After working as a consultant during the global financial crisis and holding various positions at investment management firms, Heather Fernstrom Border and her partner, Jennifer Stevens, launched Alliance Global Advisors. Alliance is a women-owned consulting firm focused on developing strategic solutions for real asset investment managers. Alliance provides an informed, independent perspective, plus continued education and an innovative approach to attract capital in a competitive market environment.

On this episode of Fund Flow, Heather joins host Jon Finger to share how Alliance works with clients, her predictions for major trends in the marketplace, and how giving back through mentorship can make all the difference.

Tune in to hear more from Heather about how Alliance Global Advisors is helping investment managers gain the competitive edge.

💡 Featured Guest 💡

Name: Heather Fernstrom Border

What she does: Heather is a co-founder and managing partner of Alliance Global Advisors. For more than two decades, Heather has been a real asset professional building deep Limited Partner and Consultant networks. 

Organization: Alliance Global Advisors

Connect: LinkedIn

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This podcast was recorded and is being made available by McGuireWoods for informational purposes only. By accessing this podcast, you acknowledge that McGuireWoods makes no warranty, guarantee, or representation as to the accuracy or sufficiency of the information featured in the podcast. The views, information, or opinions expressed during this podcast series are solely those of the individuals involved and do not necessarily reflect those of McGuireWoods. This podcast should not be used as a substitute for competent legal advice from a licensed professional attorney in your state and should not be construed as an offer to make or consider any investment or course of action. 

You are listening to Fund Flow, a podcast for emerging managers offering insights into the journey of new and aspiring fund managers seeking to have access in a crowded market. Tune in as McGuireWoods partner and host Jon Finger is joined by guests ranging from first-time fund managers to proven emerging managers, experienced LPs poised to back emerging managers, and other key participants in the emerging manager ecosystem. Hear their real world perspectives and gain actionable tips to help inform your strategy and position yourself for a successful fund closing.

Welcome to Fund Flow, a McGuireWoods podcast for emerging managers. I'm Jon Finger, and today we have Heather Fernstrom Border, co-founder and managing partner of Alliance Global Advisors. Heather and Alliance's additional co-founder, Jennifer Stevens, met while working at The Townsend Group starting in 2008 where they realized their shared professional and personal values and goals. Following their time at The Townsend Group, Heather and Jen maintained their friendship and found the chance to work with each other once more in 2020 when they formed Alliance Global Advisors. Alliance Global Advisors is a women-owned consulting firm focused on developing strategic solutions for real asset investment managers. Welcome, Heather. Thank you for joining us.

Absolutely. Thank you, Jon. Thank you for having me and showcasing Alliance Global Advisors on your podcast today. I look forward to this discussion.

Absolutely, likewise. So maybe we start, Heather, could you give us some insight into your career path and how it led to you wanting to form your own consulting firm?

Sure, no problem. So I started my career early days in banking and in finance and was always intrigued by commercial real estate is kind of by way of background and the way that I grew up. My mother was a financial advisor, my father was a developer here in southwest Florida, and I think that there was always some intrigue by the industry itself. So after pursuing my master's degree, I had a recommendation from one of my professors to pursue capital markets. Once I understood the dynamics of capital markets and the flow of capital, especially from these large institutional investors, I was very interested in trying to find a way to kind of get into this industry. I was fortunate enough to join an organization called Townsend Group back in 2008, so that was pre global financial crisis. During that time, Townsend was servicing a majority of the global state and steady pension funds and larger institutional investors. So for the purpose of this conversation, we'll refer to them as investors or LPs.

Throughout our time, and I'm using our as in myself and Jennifer Stevens, my business partner, our time at Alliance, we serviced a majority of these LPs and investors by way of working with the investment management community and providing investment based solutions for each of these investors. Really, I would say what led me to want to improve this industry and eventually starting my own organization was my experience through the GFC, so through the global financial crisis where I was representing several of these pension funds and reporting back to their board of directors, reporting back to their investment committee and staff and in several board meetings during the GFC where we had to make some very, very difficult strategic decisions on the portfolio level. We were going into these board meetings and we would have to present that these pension funds had lost up to 60% of their portfolio essentially overnight. It wasn't so much just only the losses, it was what to do coming out of the GFC.

So we had the pleasure of working with several of these investment managers, try to creating some workout scenarios. But unfortunately, we also had the experience of working with several managers who stopped picking up the phone calls, would essentially just stop reporting to the consultants and the investors. There was very little transparency in some of these private equity closed-end vehicles, the end open-end vehicles. And as a consultant and as an advisor to the investors, I just knew that going forward within our industry, there's got to be a way to do better.

So coming out of the GFC, I went on to raise capital for a variety of firms and went into various investment management organizations and built capital markets team. And then these conversations started with Jen probably in 2019 where we just haven't had continued conversations about how we can bring some additional insight and creativity within our industry. And that's one of the reasons we formed Alliance Global Advisors and we were lucky enough to launch on April 1st, 2020.

Outstanding timing. No doubt about it, it really leads into what the emerging manager community needs candidly with everything that's transpired the past few years. So as we've talked about, you and Jen both found shared professional values in your time working together at The Townsend Group. Could you talk more about what those values are and then importantly how you implement them at Alliance Global Advisors now?

Yeah, no problem, Jon. So we continue to see this void in the marketplace. And so there were several investment managers that were looking for guidance, that were looking for opinions of third party recommendations on how to form their organizations, how to launch new products at times, how to relaunch new products. What we found is there really wasn't an area within the industry that they could go to. So if they went to the investors and asked for feedback or went to the consultants and asked for feedback, those would be the same individuals or same team that would ultimately be performing due diligence on them as they were trying to ask for additional capital allocations in the futures maybe after their products were formed.

And so what Jen and I felt is that there needed to be a safe place for these managers to go to and ask for this guidance, ask for feedback, ask for very strict kind of insertion within the senior teams where they could go and the advisor could come in and act as an extension of team and help and guide these managers to a path where they were ultimately able to successfully raise capital from the institutional audience.

So that's really why Alliance was formed in 2020. Just to give you a little bit of perspective of our organization, so I mentioned we launched in 2020, we're going on our fourth year. We have been able to serve the investment management community by a way of a variety of focuses. So I would say one is organization assessment and strategic planning. That's really how to get from A to Z, whether it's a fund launch, whether it's a growing of AUM goals, rather it's maybe a new product or new strategic thought process of how to form a vehicle so that you could ultimately raise institutional capital. At times, it's like turning the ship and maybe going from the family office investor to the larger institutional investor and what that entails and how our clients need to see this roadmap forward.

I had mentioned the new product development is one big piece in which we're helping our clients. That can also go to product reformation if you will. So where they've maybe put a product in the market and it didn't do as well as they thought it would or the market changed, and so they kind of need to go back and look at where the market is today, look at where the investor appetite is today and where it's heading, and then maybe redesign the product out of its current form into something new and improved.

Another way we worked with our clients is on marketing and brand elevation. So essentially getting them stage ready for any of these institutional conferences, any podcasts, thought leadership pieces, try to grow their social media presence, try to showcase who they are and what they can achieve within the institutional marketplace. I would say by way of that brand elevation also comes a lot of professional development. So we have several clients that are looking to grow their capital markets team, looking to grow their portfolio management team and asset management team. And so we do a lot of training in what we reference is masterclasses. And so we go into the organization, we report back on reporting best practices, the way in which the institutional investor has evolved for the past 20 years and where we think it's heading.

Another way in which we service our clients is ESG and DE&I advising. So I would say a majority of this audience may know that ESG and DE&I is on the forefront of the investors' minds these days. They're looking to understand the organizations and how they're going to achieve near-term and long-term, ESG and DE&I goals, which will ultimately roll up to the investors' own ESG and DE&I goals.

So as I mentioned, we service our clients on a variety of ways. It's not a one size fits all approach. We really do act as an extension of team and extension of staff. We have 13 team members in our organization to date. So a lot of times we service our clients on that strategic planning and guidance, but then we're also there to put pen and paper and help craft policies and procedures, help craft roadmaps going forward, go in and rebrand organizations, update or create all external investor facing documents. And then we've also spent a lot of time within all the documents as our clients are building out their data room and improving their data room, and we kind of help them walk through next steps of what we think the investors will be asking for next within their own due diligence process.

That's super helpful and a great overview. I think two follow-up items, Heather. One, I'd really like to talk some about how you help your GP relationships effectively bridge the gap, if you will, between GPS and LPs. And then relatedly, because you've touched on a few different topics there, maybe understanding how, I know you have a varied set of value proposition offerings if you will, but maybe talk about how you work alongside placement agents. If an emerging manager has hired a placement agent to help with the fundraise, are there situations where you come in, like you alluded to brand management or otherwise? And maybe just talk about how that dynamic looks as well.

Sure, no problem. So I can guide the conversation a little bit more towards the emerging manager community. I would also like to clarify that we work with a variety of managers, small, mid-size, very large global allocators as well. To date, we've serviced clients with an AUM of about 550 billion. So what that really proves is that that void in the marketplace that we saw was actually prevalent and we were able to capture an audience there within that void. The smaller managers and the emerging managers are really looking for access, right? They don't know what they don't know. And so we really try to lead by way of education. So we share market insight, we share investor mentality intelligence.

Jen and I and our team are very embedded in the industry as we sit on a variety of panels. We attend a magnitude of the conferences. And so we try to bring that education and insight back into the investment managers shops. I think that's really important from the emerging manager capacity because you typically have less resources within an emerging manager. And so I think that by way of education, you can get everybody on the same page. So it's not just the capital markets team that is out driving the capital allocation and driving investor commitments. You really need the portfolio manager alongside within that roadshow. You really need the asset managers there as well explaining to the investors and explaining to the consultants what the vestment manager is really able to accomplish and why that they are the best within that area to accomplish that task on hand.

So when it comes to the emerging managers, I think a lot of it is to kind of get out the gate in this marketplace. It's a little bit of curbing expectations and really defining what it takes to be a best in class institutional investment manager. I think that once again, that education piece is so critical because it drives the ship to create short-term and long-term goals that are aligned with how we believe that the investors will respond.

Another piece of this I think that is really critical is that we educate our managers on the consultant community and the advisor community as well. So what does that mean? It means that there's a lot of consolidation going on within the consultant community to date. And the consultants that represent the investors, they have a lot of weight on their shoulders in the sense that there's typically 3,000 private equity funds being raised at any given time. So it's their job to go in and pick the brightest, the fastest, those managers with the strongest track records and bring those back to their investor base.

So Alliance essentially educates our investment manager clients on that consultant process. We go in once again by way of education and clarify the consultant's relationship within the investors' team and staff or possibly board. We share the internal processes that the consultants adhere to. And in every advisory and consultant shop it's very different. And so we think that that piece is very critical to the emerging manager landscape. In addition, you have a variety of these investors that have carved out their own emerging manager programs, but they're typically led or defined by an advisor as well. So we advise each of our emerging manager clients what programs are out there, how the programs have been active in the past, what they're looking for in the future, and then by way of process, how they're looking for an advisor and how they conduct their own due diligence when it comes to manager selection from the emerging manager community.

You've touched a little bit on it, what are some of the core hallmarks you look for in emerging managers to determine if they're a good fit for your firm? You obviously are not working with everyone just like we don't at McGuireWoods, right? What do you look for that makes you have the confidence that this is the right fit for both sides of the equation?

Yeah, I think the common denominator behind all of our clients is this motivated senior management team. A team that is ready to be vulnerable is to ready to be extremely transparent and ready to make some changes within their organization. It's fairly typical for us to start an engagement and the manager be very overwhelmed by the amount of information that we're bringing to the table and the amount of recommendations, the amount of work product that we're delivering. We need teams that are... Or I should say we are looking for teams that are dedicated to the advancement that have the time and the resources to make an alliance engagement a priority. I think that at this day and age, we're looking for some type of portable track record or some type of clarifying and defining investment strategy on why that manager can excel in today's marketplace.

And Jon, you mentioned a question regarding the placement agents previously. As many of our managers know, and I think it's pretty clear within the industry, is that in today's environment, the placement agents have been slowing down quite a bit, which assignments they're going to take. And they're becoming very, very specific and very selective on which managers that they want to work with. Where they're focusing their time is more so on the managers that have very deep operating expertise, very strong track records, and they're looking at the niche of the niche when it comes to property types. That being said, it creates an opportunity for Alliance to service these managers that the placement agents have decided not to work with in 2023 or 2024, and it provides a place where these managers can go to basically gear up and get ready so that when the capital starts moving, they're going to have a lake above their competitors.

So I appreciate you circling back on that question. As you think about what you and Jen offer, let's talk about how you really differentiate yourself from other less specialized consulting firms that work with the emerging manager community and that's suite. What do you think it really is that you bring to the table that's different from any other firm?

So I would say that by way of experience, it's by reputation within our industry. Jen and I have been dedicated to this industry for about 18 years and we've been able to service the investors, the investment managers. We've been advisors ourselves and kind of worked within the consulting world that represents the LP world. So we've been able to have this broad brush lens of the industry for over 18 years now, which I think has been very helpful to the organizations that we're working alongside.

We've also institutionalized this concept of an advisor to the investment managers where I would say our competition within this industry is very experienced professionals that have selected one or two shops that work like an advisory format, but we've really institutionalized a platform, grown our team to 13 individuals. We also work alongside a dedicated ESG and DE&I woman-owned advisory firm where we bring in their knowledge and their vast expertise into all of our engagements. So I really think that it's the depth of the knowledge, the exposure to the industry in a variety of ways. We are in the conference circuit at all times. As I mentioned, we're highly communicating with the LPs and the advisors and the consultants on a real-time basis. And I think just bringing that real time knowledge back to our clients is what makes the meaningful difference.

Yeah. And one of the things that, Heather, we really appreciated in building our relationship and learning more candidly about you and Jen and what you're growing, would you speak a little bit about Alliance Gives Back and how you and Jen advocate for mentorship within the investing community?

Yes. This is always my favorite. This is always my favorite topic to talk about. So when Jen and I formed... And I'll just be a little vulnerable myself here, but when Jen and I formed in 2020, we sat down and we started kind of carving out our goals. We decided collectively that our number one goal should be our charitable initiatives, not our net profits. I think by way of starting with charitable initiatives, we had set a target to commit to a variety of charities in 2020 as the world was a bit in question mark at that point in time and we felt that that's really where our priorities needed to be set. I think that by leading in that way, it's really amazing the types of mentorship opportunities that you attract by leading from that angle versus leading from a net profit or revenue goal angle.

And so we've been able to service now a variety of organizations. We sit on affinity groups within PREA and IREI. Jen sits on the PREA board. I'm on the governance committee of the PREA board. We have advisory relationships with IREI and a variety of other service providers within our organization. In addition, we are really dedicated to providing education and support to the next generation of talent. And so, we really spend a lot of time collaborating with many leading universities, and we do the training programs through our series of masterclasses. So we've spoken with DU, Duke, SMU, OSU, University of Florida. And so there's just been a variety of opportunities where we've had or we've come in and our team is giving back from a mentorship capability.

In addition, I personally sit on a board that's called Wellfit Girls. Wellfit Girls is here in southwest Florida. They are dedicated to enhancing mind, body and soul within middle school and high schoolers. And so that's where we spend some of the other Alliance charitable initiatives within Wellfit Girls and within the PREA foundation as well. So I think our charitable contributions to date are PREA Foundation, Wellfit Girls, Pelotonia, and Project OutReach is really where we spent most of our time.

Fantastic. Certainly a differentiator with you and what you're doing, so thank you for doing that.

Of course.

So talking about looking forward, you have extensive experience and partnership with the LP community. Can you share some insights into today's LP world and what expectations and what trends you're seeing from your LP relationships looking to engage with the GP community?

Yeah, so it'll be interesting. I don't know when this podcast can be released, but things are changing rather quickly around here lately, so I can speak of what we're seeing today, but don't hold me to the fire if things change around here.

Sure.

So I would say the trends that we're really seeing from the LP community is that the investors today have a very mature portfolio. So the investors have experienced the denominator effect, whereas real estate as an asset class, it has had a tip, has a run-up in values over the past few years. What has occurred there is, say an investor has a 9% target allocation to real estate. Well, with that run-up in values and the devaluing of other asset classes, that 9% maybe looks like 11% today. Now we're seeing some of these values come down, especially on the core open-end funds and some of these marks being taken on the value add funds as well. And so I think we are going to see a little bit of rebalancing. But investors are very much spending their time on the niche of the niche operators and less of the core diversified funds. And so we're kind of seeing that trend take place.

The other piece we're seeing is there's a lot of capital on the sidelines, but some of it has already been allocated. So the investors who made allocations the end of 2022 to date in 2023, the managers have been very patient in placing that capital. So a majority of it is sitting in unfunded commitments right now. That's one of the reasons why the investors are hesitant to make new commitments. In addition, some of these investors have redemption requests into these open-end queues, and there's not a lot of clarity as to when the open-end fund managers will be paying out their redemption requests.

And then there's another piece of it where the investors don't believe that all the marks have been taken or that the portfolios have been written down quite yet. So I think the investors are waiting to feel more comfortable from a valuation standpoint before they make their next investment and before they commit their next piece of capital.

I would say the other trend that's happening right now from an LPs perspective is there's not as many re-ups getting done. So in previous years, it would almost just be assumed that the investment manager could get a re-up from the investor. But now the investors are taking a very, very close look as they're rebalancing their portfolio and redefining their portfolio for the longterm of whether that re-up really matches up to any product or strategy that a new manager may be bringing to the table as well. So I don't think re-ups are assumed as they were previously.

So hopefully that kind of provides you a little bit of insight of how the investors are thinking. When they're looking to put their next dollar to work, I would say they're also looking for some opportunities in the marketplace. I've had a couple investors saying, "I'm not going to make a move until there's blood on the streets because I've pulled out some capital from the public markets. I was an early on redemption request investor, and so I was able to grab my capital out of that open and fund vehicle. And now I'm just waiting on the sidelines to see if some very serious opportunities arrive within this dislocation that's occurring within our market today."

That's great. Very helpful. Good insights on the LP side. I think maybe turning a little bit to the GP side of the equation. Working with the emerging manager community, what challenges do you see emerging managers struggle with the most when it comes to their strategy?

Yeah, so I'll just think of strategy of capital formation and launch. Is that really what we're thinking of, Jon?

Definitely.

Okay. Yeah. I would say that we are at this point in time where we have four to five of the larger global investment managers that are taking up 80% of the capital. So that doesn't leave a lot of room for success, especially when it comes to the emerging manager community. I would say what's most important is to have some form of portable track record the investors can look to see a history of success, and I would say once again a very motivated, dedicated senior management team, a team that is going to be extremely transparent.

The other piece that I would say that the emerging managers run up against is just like it's very, very expensive to launch an advisory. It's very expensive to launch a private equity vehicle. And it sometimes takes, I would say, fund three to fund four before you're essentially break even on your platform. So I think that having a manager that extremely patient, that's really trying to stay ahead the investor's expectations, that's trying to become very knowledgeable of their competitor set and where they believe that the investor mindset is headed, I think that that's always really important.

I think the other piece is the investors are really looking for managers that are sharp shooters. They're focused on operational expertise. What they're not looking for is a manager that is out there just to AUM gather, so asset gathering to drive up their AUM. They're not looking for managers that have a strategy drift, so when managers come out and say that they're going to execute on one strategy, but eight months later or 12 months later, they're executing on a very different strategy.

And then I would say that the other piece that the emerging managers have challenges in is meeting all the reporting expectations of the investors and the consultants. So it can be very difficult to keep up with all the due diligence requests. It can be very difficult to keep up with all of the reporting requests from the investors of the consultants even at the onset of a due diligence meeting.

So before you go meet with a consultant or before you go meet with an investor, it's a typical part of the process that you update your track record, that you submit a 40-page due diligence questionnaire, that you have all your marketing materials primed and ripe and your investment strategy clarified and then defined of how that you're able to prove yourself within this environment. I think just that whole process in general takes a lot of time and resources. I think that's where we see emerging managers especially fall flat. It's pretty typical to only get one shot within the investor community or the consultant community. And so if you go to that meeting and you show up with a B+ effort, it's unfortunately just not going to get you the next step of that due diligence process. You're not going to get in the door. It's going to be a "No, thank you" right off the bat.

And fortunately or unfortunately, the investors talk to one another, the consultants talk to one another. So if you are not showing your A game within that first meeting or your track record isn't primed and ready or your marketing materials or following short, the investors are kind of going to share that information with one another as well and it may be a while before you get another opportunity.

That's great. One final question, Heather, and we will be getting this podcast posted relatively soon, but pull out the crystal ball for me. Recognizing all the inherent challenges, we know what fundraising looks like now as compared to six months ago, but where do you see the market for emerging manager fundraises a year from now? How do you think that market is going to look next year?

Yeah, so what I would say is that I tend to look at this cycle versus the GFC and how the investors were looking at coming out of the GFC. One lesson learned that many investors have shared to date is that there wasn't a lot of focus on vintage year diversification coming out of the GFC. So investors got comfortable putting pencils down for a while and taking a time out of the volatile marketplace. I would say that mindset is very different in today's marketplace. The investor is highly focused on the advantages of vintage year diversification.

And so although we may be feeling a pause or we may be feeling some hesitancy from the investor community to date based on some of the reasons that I alluded to earlier on in this conversation, I would say that when the investors start getting comfortable and the markets start opening up, it's essentially going to be go time again. Those managers that haven't been putting in the work and those managers that haven't been investing in their shops and priming their organization to be most impactful to the investment investor community coming out of this, I think they're going to get left behind.

We have a lot of managers that we work with that have an understanding that capital may be very difficult to attract today, but that's not really changing their momentum internally. They're very focused on fine-tuning their investor facing materials, on fine-tuning their track record, on really honing in on their competitive set, on trying to articulate and clarify why their fee structures are in place and how that is ultimately beneficial for the investor and the consultant community.

So I would say that's one of the lessons learned. And really where I think we see this headed is that the capital will turn back on. And when it does, it's going to be probably more competitive than we've seen in the last 20 years. And so I would really advise those emerging managers to look within to spend this time really redefining your strategy, trying to understand your peer group, and then watching these organizations and these investors that are opening up these emerging manager platforms and are very much focused on continuing to allocate to some of these new managers and diversify their capital in that aspect as well. And educate yourselves on what they're looking to accomplish and try to educate yourself on why they've made these commitments to the previous managers, what were they attracted to. And you'll start to see some trends. I think once you understand the trends and once you understand and redefine your own organization, you'll really be able to set yourself up for success and be able to compete in a very, very competitive marketplace.

Outstanding. Thanks for humoring me with that, Heather. I think it's always great to get people's perspectives on what the future is going to hold. Well, thank you so much for joining me today on Fund Flow, sharing your insights with the emerging manager community, helping us learn more about what you and Jen offer. And thank you to our listeners for joining us on this latest episode of Fund Flow. We hope you join us again next time.

Thank you for joining us on this episode of Fund Flow. To learn more about today's discussion, please email host Jon Finger at jfinger@mcguirewoods.com. We look forward to hearing from you.

This series was recorded and is being made available by McGuireWoods for informational purposes only. By accessing this series, you acknowledge that McGuireWoods makes no warranty guarantee or representation as to the accuracy or sufficiency of the information featured in this installment. The views, information, or opinions expressed are solely those of the individuals involved and do not necessarily reflect those of McGuireWoods. This series should not be used as a substitute for competent legal advice from a licensed professional attorney in your state and should not be construed as an offer to make or consider any investment or course of action.