The Future of Alts: Access for All with Kelly Rodriques, Founder & Chief Executive Officer, Forge. Milind Mehere, Founder & Chief Executive Officer, YieldStreet. Asiff Hirji, President, Figure.
Moderated by Matt Brown, Founder, Chief Executive Officer & Chairman, CAIS.
PRESENTED BY
SPEAKERS
Kelly Rodriques
Chief Executive Officer
Forge
Milind Mehere
Chief Executive Officer
Yieldstreet
Asiff Hirji
President
Figure
MODERATOR
Matt Brown
Founder, Chief Executive Officer & Chairman
CAIS
TIMESTAMPS
EPISODE TRANSCRIPT
Matt Brown: (00:07)
Why don't we just kick off with just some brief introductions. Kelly, why don't we start with you?
Kelly Rodriques: (00:11)
Right. I'm-
Matt Brown: (00:13)
Yeah, please.
Kelly Rodriques: (00:14)
I'm Kelly Rodriguez, CEO of Forge. Forge is a marketplace for buying and selling private stocks. We have some big news that we announced today. But we are building access and solving the problems around transparency, data, and access to the private markets.
Matt Brown: (00:37)
Great, Kelly. Thank you. Milind?
Milind Mehere: (00:40)
Yeah. Hi, everybody. My name is Milind Mehere. I'm the founder and CEO of YieldStreet. YieldStreet is the alternative digital platform, really transforming access and fractionalization of alternatives for all. And what you can do on our platform, it's a direct to consumer platform, really get access to alternatives and modernize your portfolio from the 60/40 trap.
Asiff Hirji: (01:06)
Hi, I'm Asiff Hirji. I'm the president of Figure. I've been an investor, operator, founder of fintechs for a long time, did a robo-advisor in [inaudible 00:01:14], was partner at Andreessen and TPG, ran Ameritrade for a number of years, ran Coinbase for a couple of years through its high growth period. What we're doing at Figure is we're basically trying to transform financial services, or at least prove you can transform financial services, through blockchain. So, we've built a series of businesses on blockchain, including lending, cap table management, primaries, et cetera. And our whole goal is to get the industry to adopt
Matt Brown: (01:36)
Great, guys. Let's get into it. I really want this to be a dialogue. I want this to be a conversation. Really thinking about anticipating what your questions are. Access to alternative investments, hedge funds, private equity, real estate, pre-IPO, Kelly, has been historically reserved for large institutional investors. In recent years, though, democratization of those products and asset classes I've really taken off. What is driving the momentum? Where's this coming from? What are the implications of it? Kelly, maybe I'll kick off with you on that one.
Kelly Rodriques: (02:13)
Great. Thank you. Well, I think there's been a convergence of events in the last five to 10 years. In our space, it started with companies really extending their private life, so a private company now in the world where there's 800 unicorns worth 2.6 trillion, these companies are now staying private for between 12 and a half and 13 years before they go public. So, there's tremendous value creation happening before a company ever becomes accessible to the public investor. That coupled with the fact that the CEOs and the boards that are running these companies need to retain their employees, they need to be on it for the long haul, and so liquidity and technology to enable liquidity and data to inform liquidity is a massive problem. And it hasn't crept up on us. This is a trend that's been going on for 10 years, at least.
Kelly Rodriques: (03:06)
And so, what we're seeing and what we're doing is trying to open the access to the market up to participants all around the world. And historically, for those of you in the crowd that are in the private equity or venture space, it's a fairly close knit and tight and hard to get into club. And so, we just believe that there's a lot of factors at work here and we've been focused on building the tech and providing the data. And so, the news today of our announced SPAC going public was all about raising the capital to make this a scale platform for for the world. And so, it's a very exciting time.
Matt Brown: (03:44)
Very exciting. You beat me to it on the SPAC. I was going to ask you that. So, can you just walk us briefly through that and the motivation again? So, you guys are now going public through a SPAC?
Kelly Rodriques: (03:55)
Yeah. We have partnered with Motive Capital Corp, [Like Masters 00:04:01], and a group of fintech specialists to build the business and really to make the private markets accessible through a public investment. We have a belief given what the phenomenal growth has been over the last three years, that to do this at scale needs a highly capitalized leader, and we believe being the first to market in the public space really is an advantage for us competitively.
Matt Brown: (04:32)
Yeah. Well, congratulations again. That's a huge milestone not only for Forge, but the industry to see the investor reception on the platform business and a great job well done. Milind, let me, in order go, same question to you. Huge tailwinds, whether it's technology tailwinds, regulatory. You run Yieldstreet, very successful B2C platform in the alternative space. You recently also did a very impressive transaction. What are you seeing out there? What's happening, and what's driving this growth.
Milind Mehere: (05:04)
Yeah. So, I think Matt, for us, it was really access to and distribution of ALTs is fundamentally broken. So, if you think about institutions, they have 10 times more exposure to ALTs than retail, and the reason it is broken is that the ticket sizes are too large and the hold periods are too long. And I think as you alluded to, in the last decade, A, the consumer behavior has dramatically changed. People need access, they want to get educated, and then they can transact. And number two, changes to regulation really enabled Yieldstreet-type companies to really access a consumer that was not accessible earlier. And I think so those are really the big tailwinds of how do you really modernize your portfolio from the traditional stock market investing that all of us had access to and invest the top 1% or invest [inaudible 00:05:55] institutions? And now technology and data is enabling that. And I think that's really where people come to platforms like Yieldstreet.
Milind Mehere: (06:03)
I think one real important trend, Matt, to think about is that ours is a self-service platform. Right? So, we don't have sales people that will call you and say, "Hey, come invest on the platform." It's all about you engaging with the platform, engaging with the content, and I think that really is super fascinating in terms of consumer behavior and how and why they want access to ALTs.
Matt Brown: (06:25)
Milind, when you say the kind of the individual investor, obviously we all know the do it yourself investor now is rising. Information has been democratized at a rapid clip. Can you give us an insight into where a financial advisor may sit in five or 10 years if now you are empowering the individual investor?
Milind Mehere: (06:48)
So, listen, I think there is, in our opinion, I think an informed investor, whether it is going through a channel or directly to the platform is a very important component, especially thinking about investment options that are away from a traditional stock market. And so, I think education in general is a very important component of how consumers are going to access various financial products and how consumers become comfortable. So, Matt, one stat that we always quote is that people spend 10X more time planning a vacation, just a single vacation, than they do on financial planning every year, and the reason for that is the consumer is very afraid. And that's why, by the way, the other big trend is we are all sitting on more than $10 trillion of cash. The savings rate has been the highest. Right?
Milind Mehere: (07:39)
And so, I think the whole idea about education and how education can really be a stepping stone for consumers to get access to a wider set of products is very important. Direct to consumer is a small channel that [inaudible 00:07:56] ecosystem that are 300,000 advisors in the country that have access to millions of consumer. So, they have a role to play definitely in terms of how do you bring that education? And I know you guys are doing a lot of stuff around that area. I think both of them is such a large market. Just in the US, there are 50 million consumers that can get access to all so with all the regulatory changes that have happened. So, it's a huge market.
Matt Brown: (08:19)
Asiff, you are spending a lot of your time in the blockchain world. I think it's probably known to many of us, but not as well understood, on really the impact that the distributed ledger technology can have and smart contracts can have on the finance industry. Maybe just a thought on, one, this massive growth that we're seeing and then, two, how are you seeing it from your lens at Figure?
Asiff Hirji: (08:51)
Look, I think to me the answer on why all ALTs, it's because of the performance. Right? Public markets, they're beta. Right? They're the beta part of our portfolio now. And so, if you want to stretch for alpha, you're going to ALTs. And so, in some weird way, ALTs are no longer ALTs, they're like a core part of your portfolio. And if that's happening, that means, unfortunately, given the structure and the regulatory environments, the poor retail investor is actually disenfranchised from that, and so companies like Forge and Milind's company are doing a great job of trying to make that more accessible. Right? I think from our point of view, we see all that happening, but we see it going to blockchain in the end. Right?
Asiff Hirji: (09:30)
Let me take a step back. If you view crypto and blockchain as an asset class, you've misunderstood it. Right? That's like sitting there and saying circa 1999 or '98, that the internet is a class of stock. It isn't. It's just a way to build an application. Blockchain is simply a way to build an application. And the best things about blockchain are, one, it gets rid of intermediaries because you can do bilateral real-time settlement, peer to peer, and two is it acts as a registry. So, if you think about, "Oh, it's going to blow away all sorts of cases where I need an intermediary or I need an escrow agent or something else," guess what? Financial services is right in the crosshairs of that. The financial services industry is going to get transformed more than any other industry because of blockchain. And we're going to go to bilateral real-time settlement, we're going to release a ton of liquidity, we're going to release a ton of capital, we're going to drop costs. Financial transactions are going to be as cheap as sending an email. That's the thesis.
Asiff Hirji: (10:22)
One of my big frustrations when I was running, Coinbase was almost every single project that came to us was basically token speculation in disguise. And it wasn't really getting at how do I refinance my house cheaper? How do I just do my banking cheaper? And so, we built a blockchain to do exactly that. Had the speed, scalability, performance, and security you need in financial services, let it out in the wild. And then because our industry is loath to adopt anything without proof, we created Figure as an operating entity, and just use case by use case, we prove it's working. Right?
Asiff Hirji: (10:52)
So, we've gone from nothing to about a half a billion in loans now that we do in real-time settlement. We've taken a 90 day process and made it basically capital in advance to the point where we now have third-parties adopting it. So, we've done that for lending, we're doing it for marketplace businesses, and we're now we're doing it for banking. Again, if you think of blockchain or crypto as an asset class, you've got it wrong. It's a way to build an application. And if you haven't figured out how it's going to upset your world, you're about five years behind.
Matt Brown: (11:21)
So, I read something today at an announcement around stablecoin.
Asiff Hirji: (11:25)
That's right.
Matt Brown: (11:27)
Can you just enlighten us on exactly the impact of that and why that's such a big deal?
Asiff Hirji: (11:31)
Yeah. So, today, for the first time a US bank minted a Stablecoin backed by US currency. Now-
Matt Brown: (11:42)
And a Stablecoin is?
Asiff Hirji: (11:43)
Is simply a crypto token that represents that fiat. Right? It could be anything. It could be GBP. It could be... It doesn't matter. But in this case it was USD. Okay? The regulator has never allowed that to happen up until today, and it happened today on Provenance Blockchain. Okay? And the second thing that happened is we used it to settle real-time bilateral, no capital tied up in liquidity, et cetera, a secondary transaction of a private company. Okay? And so, these are two enormous milestones in the industry, and you will see things that Milind's company does or things that Forge does moving to a blockchain based settlement system, because it will be faster, it'll be cheaper, less capital required, and therefore higher access for everybody. That's where we're going.
Matt Brown: (12:27)
Kelly, just on that government being our friend for, at least, for now and regulation, it does seem like they are helping the process of democratization. They recently modified the accreditation rules to include certificates in education, so they're opening up. That's great. They'll continue to do more. Are they doing enough? Are they doing it fast enough? And then, are they pushing the liability to the platform in any way? Do you feel that pressure now that you're delivering access, it's very efficient, and the government is now allowing it in a more fluid way? Do you at Forge feel the pressure to be able to regulate a bit yourself?
Kelly Rodriques: (13:13)
I mean, we really took the compliance and regulatory requirements to trade in the asset class seriously 10 years ago when this company was formed, so I think the idea that now you're seeing pressure for governments to allow more participation in the asset class is a great thing. But like everything with government, it's probably five years behind where it needs to be. So, we see that as a benefit. Anything that provides greater access is positive. I think we believe that the rules are really clear, though, for what we do, and we're going to continue to build systems. And as a platform business, we've been highly focused on building the network of participants on the platform and we've been watching the emergence of blockchain technology, and we could see that at some point we could consolidate potentially what a custodial service does with a settlement platform and really bring efficiency to the market.
Kelly Rodriques: (14:12)
But I think depending on where you're coming from, if you're building the technology and the infrastructure to facilitate blockchain securities, eventually big networks, big platforms are going to have to adopt that. And along the way there, I think we've got to watch what's going on, not just in the US regulatory environment, but globally. Right? Today, our business has investors from 70 different countries, so we really need to be mindful about what it takes and be adhering to the rules within those geographies. Now, I think with Asiff's representing in the technology that will enable us to really do this at scale is super exciting, and for us, it's just a matter of, are we at the scale now where we'll benefit from that? And do we see the adoption of it in a manner that the business model serves what we're doing?
Kelly Rodriques: (15:02)
So, we're excited, but I do think you are seeing governments move... In fact, if you go back about 10 years ago, they were starting to talk about this around alternative assets in the 2012, 2013 timeframe, and so it's good that it's finally come along. If you think about it, if you work for one of the 800 unicorns and you work in a SaaS software business, why shouldn't you be qualified to invest in a SaaS software business? Especially if you work there for eight years and you developed an expertise that probably most financial advisors don't have, if you think about it. So, yeah, I see it moving in the right direction.
Matt Brown: (15:40)
Milind, the narrative around alternative investments, hedge funds, private equity, all the things on your platform, was always a bit as, as you look at the investor, the SEC would say, "Well, if you're wealthy enough, you can afford to lose money," and that was that mantra that they kept saying. So, they had these net worth requirements. Those are being modified, and as Kelly just said, now we're adding education because they finally realized if you're not wealthy, you can also be smart, so it's coming along. But are you feeling as a platform provider, an enabler of access, any need for education or for responsibility of the products on your platform to the end investor as the barriers are going down?
Milind Mehere: (16:23)
Yeah. I think, listen, I'm going to make a couple of provocative comments here. Right? So, one aspect is that, of course, education is very important, as I said earlier, and I think today we have mechanisms to deliver education that has never been available to us five, 10, 20 years ago. Right? And the consumer pool and their behavior is very different. So, we want to keep that context in mind. But at the end of the day, we are also building a platform that provides you with diverse access to variety of investment options. And outside of your FDIC insured account, really performance is all dependent on the right of different factors, and you need to educate the consumer on that. And so, I think that context is very important for us to keep in mind.
Milind Mehere: (17:09)
And if you think about, let's just take GameStop as an example. Okay? Or AMC. Right? The stock had its ups and downs. You don't call Fidelity and say, "Hey, what is happening here?" because consumers are making those trades and driving up the price. And leave those two aside, because those are obviously very speculative cases, but a simple company like an Apple or a Facebook, you don't call Fidelity or Charles Schwab saying, "Hey, the investment went down." So, I think alternate is have to have that level of acceptance, and one of the biggest factors that alternatives don't have that type of acceptance is because they are not widely available. And number two, liquidity. And what is the role of secondary market? Because if secondary market liquidity was there, then that price discovery, price action aspect, which is so powerful in the public markets, would be really valuable to the consumer.
Milind Mehere: (18:01)
And I think, Asiff, that's obviously, we all know and speak about it. Right? It's one of the biggest use cases for blockchain, where you could do those types of settlement. And Kelly, to your point, with all that capital locked up, now you can build on use cases for the consumer to say, "Hey, I can take my private company stock, maybe get a loan against that. Or I want to de-risk it, so maybe I can take it from the private company and put it on a platform like Yieldstreet." And so, I think those are the types of use cases, in my opinion, over the next five years that are going to really be adopted. And I think regulation has to really understand those changes in technology and data and access that exists today that didn't exist 10 years ago.
Matt Brown: (18:46)
Are you seeing-
Asiff Hirji: (18:47)
Let me [crosstalk 00:18:48].
Matt Brown: (18:47)
Yeah. Asiff, yeah, jump in.
Asiff Hirji: (18:48)
Yeah, let me slightly disagree because I think the world is becoming more decentralized, not centralized. And so, the mindset of there's a regulator that's going to protect you and there's a platform that's going to vouch for you, that's a dated mindset. Right? There's more money being made in NFTs today than just about any place else. I'm not suggesting anyone getting NFTs, by the way. I'm just saying there's more money being made in NFTs faster than just about anywhere else. That is a completely unregulated, not considered a security marketplace, yet it trades and acts just like any other marketplace any of us are familiar with. Right? And that's where the future's going. The future's going to decentralized platforms where anybody can create an asset, put it up there, and anybody can buy it and anybody can trade it.
Asiff Hirji: (19:31)
And so, then, well, who do you hold responsible if it blows up? Or how do you protect the investor from the greater fool theory. Right? So, there will probably be entities that go out and produce some sort of pseudo advisory function and say, "I will curate these things for you. I will try and do some risk assessment for you," et cetera. Maybe we get there. But the world is getting less and less centralized, more and more decentralized, and so I think this... It's an archaic view to say that there's going to be a central body regulator and a central body standard that you're going to meet. I don't think that's true.
Matt Brown: (20:05)
Kelly, what do you think about that?
Kelly Rodriques: (20:08)
Well, I think in the private share class, there's tremendous pressure to get access to it, and so I think it's a path of least resistance. We exist with a view that as a platform, we want to integrate with anybody that wants to participate in the asset class. So, I think the definitions that have shifted is the idea that you're going to create some centralized platform and no one else is going to be able to compete or integrate. And I think what you have to do is accept the fact that in the future, we're going to all need to have some connectivity to each other and to the extent that we want to use blockchain technology, and we want to allow people to freely move from forge to Yieldstreet to whatever else is offered on Provenance, I think that that's just something that you have to build into your model and you shouldn't try and consider your platform as something that you're going to protect and build walls around.
Kelly Rodriques: (21:09)
I think the regulatory environment is going to be really interesting to see how that unfolds because I'm just not sure how that translates into velocity in different geographies in the world. The second most traded geography in the world for us is Asia, and depending on where you are in Asia, it's really about that's where unicorns are and that's where investors who don't have access to US unicorns want to trade from. And so, we're there because that's where we've got velocity. I think we'll have to wait and see how quickly we can trade in Eastern Europe or in Europe in general or South America. But right now, I think we're trying to follow where the volume is.
Milind Mehere: (21:53)
[inaudible 00:21:53].
Matt Brown: (21:53)
Yeah, please.
Milind Mehere: (21:54)
I think just so, Asiff, I think I'm agreeing with you, I think broadly speaking, just if you think about the power of consumer change and need, I think that is a very important aspect of how financial services are going to evolve over the next decade. So, think about highly regulated or fairly regulated industries like taxi cab and hotels. Right? You now have Uber and Airbnb that have become [inaudible 00:22:21], and the reason why they become [inaudible 00:22:23] is because consumer wanted. And I think what Asiff was saying is that consumers want to create interest. Right? And so, the idea really is going to be how our platform is going to deliver that product over the next decade.
Milind Mehere: (22:35)
And I think that is a very important aspect that all of us need to consider and appreciate because, at the end of the day, it is all about us. And the consumer is going to inherit $70 trillion over the next two decades from Baby Boomers to Generation X, Y, Z. We may not follow the same traditional ways that our parents followed. Right? And so, the question really is going to be, how do you deliver that financial infrastructure in wealth management, in alternative assets to the consumer? And what would be the rails on which it can be built?
Matt Brown: (23:11)
Yeah. Well, just on that, Milind, if you look at the mutual fund industry, the ETF industry, they're not regulated in the investor, they're regulating in the product provider. And right now, in this gray area where a lot of the private funds or private securities don't fall underneath the regulatory environment, so maybe that ultimately becomes the direction which is the unleashing of the consumer, as you're suggesting, which Asiff I completely agree with you, it's going to become completely decentralized. But maybe the onus of the quality control will ultimately fall back on the product provider if they do, in fact, want access to [crosstalk 00:23:43].
Kelly Rodriques: (23:42)
Look. I think certainly from a data and disclosure standpoint, I think one of the things that we believed and been talking about out in the world is that the asset class is interesting. It is a consumer capable, do they have access to the proper information, data, and disclosures to make an investment decision? I think that's the one area that is probably the next phase of expansion for us.
Asiff Hirji: (24:06)
Right. I know this is the ALTs panel, but let's just pick up on that point. Why should mutual funds and ETFs even exist today. Given that trading is free and you can buy slices of stocks and you have robo-advisors, you don't need any of those things. Because every one of us as an individual should be able to go through a risk analyzer, within two minutes, we should be able to get a packaged portfolio, which is slices of various stocks, push a button, and it happens. We don't need ETFs. We don't need ETFs, we don't need mutual funds. Again, it's a dated mindset. And so, we're going to this environment where you will be able to, on the fly, create all these things, using ALTs, using non-ALTs, et cetera. That's the world we're going to. It's like whole life, thank God, finally died because of [term 00:24:48]. Right? Mutual funds are, thank God, finally dying because of ETFs, but ETFs are going to die because in this world of free trades and stock slices, you don't need them. So, again, I know this is the ALTs panels so we shouldn't [crosstalk 00:25:01] but it's a real-world [crosstalk 00:25:04].
Matt Brown: (25:04)
No, no. Look, these are very intertwined. We can't pull them apart.
Asiff Hirji: (25:05)
It's a real-world example of that's where we're going, and that's what's happening with ALTs. ALTs are becoming more liquid, more data-driven, more platform-enabled on blockchain with real-time settlement.
Kelly Rodriques: (25:16)
And that's the next phase of what we're seeing now with data on our platform. With that you, you can go in and you can buy a basket and design your own portfolio without having to know whether I need to buy Uber or Lyft.
Asiff Hirji: (25:27)
Exactly. And so, what you need is somebody like a Forge that sits there and says, "I've done the work I've. I've collected the data on this asset. Okay? This is what they perform like." Or Yieldstreet saying, "I've done the work. I've created..." Okay? What is that? That sounds a lot like what an investment bank used to do.
Matt Brown: (25:42)
So, I think the demand story on the consumer side, the individual investor, or the financial advisor on behalf of the individual investor, I think we get that. They've been disappointed, active management has failed, alternatives are the new active. You gave, Kelly, a variety of your reasons on the private pre-IPO side. But let's look at the demand from the product perspective. Asiff, you just did an announcement on Apollo-
Asiff Hirji: (26:06)
That's right.
Matt Brown: (26:06)
... doing something. Let's get into the mind of the asset manager or the corporation on what motivates them to want to be on a platform. Why do they care at all about small investors? What's going on on that side?
Asiff Hirji: (26:19)
Can I start with that? Okay. So, I was a partner at TPG, I was a partner at Andreessen. We've had this discussion with Apollo One of the biggest things is if you think of the infrastructure you're required to run a fund, because of the cost of that infrastructure, that's why the ticket size is so high. That's why you want fewer investors rather than more investors. It's a pain in the butt to have to manage thousands of investors when you have that kind of an inflexible platform. Well, go to the kind of platforms we're talking about, whether the investor is writing a million dollar check or a $10,000 check, it doesn't matter. You can manage them both the same way for the same amount of cost.
Asiff Hirji: (26:52)
And so, for leaning companies like Apollo are looking at and saying, "We want to put a fund on chain. We want to be able to have secondary liquidity on that chain because that'll be good for the investors, and by the way, I don't have to deal with LPs coming to me saying, 'I want liquidity.'" And so, that's what they're doing. So, the first fund Apollo is going to put on our blockchain... Sorry, not our blockchain, on the Provenance Blockchain, is going to be a new fund of which some portion of that fund is going to be exchange tradable to create liquidity. And that's just the first of many that they're going to put on. And they're not the only asset manager. And this is great because it's not the LPs saying, "Please find a way for me to get liquidity." It's the fund manager saying, "This is a better way to create the fund." And again, this is the path that these fund managers are on, apollo being at the start.
Kelly Rodriques: (27:38)
If you take a look at companies, though, if a company is going to stay private for 13 years, I think SpaceX is 18 years-
Asiff Hirji: (27:46)
What was it 10 years ago? What was it 20 years ago?
Kelly Rodriques: (27:49)
20 years ago it was five and a half years, so a company was going public at five and a half with a valuation of 550 million. Now, it's 13 years at a valuation of five billion. Okay? And so, these are capital raising machines. When you have five, six, seven rounds of capital and you start having employees who stock options of vested in four years, and they've gone through three full vesting cycles, the company's got to use technology and has got to use a more market-based pricing mechanism for primary and secondary capital.
Kelly Rodriques: (28:25)
So, the idea that you're going to go out and raise money every year from the same 12 VCs that you know just doesn't make any sense. And particularly if you're starting to offer secondary trading to venture [inaudible 00:28:37] institutional investors or your own employees, they want to know that they're not selling their stock at a discount. And we've all seen the public private discounts that are going on in these tender offers that started five years ago. Those are going to go away. Why would you discount your stock by 30% for your employees when there's an investor halfway across the world that's willing to pay you full preferred market price for it? So, I think for a company it's about, "Hey, I need to plug into a capital machine so I'm not spending 40% of my time running my company and capital raising mode."
Milind Mehere: (29:13)
Yeah. And I think to add to this whole comment around why supply side will want to work with platforms like us, I think it's really two aspects to it. One is it's not about today. So, today, we might be able to read only portion of that fund, but in two years [inaudible 00:29:31] $20 million check, you'd get $150 million LP. Three years it would be the entire billion dollar fund. That's one aspect of it in terms of the value that retail has given the dynamics that we've been discussing [inaudible 00:29:43].
Milind Mehere: (29:44)
The second aspect, in my mind, which is much more powerful, is what's the role of capital formation, and how's that changing? Kelly, to your point. So, for me, it is a completely different way to look at it. Historically, Wall Street has operated by saying, "Hey, I'm raising a $2 billion fund for XYZ strategy. Now, let me go find LPs." The LPs can be institutional, retail, international, domestic, small, big, whatever may be the case. Can you flip that model and say, "I'm actually now going to go to retail and say, 'Hey, what is the type of product do you want? Is it 8% yield, three year duration and some asset type?'" And then you can aggregate that demand on a platform and say, "Okay, great, KKR, Apollo, whatever may be the case, I have $5 million allocated to this type of a yield risk spectrum, can you deploy that capital?"
Milind Mehere: (30:38)
So, instead of you getting stuck in a strategy because your macro economic factors change many times and the fund are multi-year, can you flip that and say, "Hey, the consumer wants this"? Because the consumer is living life very differently. We no longer work for 30 years in one company, and we need liquidity at different points in time. And so, out of the $100 of allocation, yeah, sure, you should have something that a big portion should be allocated for your long-term goals, but there are short-term and medium-term liquidity goals that we have and the desire to own income can change that capital formation story. So, I think that's really where technology can pay an unbelievable role.
Matt Brown: (31:16)
So, institutional investors, family offices, endowments, pensions typically have 30 to 50% weighted in alternative investments broadly, including pre-IPO? Wealth management can range wildly, but as low as nothing to up to 10 or 15%. Total US wealth management, north of 20 trillion. That's just money professionally managed by a financial advisor. So, it's a multi-trillion dollar jump ball right now and there's big firms like Apollo and like Blackstone and like Carlisle and many, many others that are seeing this as, as Kelly you to said, a very important capital source and capital formation source coming forward.
Matt Brown: (32:00)
At the same time, you have the SEC and other regulatory bodies seemingly making it easier, pushing the responsibility away from a net worth requirement to product providers, platforms playing a neutral facilitation role. I mean, that's a pretty powerful dynamic. You can see a complete industry change. Then, you overlay blockchain. That could completely transform the entire industry on how we even think about doing business, maybe us if we don't even need fund structures anymore. Possibly.
Asiff Hirji: (32:34)
Possibly.
Matt Brown: (32:34)
Possibly. Let's play the game five years out, 10 years out. Okay? We're sitting here in SALT, Anthony Scaramucci is still here doing his thing. What does that world look like? And I want to start with you, Asiff, because I think that from the blockchain perspective, what's this conversation around democratization sounding like in 10 years from now?
Asiff Hirji: (32:57)
I would posit that in in 10 years, the big structural changes that will happen is you will move settlement to be bilateral real-time.
Matt Brown: (33:07)
Just, can you just explain that a little deeper?
Asiff Hirji: (33:09)
Yeah. So, why did GameStop happen? Right? GameStop happened because we have a circuit in 1970s architecture underpinning our securities marketplace. Right? So, if you go back, in the 1960s, literally when you traded stock, a broker would send a paper security from one broker test to the other to settle the security. That's what happened. And the stock market would shut down Wednesday afternoons and Fridays because of the volume. That's where we were in the 1960s. And so, they created the DTCC, which is a centralized body that they said, "This is stupid. We'll put all the paper certificates in one place, and we'll have an agency just have a tabular format, figure out how it works on computers." Awesome suggestion for 1970.
Asiff Hirji: (33:53)
We're still on that technology, which is why it takes us three days to settle a trade. That means if you've got trillions of dollars trading every day, guess what? You have trillions upon trillions of dollars of liquidity that's margined across all these houses. And the DTCC is the ultimate carrier of that margin, and so the DTCC went to Robinhood... Sorry, it went to the houses that Robinhood used and said, "Hey, you're asking me to take leverage on GameStop. I don't like it anymore. I'm going to increase my margin requirements 3X overnight." Right? That's what happened. That is the antithesis of a bilateral real-time settlement system. It's a three day, lots of capital tied up, really complex system which leads to things like Archigos happening because no one can figure out how much liquidity was actually lent to Archigos. Right?
Asiff Hirji: (34:40)
A bilateral real-time system works really simply. I have a wallet on crypto, Milind has a wallet on crypto. I want to trade with Milind, I don't even know who Milind is, I just know that I have a security, I put it on a marketplace, I put out a bid... Sorry. I put out an ask, he hits it, the blockchain will settle that transaction in real-time, it'll move Stablecoin from his wallet into mine, and it'll move the security from my wallet into his. We're done. There is no settlement risk there. It doesn't match the trade. If it can't do it. Now, everyone sits there and says, "Oh, you just pre-funded every trade. You can't do that." No, because Milind could have gone to Kelly and said, "My business is trading. I want to borrow some money to do that." Kelly lends him the money, that's the money that's sitting in his wallet, that's what settled.
Asiff Hirji: (35:24)
We built on Provenance a completely automated bilateral real-time settlement trading system which we'd showed the DTCC, which handles today's volumes and more of the New York Stock Exchange with zero requirement for margin. Zero. Because it works so fast. Right? So, it would take trillions of dollars literally out of the system in terms of capital required. It would drop costs even more. The current system, the entrenched incumbents don't want to change. Right? So, until we convinced the banks, the traders to move to the system, that's what it'll take to get there, but that's where we're going.
Matt Brown: (36:02)
Is that the roadblock, is that the challenge is to getting the community [crosstalk 00:36:05]?
Asiff Hirji: (36:04)
Yeah. Why was the DTCC adopted? Right? Then what's the role for the DTCC? So, I think what's going to happen eventually, because everything takes longer, but in a 10 year horizon, you will move to bilateral real-time settlement globally for almost every asset class, because almost every asset class will be tokenized and it will be exchange traded. That doesn't mean the exchange traded 24/7. A lot of these things don't have 24/7 liquidity, but they will have liquidity over certain periods of time whenever the asset manager decides to turn a liquidity on. That's the world we're going in, and you will construct on the fly, whether it's what we consider today public securities, or whether they're private securities or ALTs or whatever, that distinction is blurring.
Matt Brown: (36:43)
Milind, same question. Let's project out, Yieldstreet or other platforms, where are we in five and 10 years with your platform?
Milind Mehere: (36:51)
Yeah. I think that, listen, I agree with several points that Asiff made, I think for us, or just generally from a wealth management perspective, it needs to be much more of a dynamic system for the consumer depending upon where they are in their life needs and what type of liquidity do they want? So, can you create portfolios that take advantage of that type of a consumer construct. At the same time, how can you really, if you think about the top 1% and the family offices, the way they invest, what type of liquidity do you provide them against their liquid assets? What type of margin lending products do you have for them? So, how does all of these various aspects come together in a real-time system, I think, is where wealth management is going, in our opinion. And ALTs, as Asiff eloquently said, is the primary driver of alpha. We are strong believers in that over the next decade. So, we feel that it's a golden age of fintech, and I think that's really where that real-time platforms are going to be really very valuable.
Matt Brown: (37:56)
You described Yieldstreet as a digital bank in a press release or something I've read recently, but you're also a platform where individual investors get access to alternative investments. Are those the same thing? Just pulling that thread a bit.
Milind Mehere: (38:11)
Yeah. So, listen, I think for us, it's mostly, we are the next generation investment and wealth management platform. I think the idea of a digital private bank is how do you provide the same type of product and access that a traditional private bank provides, but do it using an automated platform? So, that's really the very simple way to think about what Yieldstreet is really aspiring to be.
Kelly Rodriques: (38:38)
Look, I think in 10 years, businesses that make money by settling trades or by matching trades will give way to businesses that make money by providing data and insights. I think, yes, in a world where Asiff's vision comes true, we would want to be and would accelerate being a fully global business that can provide real-time liquidity on our asset class anytime you want it or need it, whether you're raising primary capital or your secondary capital. But you also need someone who's a data provider that can tell you what came before, what's out there in the world that looks like this, how do I make a purchase decision in discover pricing? I think that's the kind of business that these platform companies turn into in five to 10 years.
Matt Brown: (39:28)
Do companies ever need to go public again with Forge?
Kelly Rodriques: (39:30)
I mean, theoretically, no. In fact, there are companies that we talk to now, if you take a look at the amount of liquidity, secondary liquidity, that has been done on SpaceX in the last three years, I think it's something like eight billion. I mean, they've essentially turned over and provided unlimited secondary liquidity to anybody that's bought into them in the last 10 years. So, I think it just depends on whether or not the rules change or whether or not you can have 4,000 people on your cap table. I think there's some regulatory reasons why you'd need to go. But from the standpoint of access to capital and liquidity [inaudible 00:40:10].
Milind Mehere: (40:09)
Yeah. I think you're absolutely right. I 100% actually agree with you. In the sense that I feel that permanent capital should exist at an asset level and there should be liquidity at the user level. And if you can bring out that equilibrium, it's unstoppable. Right? And there are elements of [crosstalk 00:40:29].
Kelly Rodriques: (40:28)
Yeah. I think that's totally right. I think the distinction between a public company and private company is blurring.
Matt Brown: (40:33)
Well, there's a lot of firms out there or platforms or companies that are very interested to make sure that there's IPOs and publicly listed company. What is the announcement that the New York Stock Exchange is acquiring for [crosstalk 00:40:47]?
Kelly Rodriques: (40:46)
Well, Deutsche Börse invested heavily [crosstalk 00:40:50].
Matt Brown: (40:49)
All powered by blockchain. When is that convergence going to happen? Milind, that's actually a real question. When are you going to see a private investment fund, alternative investment funds offered on a stock exchange?
Milind Mehere: (41:04)
Yeah. I think if I were placing bets, I would be more favorable of what Kelly was saying, which is, do you really need to offer them even on private exchanges? Right? We are launching one of the most prominent secondary VC funds on our platform later this month. And frankly speaking, do you really need to go public? And can you just [inaudible 00:41:26] whether it's on Yieldstreet, whether it's on Forge, whether it's on Carta, you could actually have a very active trading market. So, my answer is that I don't know whether you would want them to be on public exchanges.
Matt Brown: (41:42)
So, all three of you have general competitors. We all have competitors. I have competitors. I think we all probably agree that total addressable market is massive, so it's less about competition and more about market share for ourselves. But let's talk winners and losers for a second. So, maybe Kelly, you're shaking your head, what are the companies that you think, and of course you're going to put Forge in that category-
Kelly Rodriques: (42:06)
Top of the list.
Matt Brown: (42:06)
... top of the list of winners, but what are the losers ultimately not doing today that... What are they not seeing that you see?
Kelly Rodriques: (42:14)
I think the one thing that jumps out is anybody that thinks they're going to disrupt everyone in the ecosystem and own it all will be a loser. I think you have to be able to integrate, collaborate, and allow participation by the constituents who are interested in your market. And any attempt to build a sort of walled gardens structure where you try and own everything, I think, is a losing proposition.
Matt Brown: (42:46)
Yeah. We see that all the time. Milind?
Milind Mehere: (42:49)
I think for me it's distribution pipes and how can you efficiently build distribution pipes is very important. And how do you make accessibility much more favorable to the consumer and not to to the street? And I think those companies that really embrace that, which is put the consumer first design a product that's right for them, and have the right pipes into those consumers are ultimately going to be winners. And those that don't embrace that change whether what's embedded finance and defi is doing, what has happening with consumer behavior, and they still think that they could control those pipes to the consumers may not do well.
Matt Brown: (43:29)
Asiff, many blockchain companies or many companies at least put that label on themselves, whether that's totally true or not.
Asiff Hirji: (43:35)
Yeah. I think the business models that are in trouble, anything that's escrow based, if your business model is, "I provide escrow services-
Matt Brown: (43:43)
Escrow based?
Asiff Hirji: (43:44)
Yeah. If your business model is, "I provide escrow services, you park capital with me, I charge you for that to do something," that model's [crosstalk 00:43:50].
Matt Brown: (43:50)
So, Schwab, Fidelity, and [crosstalk 00:43:52].
Asiff Hirji: (43:52)
No. I wouldn't put [inaudible 00:43:53] title insurers.
Matt Brown: (43:54)
Title insurance. Okay.
Asiff Hirji: (43:55)
Or an escrow agent where if I'm buying a house, I need to deposit funds at an escrow agent because they won't release them until the title appears and everything else. Those models are all dead because, again, we're going to bilateral real-time settlement, and so that model displaces the escrow based business models. I think that's one thing. And Kelly alluded to that, too, in the settlement arena. I think the second arena is there are a lot of fund managers who, frankly, are simply, they're closet indexers. Right? And the performance will come through that. And if you're a closet indexer, you have a short life in this new world because people are going to see through that and they'll get the alpha cheaper somewhere else. Right? So, I think those are the two trends that I would look for.
Matt Brown: (44:42)
Right. Believe it or not, we are out of time, but I want to ask each of you one question. You're all leaders in business, you've mentored people, you manage people, you're growing firms, so my lightning round final question, what's one life lesson you wish you knew a lot earlier in life? We can have an entire new session just on that question, if you'd like.
Asiff Hirji: (45:08)
Who do you want to go first?
Matt Brown: (45:10)
Milind?
Milind Mehere: (45:11)
All right. So, I think for me, take bigger risks, massive risks earlier in your career. That's the only time, or that's one of the most favorable times to do that. And if I knew that-
Matt Brown: (45:22)
I'm sorry, knew what?
Milind Mehere: (45:26)
Take bigger risks.
Matt Brown: (45:27)
Oh, take risks. Yeah.
Milind Mehere: (45:27)
Yeah. And I think all of us are super conservative and most of us are... Looking at my background, you would not think that I'm a conservative. I've taken a bunch of risks, but I think that's one lesson just... I came to this country as an immigrant student. Right? And so, you kind of follow that corporate route, and I did that for a few years. And I think today with access to data and technology, I think if I knew that earlier or in my 20s, I think it would be amazing.
Matt Brown: (45:55)
Kelly?
Kelly Rodriques: (45:57)
I'd say working in software and fintech businesses most of my career, I've come to believe that no matter how many engineers you hire, how much money you raise, your competitive advantage comes from building a tremendous culture in an organization where people want a piece of changing the world and they want to work with other like-minded people who care about each other. And I guess I've just come to believe that leadership and culture trumps who's got more engineers.
Asiff Hirji: (46:33)
So, I have a high schooler who's about to apply to college and one of the things I'm telling him is it's all about your network. In the end, it's all about your network. The best opportunities always come from your network. And it's like, build your network, do random favors for people in your network not expecting anything in return, because at some point it's going to pay back tenfold.
Matt Brown: (46:51)
Great. Gentlemen, thank you so much. Really enjoyed this conversation.
Asiff Hirji: (46:56)
Thanks for having us.
Milind Mehere: (46:56)
Thank you.