Ryan Nauman hosts Zephyr’s Adjusted for Risk podcast with Dana D’Auria, Group President of Solutions and Co-CIO at Envestnet, discussing the growing role of private markets in wealth management. D’Auria explains how Envestnet combines asset management and wealth tech, then outlines key trends: companies staying private longer, increased demand from the wealth channel, and expanded use of vehicles like interval funds, tender offers, private BDCs, and private REITs. They emphasize that “semi-liquid” vehicles can become illiquid during dislocations, and highlight major risks including illiquidity, return dispersion across managers, and valuation/marking differences versus public markets that can overstate diversification metrics like correlation. D’Auria advises using specialist due diligence, evaluating tail-risk metrics, and leveraging available education from asset managers and resources such as Tony Davidow’s book.

Zephyr can help financial advisors create modern diversified portfolios learn more here.

To learn more about Envestnet here.

00:00 Podcast kickoff

01:18 Meet Dana D'Auria

03:41 Wealth tech meets investing

05:52 Why private markets boom

09:09 Diversification reality check

13:00 IPOs and index impact

16:11 Access vehicles expand

18:00 Advisor adoption spectrum

21:21 Interval funds liquidity

26:34 Key risks and due diligence

34:21 Education and wrap-up

Connect with Ryan Nauman:

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Ryan Nauman Market Strategist Zephyr:

Hello, everyone, and welcome to

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Zephyr's Adjusted for Risk podcast

from the shores of Lake Tahoe.

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I'm Ryan Nauman, the market

strategist here at Zephyr.

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Investing in private markets has become

very popular for retail investors as

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the benefits they bring to investment

portfolios are more widely known

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and accessibility has increased.

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But the world of private markets is

vast, complex, and brings its own

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unique risks to investment portfolios.

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Well, I have on an industry expert to

help us gain a better understanding of

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investing in private markets and what

it m- means for financial advisors.

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But first, today's episode is sponsored

by the award-winning Zephyr, which

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helps investment professionals

make more informed investment

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decisions on behalf of their clients.

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All right.

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Enough from me.

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I've already talked enough.

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Let's go ahead and bring

on the star of the show.

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I'd like to give a very warm welcome to

Dana D'Oria, dana is the group president

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of solutions and co-CIO at Envestnet.

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Dana, thank you so much for

coming on the podcast again.

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I believe this is your third time.

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Yeah.

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Dana D'Auria: I'm a regular

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Ryan: to have you on.

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V- like I said, most people after about

one or two, they're about done, so

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I'm glad I didn't scare you away after

the first or second one, so thank you.

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Dana D'Auria: Not at all.

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Ryan: Can you please tell us a little

bit more about yourself and Envestnet?

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Dana D'Auria Group President of Solutions & Co-CIO Envestnet:

Sure.

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Yeah, so, um, my position at

Envestnet basically is running sort

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of the, uh, turnkey asset management

program, programs, if you will.

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And so, uh, what pal- falls under my

purview is, uh, all of the in-house

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investment management and as well as all

the relationships with our asset manager

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partners, which we have about six hundred

asset manager partners on the platform.

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Uh, and you know, the, the, um,

the, the various kind of different

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solutions that work within that group.

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Um, you know, also investment retire-

investment retirement, for example,

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is in my area and, um, you know, our,

our partnerships with various other

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outside parties all think in terms of

the asset management side of the house.

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And, you know, the-- to, to talk a

little more about Envestnet, I think

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that kinda, that lens of what my role

is, you know, take that and broaden

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it out and think of Envestnet as the

leading adaptive wealth tech platform

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that provides turnkey asset management

program services, as well as all of the

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surrounding ecosystem that you would need.

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You know, SaaS tools, if you're an

advisor managing your own portfolios

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and trading your own portfolios.

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Uh, financial planning tools,

MoneyGuide Pro in particular,

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wealth studios that we offer.

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Uh, we have Tamarac.

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Envestnet Tamarac is a, it, it is

a more robust even rebalancing tool

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that's used by many RIAs out there,

uh, to run their books of business.

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So a very kinda broad ecosystem

that houses various ways that

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advisors or home offices navigate

the advisory platform experience.

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Ryan: Dana, that's fantastic.

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I know, I follow a lot of your great

thought leadership and content, so it's

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interesting you said you do a lot of

thought leadership and research on markets

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and investments, but you also sit right

in the middle then on the technology side,

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so you kind of bring the two together.

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So how is it?

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Is that a challenge, kinda having

to juggle both sides of it, or is it

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really rewarding seeing how it brings

it all together and works together?

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Dana D'Auria: Yeah.

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You know, when I came to Envestnet,

my thesis was that technol- that the

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intersection of technology and asset

management is gonna be increasingly

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blurred, and I think that's played out.

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And so I'm, I'm really happy having an

opportunity to be in a position and at a

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company that really kinda navigates that.

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Because if you think about just, you

know, eh- eh- even if I take it a

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high level, um, I came from sort of

a quant background as it relates to

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how I engage with capital markets.

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My, you know, the way that I think is,

uh, a, a great way to invest is via

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factors and other academically derived

ways of accessing market returns.

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And, you know, when you think about

what those are really, in a, in a lot of

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ways they're sort of a commoditization

of what active management used to

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do using data, using technology

to better understand the market.

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Well, now put artificial intelligence

and machine learning into that

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picture, you know, just a burgeoning,

uh, swath of studies out there on

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how to improve upon those things.

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And, and so really it's just tech

is very much moved into the space,

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the asset management space if

you will, and vice versa, right?

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Asset managers increasingly

want technology efficiencies.

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They understand that in order to best

engage with clients, they really have to

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have a so- a technology solution that can

enable efficiency for the advisor, enable

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efficiency for the client, enable a good

story, a good reporting, uh, function

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if you will, so that folks understand

and also appreciate what's going on.

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So a lot of blurring

there and a nice place to

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Ryan: Yeah, exactly.

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And it, it, you're exactly right, a good

place to sit between, between the two.

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So speak of blurring of two, , emerging

of two kind of what used to be maybe

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separate parts of wealth management is

wealth management and private markets.

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Speak of evolution here, private markets,

it wasn't that long ago, four years

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ago, five years ago, where it really

was earmarked for institutions, ultra

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high net worth, endowments, and so on.

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Now it's merging with wealth management.

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What are some of the biggest trends

you're seeing play out in private

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markets right now with the two

and, and really coming front and

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center with, with wealth management?

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Dana D'Auria: Yeah.

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So there's a few and, uh, we

could take up the whole podcast I

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think on just this one question.

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But I'll, I'll, I'll tackle a couple.

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One, I think, you know, companies

are staying private for longer.

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They are increasingly

seeing private markets as…

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And, and the second one, which

is private markets are becoming

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more and more important to wealth.

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Wealth is, you know, providing another

whole basically asset pool that, you know,

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alternatives managers are going after.

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And so you, you s- you put

those two together, companies

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wanna stay private longer.

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They don't necessarily wanna

make the leap into public.

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Uh, and they can because there's, there's,

you know, kinda capital available in the

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private market space for them to do that.

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And so, you know, I, I think

that we can expect more of that.

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It's interesting, you know, kinda the

SEC rule change around reporting, right?

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That we're seeing, you know, kinda in

the, in the news where, uh, you know,

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you, you don't have to report quarterly.

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And one of the big reasons for that

is just, you know, for companies that

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are, you know, kinda on the edge around

whether they wanna go public or not,

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maybe it helps push them over the edge

because it reduces some of the legal

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requirements, the legal cost really

for all the reporting, et cetera.

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But just the fact that, you know,

there's a response happening fr- on the

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regulatory front to try to encourage

companies to go public, you know, th-

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it, it's sort of, uh, just kind of a

bellwether around what, you know, clearly

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people in not only the industry but

also even in the government think is

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gonna probably be a longer term trend.

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So that's one.

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And then, you know, the other side, as

I said, uh, wealth is increasingly where

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alternatives managers, private market

managers are seeing opportunity to grow.

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You know, they've, they've-- the

traditional place, um, endowments,

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you know, uh, um, sovereign

wealth funds, you know, very

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ultra-high net worth individuals.

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They- they've sort of

tapped a lot of that, right?

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And now they, they see the wealth market

and they see the opportunity to, you

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know, kind of bring different types

of vehicles to that market, right?

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And the- these vehicles have been

around for a long time, but now

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you're seeing just a multiple, you

know, uh, number of launches around

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things like interval funds or tender

offers, private BDCs, private REITs.

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Again, these have existed.

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They've been available and there

have been managers doing it.

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But I think what you're seeing now is

just kind of a recognition on the parts

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of, of a vast swath of alts managers that

these are applicable for them, that they

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open up a new audience for their work

and you're gonna see more and more of it.

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Ryan: Yeah, Dana, those

are great, great points.

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And going back to your first trend

that you mentioned, that companies are

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staying private longer, it's out there

that, there's more private companies

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than there are public companies.

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There's been that major shift

going on over recent years.

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And now if these companies are staying

private longer, what impact does that…

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Does that also force the retail or the

wealth side to be like, "You know what?

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If we want real diversification,

we gotta go on the private side

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because there's just more options."

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And the public side, they're

just starting to get more limited

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Dana D'Auria: Yeah.

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Uh, so it's an interesting question.

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I do think it is one of the main

drivers behind why, you know, sort

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of the buy side on what-- in wealth

would be interested in this trend,

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you know, not just the sell side.

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Uh, and, and, you know, I think

people want access, right, to some

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of the innovation that's staying

in the private space for longer.

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And so I do think that it kind of

forces the hand a little bit of

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the wealth management side to at

least look at this and understand

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whether it's relevant for clients.

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I know we'll get into the risks,

so I'll, I'll hold off on this

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answer talking about that.

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But I, but I…

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But as far as, you know, the reward side

or why you're doing it, 100% I think

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getting access to innovation that is

staying private for longer is, you know,

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kind of one of the top of the list.

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I do wanna just address the

diversification aspect of the question.

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So I, I certainly believe it does

diversify the portfolio, but I think

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some of the traditional metrics for

how diversified and-- diversifying it

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is can be a little overstated, um, and

maybe a lot overstated depending on,

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you know, what number you're looking at.

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So, uh, correlation for example, if

you're, if you're thinking about the

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correlation that you see of these

private markets with your public markets,

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you know, you have to bear in mind

some of the structural differences.

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They don't value regularly, so, you know,

the animal spirits of the market that are

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visible, uh, you know, in public markets

like minute-by-minute and day-by-day.

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If you're valuing on a

quarterly basis, you're not…

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You know, that, that gets

very smoothed, right?

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And, and that's a lo-- you know,

private markets, uh, traditionally

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are, are valuing on a lag like that.

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They are also, um…

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It's not a public mark, right?

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And that's an important

thing to understand.

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It's not, you know, the…

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It's not the, the amalgamated

response of the entire market

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saying what this thing is worth.

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It's, uh, it's, you know,

individuals basically, right, with

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a valuation model deciding, you

know, what is the value today.

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So that can create just discrepancies that

are really a real correlation difference.

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They're just a difference in

the way it's being valued.

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Now that being said, again, I still…

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I, I do think the diversification

benefit is absolutely there.

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You think about you, you know, we

encourage people to have public

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market small caps in addition

to just their large caps, right?

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Well, this is another step, right, a-away.

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So certainly if, if you believe in

the diversification benefits of having

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a broadly diversified public market

portfolio, it kind of is obvious and

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makes sense that, uh, well, bring

more companies in via private markets,

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you do get some diversifying effect.

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Ryan: Yeah.

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Dana, that's a really great point.

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I haven't thought about that.

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You just assume everyone

talks about diversification.

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Yes, it adds diversification, but

I haven't thought about, you got-

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have to rethink of what analytics

you use to measure diversification.

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Like correlation, obviously.

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Usually everyone, that's what you use to

measure diversification in a portfolio.

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Now, do you have to look outside that?

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So I'm really glad you brought

that up because that's, that's

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something I haven't heard and gonna

have to look at, um, and research.

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So that's fantastic.

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How are IPOs…

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This is big news, Dana.

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I mean, it's headlines

all the time about these

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Dana D'Auria: Where you going?

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Ryan: upcoming IPOs, um,

SpaceX, Anthropic, OpenAI.

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It's like everywhere I look, and people

are like, "How can I get involved in

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SpaceX and all this stuff, the IPOs?"

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How is that impacting private markets,

the, the release of these IPOs?

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Dana D'Auria: I mean, the f- so they're,

obviously they're finally going public,

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so I think it validates everything

we've just been talking about that if

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you had wanted to be a part of the, you

know, return-generating process of these

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companies for their early years and, and

even as they grew, you know, to ginormous

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levels, you had to be in private markets,

and you had to get access on top of it.

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Which is an important point

about private markets too, right?

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Just being in private markets

doesn't mean you get access.

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You know, you, you, it, it very much

is who is the manager, what deals

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are they able to get you, et cetera.

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Um, but putting, you know, you

know, going directly to the

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IPO question, I think it's…

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I think it speaks volumes around

how big companies can get now

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staying in the private space.

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Ultimately, if you wanna raise the kind

of money that, you know, these, these big

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AI-based providers, and I include SpaceX,

although it's got a, an interesting, um,

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you know, mosaic of a business plan that-

that's not just AI, but still, you know,

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very much, um, in that space, then they…

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you do go to public markets, right?

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Public markets remain, at the end

of the day, you know, kind of the

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biggest single place that you can raise

capital from an equity perspective.

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And so, you know, ultimately these

companies to- to- to be able to cash out,

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to be able to access much bigger capital

pools, are looking at the public market.

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So, you know, there will be, you

know, you'll see and, and, uh,

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Dana D'Auria Envestnet:

indexes are grappling with this now,

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you know, how quickly do you put it in?

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Typical rules around, hey, you don't put

in a brand-new IPO that may have been

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created because you don't wanna put a

tiny company in because IPOs tend to

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do poorly in their first year, frankly.

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So there's some, you know,

there's, there's some good research

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around, uh, the, a reason to wait.

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But at the end of the day, these at this

point are, are truly ginormous companies

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that, you know, are kinda tw- twisting

or, or I guess maybe changing our

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definition of what it means to go public.

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Ryan: Yeah, that's a great point.

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And the part that I'm really

watching is, like you said, how

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the indexes are handling this.

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Are they gonna cha- kinda

change the game for,

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you know, that the rules that have

been in place for years for these?

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Dana D'Auria: Yeah.

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Yeah.

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Yeah, and I mean, and, you know,

those rules were developed for,

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you know, small companies, right?

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Coming to market, not for these, you

know, kind of well-established, uh…

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Although I'll say, you know,

profitability-wise, maybe still,

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you know, but, but, but, you know,

very well, well-established, right?

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And, and gi- gigantic truly companies.

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Massive valuations

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Ryan: So let's go back, uh, the private

markets and wealth management space.

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Like we've been talking, they're merging.

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The, it used to be maybe black and white.

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It's now gray.

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Um, what is driving that inclusion in

private markets and wealth portfolios?

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Is it, you know, just like we talked

about, the benefits, or is it because

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now it's more accessible through, like

you said, we'll talk more about interval

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funds and the different access vehicles?

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What's driving this, the, the inclusion

and the merging of the two, uh, sides?

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Dana D'Auria: I think it's both.

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I, I think the supply side for

sure looking for, you know, a- an

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alternative pool of assets, right?

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And so alts managers moving into

interval funds and tender offers at

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a ve- at a faster rate is absolutely

them seeing the opportunity to

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appeal to a different audience.

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You also have traditional managers

either buying an alts manager or putting

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out alternatives content themselves.

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So…

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And, and from their

perspective, it's not a new…

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You know, they've already been

in the wealth market, but it's an

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opportunity for a higher margin

product to be sold in that market.

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So I think there's

absolutely a supply side.

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But, you know, everything we've been

talking about, I think it is coming from

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the other side to a certain extent too.

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People want access, you know?

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They don't want to be sort of left

out and unable to, um, get into

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something like, uh, a SpaceX or an

Anthropic, you know, until it, until

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it's, uh, gigantic and going public.

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And so, you know, we're, there are

certainly plenty of questions, uh,

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requests, et cetera, from the wealth

side to us, for example, as a tech

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platform around what we're building, how

we're enabling access, how we're making

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it easier for advisors to use these

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Ryan: Yeah.

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I'm glad you brought that up about

making it easier for advisors

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to access private markets.

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It's a perfect segue because

financial advisors, their job is, uh,

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hard enough just staying on top of

whether it's creating a tech stack,

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separating themsel- distinguishing

themselves from other advisors, all

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the things they have to worry about.

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Now they have to worry about, how

do I get access to private markets?

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So how are financial advisors

addressing this shift to

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financial mar- private markets?

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Are they accepting it?

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Are there a lot of questions?

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Are they looking to Envestnet for help?

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Dana D'Auria: Yeah, I

would say all of the above.

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It really does depend on the advisor.

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I would say you have advisors who have

sort of specialized in doing this.

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You know, to- advisors working in

the ultra-high net worth, uh, space,

319

or even the high net worth space,

typically are all over this, right?

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And they've already navigated how

to work with their clients with

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traditional private placement

vehicles, so they have a path for that.

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Uh, for them, this advent of interval

fund and tender offer and private

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BDC, private REIT is maybe an easier,

more streamlined way to access for

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cer- for parts of their client base.

325

And so, uh, there's,

there's benefits there.

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But they're already very

attuned to the private market.

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They know how to talk about it.

328

They know what they're looking for.

329

I think the other side of this, though,

is that you have that whole swath of

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advisors who haven't used private markets

in the past, wealth managers who, you

331

know, maybe focus more on the mass

affluent space, have some high net worth

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or aspire to high net worth, and who see

an opportunity to i- if not differentiate

333

themselves, you know, certainly keep

pace with other advisors in that space.

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But I think it's also worth saying there's

also a whole swath of advisors, and I,

335

I think the move into wealth is gonna

be a slow burn because you, you know, a

336

lot of advisors are very cautious around

this too, as they should be, right?

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They need to think about, you know, kinda,

uh, how they're entering that space,

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how they're using these vehicles, who

they're using them for, uh, because, you

339

know, there, there obviously are risks,

and I know we'll, we'll talk- we'll

340

hit on those, uh, later in the podcast.

341

But advisors, you know, I talk to

advisors say, "Hey, look, I've,

342

I've been, you know, running

money for my clients for 20 years.

343

I've never had to use

private markets before.

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No- you know, I don't yet have a good

reason to think I have to do it now."

345

And so I think you're gonna have,

you're gonna have those advisors as

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well who, you know, are s- are gonna be,

m- uh, later movers, and that's fine.

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Ryan: Yeah, that's a very good point.

348

My-- I, I'm always on the side of,

caution or, like, being a little bit more

349

cautious in terms of doing something new.

350

It's like, let other people do it.

351

Let them test the system,

and then I'll, I'll follow.

352

But I feel as if, too, like for financial

advisors, it's so competitive to

353

distinguish themselves from others, they

kind of have to offer some of these new

354

products in order to say, "You know what?

355

It's more than just offering a basic

ETF where they can-- it's commoditized.

356

No, let's offer some of these semi-liquid

funds," which Dana, I'm gonna be honest

357

with you, I'm not a big fan of the

semi-liquid term for some of these.

358

Dana D'Auria: Yeah.

359

Yeah.

360

Ryan: interval funds, you

mentioned them already.

361

So let's go a little bit

more into interval funds and

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BDCs and tender offer funds.

363

What do financial advisors

need to know about these funds?

364

Yeah, maybe they are semi-liquid,

but are they liquid enough?

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Dana D'Auria: Yeah, I agree with you.

366

Um, because I think

semi-liquid, it's not…

367

You know, they're semi-liquid

because, you know, so for example,

368

an interval fund will redeem out

5% of its holdings once a quarter.

369

Uh, but, you know, they're for…

370

If you're, if you're sitting in an

interval fund and you're, you need

371

to withdraw money in a quarter where,

you know, there's not any dislocation

372

going on, maybe you get all the

money back that quarter, right?

373

Because it's redeeming out,

you know, 5% at the fund level.

374

If you're trying to redeem out when

there's a dislocation, it probably

375

goes to proration and you don't

get all of your money, you know.

376

You get some percentage of it, right?

377

And so it's gonna be illiquid

when the market is dislocated,

378

when there's worries.

379

You know, obviously we have the, um,

whole situation with private credit that's

380

been going on where there's concerns

about, you know, just the liquidity.

381

Not only the liquidity, but, uh,

because private credit had, you

382

know, a material software risk and AI

was, you know, disrupting software.

383

You had sort of this triggering event

for folks to be concerned with whether

384

the private credit fund that they were

in was gonna be able to be solvent.

385

And so, you know, just that cascading

kind of a, a market problem in a

386

particular asset class sent a lot of

people running for the exits, and if

387

everybody runs for the exits, you know,

that of course it goes to proration.

388

Now, the vehicles with the private

credit were more private BDCs

389

where, um, you know, there's

not necessarily a requirement.

390

There's, you know, sort of a, an

understanding and, you know, so

391

it, it depends on what the vehicle,

depends on the docs of the vehicle.

392

Um, you know, for example,

like a tender offer, you are…

393

Y- y- y- you…

394

The…

395

It's at the board's discretion whether

there's liquidity that quarter, right?

396

And so, you know, there's just, um,

there's a lot of different ways that

397

these funds can function, but to, to

hone in on your seminal point there,

398

semi-liquid is, should be considered

illiquid unless you're willing to

399

go back quarter after quarter after

quarter and, and wait some time, right?

400

So it's not liquid even in the sense

of certainly, you know, within a

401

year I can get all of my assets back.

402

Certainly not.

403

Ryan: Yeah, I agree, Dana, and it's--

it goes back and just adds more

404

to the plate of financial advisor.

405

You brought up private credit.

406

There's been so, so issues with private

credit, maybe over the past year,

407

a lot of conversations, is private

credit, is it a systematic issue?

408

Is it a bigger issue there?

409

And part of me, it's like all investing.

410

Yeah, there's gonna be issues in different

parts, uh, different segments of markets.

411

But personally, I think it's more of a

mismatch of, there's not the education,

412

not enough education for retail investors

to realize these are not liquid.

413

Even though it says they're

semi-liquid, they're not liquid.

414

And if you're gonna invest in these,

you gotta think five, 10 years down

415

the road, and I, I don't think there's

that education or awareness out there

416

because maybe the term semi-liquid.

417

Interval funds have a ticker.

418

When I say ticker, I

think of liquid, right?

419

And they're not.

420

And so to me, I think that issues

with private credit's more of

421

a mismatch and not like retail

investors really knowing that…

422

And now we've realized how

important liquidity is for

423

retail investors through this

424

Dana D'Auria: Yeah.

425

I, I absolutely, um, agree with you

that there's a, there's a s- there's

426

a strong element here of just, you

know, at the end of the day, selling

427

a product to somebody who's accustomed

to a public market experience.

428

And, you know, no matter how many

times the advisor may say that this

429

is the, these are the terms, and

hopefully they are doing that, right?

430

Uh, presumably they are, but it's

just, it just, you know, it's this…

431

It's kind of akin to when you ask

somebody their risk tolerance and

432

how much they can afford to lose, and

then they actually start losing it

433

and the market's crashing, and they're

like, "Get me the heck out," you know?

434

And, and, you know, as we know, you're

selling down when you do that, so it's

435

not a great, not a great thing to happen.

436

So I think much like an advisor feeling

out real risk tolerance, you've gotta

437

be able to feel out from that client

their real liquidity, or I should

438

say illiquidity tolerance, right?

439

Whether they're saying, "Oh, yeah, yeah,

I want access, you know, it's fine.

440

I understand it could get locked up."

441

Uh, do they really understand and

are they really a good candidate for

442

Ryan: Yeah, Dana, you're exactly correct.

443

And you really probably don't know

until it happens and you get to

444

that point, and then, you know,

it's too late and they're selling at

445

the worst time or need to get out.

446

So is illiquidity, do you think,

is that the biggest risk to

447

investing in private markets?

448

Or are there other risks that

maybe we don't think about enough?

449

Dana D'Auria: Yeah, illiquidity is

probably the biggest, uh, when it--

450

when you're talking about wealth assets

because I do think people just aren't

451

ready for that, you know, inability to

withdraw and fear, you know, watching,

452

watching maybe, uh, valuations in the

public side go down and they can't get…

453

You know, they feel their

money's trapped or…

454

And/or, you know, there, there was

just a, um, bad planning, right?

455

Or, or something happened that was

outside of the plan where they do

456

need the money and, um, you know, they

really can't afford to keep it there.

457

So I think that's probably

the single biggest one.

458

Uh, but there's other serious risks.

459

One is dispersion in returns.

460

You know, if you're providing private

market access through these vehicles and

461

you're thinking about the wealth audience

at large, uh, y- you know, the dispersion

462

in returns in a y- in a public market

asset class is, uh, demonstrably lower

463

than it is in the private markets, right?

464

Like multiples higher, meaning, uh, if I

get the best managers in private credit,

465

I'm going to significantly outperform

the worst managers, you know, over a

466

given period versus in public market

credit, there will absolutely be out

467

for performance and underperformance,

but it won't be that wide.

468

And so people are accustomed in public

markets, wealth, wealth clients are

469

accustomed and advisors to looking

at an asset class and saying, "Okay,

470

here's what this asset class returns."

471

Now, I re- recognize I'm doing some

active management here and, uh,

472

so and in private markets, it's

certainly active management in the

473

sense we're talking about it, right?

474

Whether where you're getting access

to certain securities or deals, right?

475

So, um, if you're used to the public

market experience, you might use that,

476

that class, so to speak, number in a

different way than you can really use

477

it in the private markets because that

number might be meaningless r- relative

478

to, you know, the particular holding.

479

So it just, it means there's a lot more

due diligence that has to be done on

480

the manager, on the fund, et cetera,

uh, that, you know, to feel comfortable

481

with what's the realistic bogey here.

482

I mean, if you're thinking you're

gonna get, you know- Yale endowment

483

or CalPERS return with these

vehicles, you're probably not, right?

484

Uh, but you may be able to, know, get

a-- get fifty basis points more than

485

in public markets and, you know, over

years, that's pretty significant, right?

486

And so as an advisor, it's certainly

worth kinda learning about that and

487

figuring out if it's a possibility,

uh, to get fifty, a hundred,

488

whatever it is, basis points more.

489

Uh, but you know, it's not a, it's

not an asset class thing where you

490

can just pick something from that

asset class and expect to get it.

491

The one last risk I'll say, um,

there, well, there's many risks,

492

but the one I-- another one I'd

highli-highlight is valuation risk

493

and just, you know, I mentioned it

before, but these are marks, right?

494

Uh, they're not, they're not public

market, you know, determinations

495

of what the value of something is.

496

And I think if you're, again, if

you're a wealth client or advisor,

497

you're just not used to that

498

Ryan: Yeah, that's a very good point.

499

I love that you brought up

the dispersion of returns.

500

You're exactly right.

501

In research I've done in public

markets, in managers, mutual funds,

502

ETFs, over time, like, yeah, there

might be a l- wide dispersion over

503

a year, but over five years, that

dispersion is pretty narrow, right?

504

But in public-- in private markets,

it's a completely different game.

505

You're exactly right, where due

diligence is so much more important.

506

But I'm assuming conducting due

diligence on a private manager

507

is a whole lot different than

just looking at Sharpe ratios and

508

information ratio on a, on a public…

509

So do you have any tips

there for financial advisors?

510

Or what do you think are the

most important aspects financial

511

advisors need to consider when

they're looking at different private

512

managers, private investments?

513

Is it one of those things, you know what?

514

I don't have specialty in,

let's let the specialists do it?

515

You know, any thoughts?

516

Dana D'Auria: Yeah.

517

Well, I do think there's something to

be said for letting a specialist do it.

518

If you as an advisor don't have any

experience in the space, you know, for

519

example, our Envestnet has a, a whole,

uh, interval fund investing platform.

520

We're, we're gonna be opening up a

tender offer, private BDC, private

521

REIT platform where you can add these

things to unified managed accounts.

522

And, um, we have also an in-house due

diligence where we will be publishing

523

sort of a qualitatively followed, if

you will, uh, set of, you know, kinda

524

cohort amongst those different offerings.

525

So I think, you know, offerings like that

where you have professional due diligence

526

overseeing some of this is very helpful.

527

It doesn't negate the advisor's

need to, to look at the suitability

528

and to understand the risks.

529

It doesn't mean that, you know, just

because something has a due diligence

530

check mark that it means that it's gonna

outperform or anything of the sort.

531

Uh, it's, in fact, usually the due

diligence is more about, okay, we

532

think this is acceptable risk that

you're, not, not no risk, you know,

533

but acceptable risk for what the,

what the asset class, uh, entails.

534

So I think that's a definite part of it.

535

I think, you know, there's, it's not

altogether, you know, different from

536

publics in that you wanna look at

history, you wanna look at the manager,

537

you wanna look at how well they've

done, what have their, know, what

538

have other funds that they've put out

in the space done in that space, how

539

might it be different from the private

placements given the fact that they do

540

have liquidity constraints, you know.

541

If they have to pay you out, they

can't be, you know, they can't

542

necessarily, uh, have deals that

require l- much longer duration.

543

For example, in private equity, you

see a lot of secondaries, right?

544

Because those are lower duration,

uh, than if you're starting, you

545

know, from the, from the get-go.

546

So it's, it's, it's a multi-pronged

effort, and I think, you know, some of

547

the basics that advisors are used to,

like looking at history, um, you know,

548

kinda looking at some of the modern

portfol- portfolio theory metrics,

549

you know, return, obviously standard

deviation, but recognizing also that

550

in the alt space, some of the other

metrics that you maybe don't pay as

551

much attention to, like the third and,

you know, so return first moment, you

552

know, risk, uh, standard deviation

second moment, but if I go to the third

553

and fourth where I'm thinking about how

fatter the tail is essentially, right?

554

Like, what's the skew on this?

555

What's the likelihood that I have a

really bad event versus, you know,

556

kinda just I, I sit in the standard

histogram, which I know Zephyr, uh, is

557

actually fantastic at, you know, kinda,

um, sorting out those kinds of metrics.

558

So th- so those are, um,

definitely places that I would

559

be thinking about as an advisor.

560

Ryan: Dana, I love it, hey,

that you brought up skewness,

561

kurtosis, all the things we love

about the return distribution

562

and the third and fourth moments.

563

I love it.

564

Dana D'Auria: In private markets,

it's all the more relevant,

565

Ryan: Yeah, but because

you're exactly right.

566

When in-- we talk about analytics, a lot

of times that return distribu- people are

567

like, "No, I don't wanna get into it."

568

You know?

569

And, and it is very important, right?

570

And to understand it and leveraging it.

571

Awesome.

572

One last thing, Dana,

and then I'll let you go.

573

Is there one final tip?

574

We've talked a lot

during this conversation.

575

It's been a fantastic conversation.

576

You shared a lot of great insight.

577

One final tip that you can share to

financial advisors who are looking to

578

incorporate private markets or private

investments in their client portfolios

579

Dana D'Auria: Yeah, uh

580

I would say avail yourself of the,

of the education that's out there.

581

There's a lot, right?

582

There, there are a lot of ways to get up

to speed on these, and, you know, it may

583

be counterintuitive based on, you know…

584

Like, what I'll say is a lot

of asset managers actually have

585

very good curriculum on this.

586

And I say counterintuitive

because you may be thinking,

587

"Well, that'll be a sales pitch."

588

But really, a lot of these asset

managers have actually put out pretty

589

unbiased and just, um, you know,

academic sort of work or, or, um,

590

I'll, I'll say modules and curriculums

to help get people up to speed.

591

The- they'll…

592

Y- you could absolutely get them to

give you the sales pitch, but they

593

also have a lot of content that's not

a sales pitch because they too have to

594

make sure that you actually understand

what you're getting here, right?

595

And, and, you know, so…

596

And I say that because maybe you don't

wanna pay for a Kaya or you don't wanna

597

go, you know, full bore into, you know,

one of those types of, um, instruments.

598

You can certainly, for free, get started

with one of these asset managers that

599

are gonna te- teach you all the basics.

600

They're gonna get, you know, a fair amount

of information across about just what are

601

these different asset classes, how do they

work, how do the vehicles work, et cetera.

602

And then you can decide, "Okay,

do I wanna take the next step?"

603

Most of the wealth managers will also

require you, before you buy one of

604

these instruments, to get through,

um, a certain level of education,

605

may require you to have very specific

education around the individual

606

vehicle, even in the semi-liquid space.

607

You know, certainly for

private placements, but even

608

in the semi-liquid space.

609

Um, there's some great books.

610

Um, Tony Davidow over at Franklin

Templeton has a really great book

611

on private markets that I recommend.

612

Again, you know, he's sorta…

613

It- it…

614

There's not a sales pitch there, right?

615

It's really just what are these good

for, what is the risk of these, how do I

616

think about these in a portfolio context.

617

So, you know, lots of education available.

618

Avail yourself of it.

619

Ryan: Dana, I think that's fantastic.

620

I'm big on education.

621

I think that's a great way of wrapping

this up, and probably what's most

622

important is the awareness, education.

623

It might come to a shock to some people,

I do do some research before conversations

624

I have, and you are exactly right.

625

There's a lot of firms out

there that do a lot of great

626

content that's not a sales pitch.

627

I leverage them a lot, so fantastic stuff.

628

Dana, thank you so much for

coming on the show again.

629

I love having you on, all the insights

you bring, always fun conversations.

630

Where can our audience get more

information about Investnet?

631

Dana D'Auria: Uh, so right on our

site and certainly, uh, advisors,

632

I, I welcome you to reach out.

633

We have a whole team, you

know, here at Envestnet.

634

You can go through the

website and get connected.

635

Tell you everything you ever wanted

to know about how to access these

636

tools, how to build a portfolio

with these tools, et cetera

637

Ryan: Awesome.

638

Thank you, Dana, and thank you everyone

for listening to this episode of

639

Zephyr's Adjusted for Risk podcast.

640

You can watch all of our other episodes

on the Zephyr YouTube channel and

641

Spotify, as well as all the other

locations you find your podcasts on.

642

Also, be sure to like and

subscribe to those channels and

643

give us a follow on LinkedIn.

644

Thank you very much, and have

a great rest of your week