Earlier this month the Vidrio team journeyed to Miami to get the latest downloads on ESG, regional alternative Investment strategies, and future investing trends.
By: David Barry, Director of Marketing, Vidrio Financial
It was with great pleasure that we were able to participate and be a sponsor of ALTS Miami (ALTSMIA) on December 11-12th where we heard from leaders across the alternative investment space. Discussions were lively and thought provoking and we heard great insights from panelists on the future of allocations to private equity, private debt, hedge funds, venture capital, and more.
As expected, discussions also focused on big picture trends including ESG portfolio integration and allocation moves, managing through market volatility, and future predictions of the evolution of the alternatives industry.
Key takeaways from this event included:
Keynote on ESG:
A conversation between Sarah Digirolamo, Senior Manager, Audit and Assurance, Sustainability and ESG Services, Deloitte & Touche LLP, and William J. Kelly, CEO, CAIA Association around how clients can properly mobilize around ESG and whether you can present valid intelligence around the ESG equation provided some food for thought. Obviously, there are a lot of critics in the space as many believe asset managers are trying too hard to integrate an ESG infrastructure into every new fund launch regardless of any measurement criteria. This points to ‘measurement overkill,’ where we start measuring everything, but the hard data outputs get clogged, and analyzation/interpretation of tying results back to financial performance in ESG becomes challenging.
Earlier in the year, Vidrio detailed our observations on ESG reporting and how we were setting up an ESG scoring infrastructure in the latest version of our platform, Vidrio 7. Despite the lack of standardization, Vidrio’s ESG scoring can incorporate both qualitative and quantitative data ranging from risk factors to companies and more. The keynote was informative and sidestepped the political minefield around Cop27 and the Inflation Reduction Act. In terms of COP27, attendees agreed that the awareness of the benefits that could eventually come out of these meetings seems well received, but the outcomes appear delayed and may never materialize.
In terms of the Inflation Reduction Act, at least where the U.S. is concerned, the investment dollars are starting to move towards more renewable investments, but the ‘Accelerator’ (Clean Energy and Sustainability Accelerator) which according to the briefing documents “will seed state and local clean energy financing institutions, supporting the deployment of distributed zero-emission technologies like heat-pumps, community solar, and EV charging”, will take a lot more time to develop.
Keynote Panel: How Miami and South Florida is Becoming an Alternatives Powerhouse
It was also very interesting to learn more about how the city of Miami is leveraging its financial strength as not only a strategic gateway into Latin America but also in regional alternative investments. Moderated by Christopher T. Battifarano, CFA, CAIA, Executive Vice President, Chief Investment Officer, FineMark National Bank & Trust, and featured insight from Howard Cooper, Founder, Cooper Family Office, Rhys Williams, Director, Senior Wealth Advisor, Dakota Wealth Management and Brandon Yarckin, Chief Operating Officer, Universa Investments conversations focused on how some hedge fund and private equity firms are taking on a larger role in developing Miami’s financial district.
Most of the panelists agreed that the larger role involved sourcing talent, speaking with city governments, expanding philanthropic causes, and partnering with other business groups to help these alternative asset managers grow.
Family offices are also seeing growth in and around the city center of Miami by partnering with the city to improve education and giving back to the community. This supports what we at Vidrio have also been hearing as it relates to the city of Miami, as following our event attendance at ALTS MIA, we saw that investment firm, Pretium Partners, joined the likes of Citadel, Sidley Austin, and Andreessen Horowitz in the South Florida area.
A challenge that the panel did note was that it has been difficult to source female talent in the field of wealth management. However, that challenge is being met head-on by the expansion of women-led finance networking groups in the South Florida area and family offices. From a recent study, more than half of the family offices in the south Florida area are being led by women. The panel did suggest that as more women are sourced from other areas of the country it is important to price yourself well and continue to network to build up the engagement of female financial professionals.
Vidrio Financial looked at our own levels of diversity across our organization in our recent 2022 business update and we’re pleased to say that 2022 was a banner year for female hires – Vidrio had an 83% increase in females in critical roles across the organization.
Closing Panel: Tackling Headwinds for Alternative Investments
One of the key differentiators that set Vidrio apart from its competitors is the ability to efficiently streamline alternative investment portfolios for our allocator clients. With that mission in mind, we were interested to hear about the headwinds that are currently testing the markets, whether it was inflation, interest rates, the invasion of Ukraine, or supply chain issues. This panel was Moderated by William J. Kelly, CAIA, Chief Executive Officer, CAIA Association and included additional thoughts from Jim Ulseth, CFA, CAIA, Senior Partner, Chief Investment Officer, Fire Capital Management, Kevin Schmid, CFA, CAIA, Area Vice President, Gallagher Fiduciary Advisors, LLC, Shundrawn Thomas, Founder and Managing Partner, The Copia Group, LLC and Cari Lodge, Managing Director and Head of Secondaries, Commonfund Capital.
Takeaways from this segment began (naturally) with a recap of ESG progress being made across allocators and how it’s more of a mixed bag at least for the near term. The panelists agreed that when discussing ESG investments, it seems many are hyper-focused on the first two letters of ESG, but sadly forget about governance. Without the “G”, many investors are leaving their due diligence processes behind, ignoring transparency regarding accounting methods, diversity in the selection of leadership, and overall reporting and accountability to shareholders.
Many believed that ESG is simply more of a risk management framework, but as with most investments, you want to establish valid key performance indicators that don’t take away from the overall allocation strategy of the portfolio. With the decline that stocks and bonds saw in the first three quarters many are looking to rebalance allocation percentages in favor of private markets and away from the 60-40 portfolio split.
Panelists believed that the next 6-8 weeks will be very telling as institutional investors will be studying capital allocation movements and deciding from that point, where to place their bets. However, they noted that improving due diligence workflows will be part of the process, in order to avoid ‘red flags’ like the Sam Bankman-Fried fiasco.
Interested in learning more about the ‘red flags’ that investors have seen in the past and are monitoring through a tool like Vidrio? Be sure to check out our Improving Alpha – Innovation in Investing, ESG & Technology podcast for more.
The question of Crypto was raised at various points in the panel discussion and like Vidrio’s own viewpoint, cryptocurrency is not an institutional asset class and is far too speculative to derive any solid performance returns over the long term. As one panelist put it during the conversation, crypto is like gold on steroids.
Regardless of the final allocations to illiquid or private markets, panelists did conclude that liquidity will need to be reexamined moving forward as many institutional investors are far more liquid than they need to be, with some portfolios being over 70% liquid on a daily basis.
We would be happy to speak with you about any of the above discussion points, and we encourage you to view the Vidrio Blog for more insights and ideas. We wish you a happy and healthy holiday season and look forward to connecting with you soon.