. That are still going to be there, right? And there's still going to be a lot of demand. You know, multifamily, I think it's right now, you know, it's being repriced. And to an earlier point, the private markets generally lag public markets in revaluations. Right. And so we're seeing that start to kind of come to a head. But at the same point, I think there's still some— it's an interesting time to be an investor and to be a buyer because if you can find the right strategies, I think they'll actually play out to be in a good position. And so I think I share your podcast. We're shifting more to development projects right now, which seems to be contradictory to what if we do go into a potential recession. But I actually think the risk-adjusted returns are such that it makes more sense to do that than even value-add or other things right now. And that again, the whole side of that thought process, but I totally hear what you're saying. I definitely have heard a lot of private credit. We had a guy on the podcast today, it's kind of a private credit platform and they're just blowing up right now. And it's very, very interesting. So you mentioned this a little bit ago. I'd love to maybe break down a little more. Maybe you don't have, again, a kind of clear-cut strategy, but you said you kind of have different target returns for different portions of your portfolio, right? So you kind of slice it between public and private, you know, but then maybe some other layers of, you know, how much do you want to invest in just income-producing core, core-plus type investments versus how much you allocate into the angel, you know, versus how much kind of that mid-range of what kind of returns you're getting. And then you blended, you said it's about 8 to 9%, you know, which I think is a great target return for a whole portfolio. But how, how much do you kind of tease out the nuance of that, or is it kind of just kind of feel it as you go and, and reevaluate the overall allocation over time?

Yeah, that's a good question. If I mean, if I'm, if I'm being honest, I'm probably not as organized with that kind of information as I should be. But, but I will say this, that with, you know, the public investments that I own, you know, I try to have those inside tax-advantaged accounts as much as I can, but eventually you run out of tax-advantaged space, right? If you're especially if you're self-employed, you know, or if you're doing IRA, you know, the contribution limit just isn't very high. If you have access to a 401, it's a lot better. But, you know, you still run out of that tax-advantaged space pretty quickly. So I would say with private investments, that's where I'm typically looking for a higher return. And additionally, I really look for tax benefit. On that side of my portfolio. Because when you, when you back in, you know, a lot of times the tax benefits of a private investment can add like another 200 or 300 basis points of return, you know, triple net return, return net of fees and inflation and taxes. So especially this is, and this is where I've become a real estate convert is like I didn't come from the real estate world. It's really only been in the past 3, 4, 5 years that I've been more open and starting to invest more in real estate because I've seen, you know, there are so many different, different ways to invest in real estate and it's different for each investor, but different pieces of the tax code, totally legal, that can help you out as an investor, whether it's, you know, depreciation, accelerated depreciation, whether if you own a property and you're doing a 1031 and now of course DSTs, have blown up so you can kind of be active or passive there. Opportunity Zone funds. My partner Jimmy was— is big into Opportunity Zone funds. He's, you know, kind of one of the leading experts in that area. And that's a great thing to look into if you're sitting on a big capital gain, if you're interested in ground-up construction, you know, those can be a great opportunity. So it's really been, you know, by understanding and, you know, to be honest, it took a lot of time. So I don't want to mislead anyone and be like, investing in alternatives is so easy. Just like take an afternoon and learn and then write a check. Like, you got to do your homework. But there's a lot out there if you're willing to go, you know, turn over some rocks and look underneath them. If you're willing to put in some time, whether it's listening to podcasts like this one or go, you know, read some books, read some blogs, whatever. There's a lot of tax-advantaged real estate stuff out there that more investors need to know about.

Yeah, no, I love that. I think we're both very aligned in our goals of wanting to educate people to help make it easier to understand, you know, for getting into the space. What would you say are kind of the key things looking back? There's some of the earlier investments you did or the kind of approach you went into investing in you know, what kind of advice would you give people just starting out now? Like, how should I educate myself? What— when should I make my first investment? And, you know, what's kind of that process as you've kind of had some wisdom? You've been doing this for a while now. You know, what would you kind of give people as some thoughtful advice kind of just starting out?

Yeah, that's a good question. Well, I would say in terms of educating yourself, the good news is in 2023, you know, talking about how different things are now versus 2005, you can consume content or educate yourself in whatever way you want, right? So like, like a podcast like this one is a great way to educate yourself. You can do it on your commute, right? So you don't necessarily need to go out and, and read books if you don't like reading books or, or whatever, you know? I would say though, in terms of how to get started, you know, I kind of alluded to most people with alternatives, they start in a specific asset class, whatever their attracted to or comfortable with, I think that's okay. Like, I don't think you need to go out and say, I'm going to buy a diversified bucket of alternatives right off the bat. I think it's okay to say, you know what, eventually I might want 10% or 20% or 30% of my portfolio in alternatives. Well, why don't I start with, with 5%, 3 or 5%? And if I'm comfortable with real estate, or multifamily or industrial or private credit or whatever, just start there. And, you know, understanding that it's an individual investment, it's not like an S&P index fund that's diversified, you know, start pretty small, you know. So I think what's the challenge for even high net worth individuals, depending on their portfolio size, is going to be investment minimums, right? Because if you have $2 million to invest, then a $200,000 investment minimum is 10% of your portfolio. That might be more than you want to invest in an individual offering. But, but even offerings for accredited investors, you know, I'm seeing more and more— I used to be a lot of offerings at a $500,000 or $250,000 minimum. More and more you see $100,000 minimum, sometimes even a $50,000 minimum. I was looking at a like a farm, farmland syndication platform, and their minimum was $15,000. Right. So I hate to frame it this way, but I'd almost start with an investment that you can afford to lose. You know, it doesn't, doesn't need to be the world's best, but you're never really going to care enough to learn until you start putting some of your own skin in the game and invest in your own money. So at some point you got to kind of be willing to make a mistake and take a risk, right?

I love that. Well, talk about Wealth Channel and kind of what you're doing just with some of the events and just education for kind of creating a community and for these high net worths.

Yeah. So Jimmy and I, this is our newest venture and now it's been around for about 3 years. It started— Jimmy actually started the company just covering Opportunity Zone funds. So that original website is called OpportunityDB.com, but he recruited me you know, to get back to get the band back together. So we're business partners and we kind of— we parlayed his existing following with this very niche private equity real estate product called Opportunity Zone Funds. And we branched out into covering all alternative investments with our platform. So we have some podcasts and we do events. And to be very clear, you know, I'm an LP, Jimmy's an LP. We're not financial advisors. We're not investment sponsors. You know, we don't, we don't directly own, operate any apartment buildings or private credit fund or anything like that. We're more coming from the perspective of we are limited partners in a lot of these different products. We have been for a while. And so we started interviewing sponsors and fund managers on our podcasts, and then we created this online event series. And so the first one was just covering Opportunity Zone funds. Now we have Wealth Channel Expo and what it is, it's, it's an all-day virtual event, right? So anyone can log on. It's all over Zoom and it's part education, right? So we have educational panels where we talk about market conditions and different educational topics. And we also at each event, we have 12 different alternative investment fund managers with all kinds of different products, you know, private equity, real estate, private credit. We've even had venture. And they're basically, you know, pitching their deals. Sometimes the deals aren't open for very long. So it's kind of one of those things. You come to the event, you watch it live. You know, the fund may be open for 3 months or it might be closing in 2 weeks. It all just kind of depends. And, you know, I'll be honest, not every viewer stays for the whole, you know, 8-hour event. A lot of people will kind of see which fund is presenting at which time, it will kind of come in and out of the day. But we do those 6 times a year, and that's how we make our money. That's our business model, is being that matchmaker and bringing together accredited investors on the one side and fund sponsors on the other. But, you know, you alluded to this already, the education aspect of what you do, what we do. And it's interesting, it's like I feel like we could both release 10 podcast episodes per day and, you know, Kaya's doing what they do and it's just, it's like never enough. There is, their investors and advisors are starving for this information. And increasingly I think they're starting to really embrace it. So it's, it's, it's cool to just be part of the revolution, you know, if I can call it that. Into alternatives.

Yeah, no, that's awesome, man. Well, what's the best way for folks to kind of just plug into the ecosystem? What's the easiest on-ramp? Is it the podcast? Is it sign up for a newsletter? What's the best way for people to kind of get in the mix?

Yeah, so my podcast, The Alternative Investment Podcast, you can just, you know, get on Spotify or Apple Podcasts and search for alternative investments and that'll pop up. And if you want to attend our next event, if you're an accredited investor interested in reviewing some different, you know, private equity offers private credit offerings, just go to wealthchannel.com and we have a list of our upcoming events where you can register. If you're an investor, it's free.

So awesome. Andy, thanks so much for coming on, man. This is really fun. I feel like, like you said, we could probably do 5 more of these. There's so many like other things in my head that I'm buzzing with, but this has been so cool. I think it's going to be very valuable for our listeners and just really appreciate you sharing it.

Thanks, Ben. I had a blast. All right.

Thanks.