Dialogue: Brant Maller

Brant Maller

Brant Maller is a veteran of the alternative investment space, having worked on behalf of private equity, real estate and hedge fund investors as a partner at law firm Pillsbury Winthrop Shaw Pittman in New York and served on a number of advisory boards for large public pension funds. Maller has in recent years ramped up the Alternative Investments Forum (AIF), a think tank designed to bring a higher level of education and skill to institutional investors with allocations to alternatives. Maller spoke recently with David Snow about the AIF, the concerns of LPs in today’s market, and why “alternatives” is a lousy term for the industry.

IN ONE SENTENCE, WHAT IS THE ALTERNATIVE INVESTMENT FORUM?
It is a think tank with a mission to promote sound and responsible investment in the alternative asset classes by institutional investors.
Before founding AIF, I went to some of the CIOs I know and said:  “I’m thinking of creating a think tank. What do you wish existed that doesn’t?” And what they told me was that they wanted a series of forums that were really small and really pure. They wanted a way to have discussions about what’s going on with their top managers, top consultants, leading academics and peers. Because otherwise these investors don’t communicate nearly as much as they should or would like to.

AIF is absolutely geared toward the investors. It is funded by dues from managers because that’s how the industry has typically financed think tanks, but we’re very careful about not allowing marketing. We will literally shut down the discussion if a participant starts talking about the performance of its last fund. No politicking, no speechifying. We also don’t allow press or service providers into our meetings. We try not to have more than 20 people at a time.

WHAT ARE YOU HEARING FROM THE LPS YOU MEET WITH?
The issues are very different now than they were before. I think asset allocation is a very big question now. LPs have told me that they feel many of the private equity GPs don’t understand the bigger picture and the mood of the LPs.

My perception is that private equity firms need to be better educated about the mood of the LPs. A number of the major GPs didn’t understand how bad the LPs were feeling it.

For example, in our January forum, the hedge fund community was reeling. For the real estate sector, the handwriting was on the wall. It was dark. Then you got into the private equity discussion. Some of the private equity managers were still talking about all the wonderful reasons why there should be more allocations to private equity, because vintage years that start in markets like this tend to have the best performance, etc. The CIOs were leaning over to me and saying, “These guys don’t get it. They don’t know what we’re experiencing when we go back to our offices and when we go to our boards.”

When we put people from a single asset class in the room, obviously many of the managers are hoping to see the allocation to their own asset class grow. But they’re talking to a CIO about a 5 percent slice. They need to understand what’s going on with the other 95 percent. So what we did for a large public plan CIO was to sit down with a top economist in the morning for a macroeconomic discussion. Then for about an hour, we did an LP-only session where all we did was talk about different ways of looking at overall allocation. Then lunch. At this point we’d talked about 95 percent of the portfolio. Only then did we sit down and talk about the private equity allocation.

IS THE LP COMMITMENT TO PRIVATE EQUITY HOLDING FIRM?
I think we’re seeing all the asset classes severely tested. The numerator effect, the denominator effect, all kinds of suspicions – you have all these challenges coming at you at once. My sense is that the professional investors are staying the course pretty well.  There is a sense that you can’t panic; you can’t get out of the asset class, because you still need to put your money somewhere. If you put all your money in cash or low-yielding fixed income, you’re only going to have a bigger funding deficit, unless you increase payroll contributions – which means increasing taxes.