This publication talks to a Miami-headquartered business that serves financial advisors in areas such as hedge funds and other parts of the alternative investments space.

Alternative investments such as hedge funds and private market funds should be the “third leg of the stool” to complement traditional equities and fixed income portfolios, says a firm helping clients navigate asset diversification in volatile markets. 

Clients are increasingly eager to expand their investment portfolios by venturing into alternative investments, emulating the approach of the largest institutional investors that try to achieve stronger, risk-adjusted returns. Alternatives offer the benefit of diversification by providing investment strategies that may have lower-correlated return streams than public markets. However, the need for scalable solutions in this sector is critical. 

"Advisors are actively seeking platforms that can be scaled to meet growing client demands," says Alan Strauss, senior partner at Florida-headquartered Crystal Capital Partners, an alternative investment platform managing about $1 billion in assets. 

"Hedge funds have long served as the shock absorbers in diversified portfolios, helping to mitigate risk during volatile market conditions. Over the past thirty years, Crystal has consistently invested with institutional hedge fund managers, underscoring our commitment to utilizing these fund strategies as a stabilizing component of a portfolio,” he said. 

Crystal stands out as a pioneer in hedge fund investing, having entered the field in 1994 – long before it became the well-trodden path it is today. Back then, the firm created and managed several funds of hedge funds tailored to offshore and high net worth investors. Today, the Miami, Florida-based firm, known as a "Portfolio-Centric Alternative Investment Platform," serves more than 240 financial advisory firms. “We’ve evolved with the industry and adapted our structures to retain the diversification benefits of traditional fund of funds, while also evolving to allow the customization that modern investors seek,” says Strauss. 

Crystal Capital Partners concentrates on facilitating access, education, and alternative investment portfolio customization to RIAs. It also services a diversified customer base comprising independent broker-dealers, multi-family offices, consultants, foundations, endowments and regional banks. Growth at Crystal has been robust. The firm’s AuM has doubled in size over the last five years. 

Reefs and shoals
Navigating the alternative investments space alone, even for more experienced advisors, can be a daunting task. The complexity of sourcing funds and building alternative investment portfolios to suit investor objectives is just the tip of the iceberg.

"When an advisor is selecting a platform to invest with, it is crucial to understand that not all investment managers are created equal – especially in the alternatives space. Partnering with a platform that has demonstrated skill in selecting funds, and can quantify sourcing capabilities to advisors, is something important to understand in the due diligence process. In a market teeming with options, having a trusted partner to sift through the noise is invaluable," Strauss emphasized. 

"The financial services industry has been historically shrouded by distribution fees, and these fees take away from the underlying fund performance investors receive. Clients should have a clear understanding of what they are paying for upfront, without having to unravel complex disclosures or fine print. We are committed to providing this transparency. We are not getting paid by any of the sourced funds, and we believe this allows financial advisors to build custom fund-of-funds solutions that genuinely serve their clients’ best interests," he said. 

This issue around transparency and fees arose when Family Wealth Report talked to family offices about reservations they have about private market investing and the associated risks and fees. 

Crystal is completely owned by its partners (having taken no outside capital or venture capital money). A third of the Crystal team have been working together for nearly two decades. Additionally, the partners at Crystal are among the largest investors in the platform, representing 7 per cent of assets under management. It is a platform built by investors, for investors.  

Crystal earns a management fee on assets under management. It also fee cuts tailored to the size of the client's portfolio and an advisory firm’s overall relationship. The firm says this means that larger portfolios or more substantial client relationships can benefit from reduced rates for investors.

Volatile times
“In light of recent market volatility and shifts in the interest rate landscape, financial advisors are increasingly attentive to the role of alternative assets in their clients' portfolios,” Strauss said. “The general sentiment among advisors indicates a growing interest in hedge funds and other alternative strategies, driven largely by the desire to mitigate downside risks and add strategies which continue to modernize the traditional 60/40 portfolio.” 

Others in the private markets space have argued that the turbulence – as seen by big falls in stocks a fortnight ago – makes a case for alternative investing. 

"The recent $6.5 trillion wipeout in stock market value will inevitably push more investors toward private markets. Once seen primarily as a hedge against inflation, private assets have now become a crucial strategic focus for investment managers and a trusted diversification method. Their valuations, anchored in long-term fundamentals, tend to be more stable and less correlated with public markets, helping to mitigate contagion risks during market turbulence," Myles Milston, co-founder and CEO of Globacap, said in a recent note to this news service.

Crystal's Strauss, when asked about future plans, said the firm continues to “heavily invest in improving its user interface technology, aiming to simplify the alternative investment process for advisors. Crystal continues to enhance its operational execution technology, sourcing engine, analytical tool suite, and portfolio building technology to truly streamline its service. The firm has also earmarked several key strategic relationships with notable industry RIA rollups to create a centralized way to manage all of their advisors, as well as their clients’ alternative investment portfolios.”

“The alternative investments space is currently grappling with several challenges, but one of the most significant is providing financial advisors and their clients with the right tools and education. Advisors need to fully understand the complexities of alternative assets to effectively guide their clients,” Strauss said. 

“There are common misconceptions about the risks associated with this asset class. Educating clients about these misnomers is crucial. Clients must understand the true risk-adjusted returns that alternative investments can offer. By integrating these investments into a traditional portfolio, they can benefit from volatility enhancements and diversification, which certain strategies and funds provide.

“Ultimately, success in the alternative investments space hinges on bridging the knowledge gap for both advisors and clients, ensuring they are just as well-informed about alternative investments as they are about traditional investments,” he concluded.