In this episode, host Ben Fraser interviews Andy Hagans for our Passive Investor Spotlight series. Andy Hagans is founder of WealthChannel and host of “The Alternative Investment Podcast”. Hear Andy’s fascinating story and his journey as a serial entrepreneur to successfully exiting multiple businesses, and to his quest to understand alternative investments. You’re not going to want to miss this episode!
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Ben Fraser: Hello, future billionaires. Welcome back to another exciting episode of Invest Like a Billionaire podcast. I’m your host, Ben Fraser, and today we have a guest, Andy Hagans of the Wealth Channel. And this is a really fun interview. So if you’ve been following the show for a little bit, you know that every once in a while we have a different segment that we’ll do called The Passive Investor Spotlight Series.
And in this segment that we do in the show, We bring on a successful investor and we interview them and ask them all the questions that we’re all curious about, right? What are your biggest successes? What are your biggest challenges and failures as an investor? How did you get into alternative investing?
And what does your portfolio look like and how do you look at risk and return? And are you focused on income or growth? And so we dive into all these different questions and really the story of Andy, who is a serial entrepreneur who has started and sold. Several businesses. And so he’s a successful entrepreneur that has exited multiple businesses and has really transitioned into full-time investor as well.
And he runs a really cool community and a podcast called Wealth Channel and the Alternative Investor Podcast. And so you definitely wanna check out this episode. Andy’s got a lot of great thoughts, really cool story, and we really dive in probably in a way he’s never shared before in kind of his personal approach to investing especially in alternatives and Real estate and private equity venture, all this kind of things.
So really cool stuff. You definitely wanna tune in for this episode and hope you enjoy.
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Welcome back to another episode of the Invest Like a Billionaire podcast. I’m super excited for today’s guest to be joining us. Andy Hagans. Andy is the co-founder of Wealth Channel which is a leading community for high net worth individuals. We’re looking at place capital and alternative investments.
And it sounds similar what we’re doing. And the other cool thing is he runs a podcast called The Alternative Investor podcast. And just really a thought leader in this space of alternative investing. And just super excited to have him on and wanted him to share his story. So we’re gonna do a passive investor spotlight.
So this segment of the podcast we focus on talking with other passive investors and their journey into getting into alternatives, what they’re currently doing right now. And Andy has a cool story like a lot of you listeners, to where he was a business owner grew that business and eventually sold it and had a liquidity event.
And then he tried to create, turn that cash into cashflow and to protect it, to grow it. And a challenge that a lot of people that are newer to the alternative investment space have. I’m gonna shut up. I’m gonna let Andy take it from here. Andy, thanks so much for coming on, man.
Andy Hagans: It’s my pleasure. I’ve listened to your guys’ show for a long time, so it’s it’s awesome to finally be a guest on it.
Ben Fraser: Hey, this is super fun. I was just a guest on your show a few weeks ago, which was really fun. And obviously there’s just a whole lot of overlap and what we’re trying to do, educate around this whole unique space of alternative investments.
So I just love what you’re doing and before we get into that, cause I definitely wanna spend time talking about, your communities you’ve been building the education you’re doing, which is so cool. But talk about, Go back 10 years, 15 years, from the beginning of, starting your business.
What did that take? You eventually sold your business, had an exit. So just give us some background, give us the story here.
Andy Hagans: Yeah. I just turned 40, so I actually got a, I have to go back 19 years. So my business partner Jimmy, who’s his co-founder at Wealth Channel we are both serial entrepreneurs and we were college roommates at the University of Notre Dame.
And we, both of our dads were entrepreneurs, were business owners, so maybe it’s, in our blood or whatever. We started a little internet marketing business in our dorm room. Didn’t make much money by the way, made a little pocket change, but it doesn’t take much to be exciting,
Ben Fraser: but so 19 years ago, this was early two thousands, which this is probably after the tech wreck, right? So the internet had a heyday, then it was, blacklisted and, but then it started to have its resurgence. You’re coming at the early kind of wave of that, right?
Andy Hagans: E, exactly. And it really was like the wild west, you could throw up a website.
And be Rankin number one on Google for a keyword like a month later. It was just, it was so different. And I remember even, it was probably a couple years later when YouTube came out and I was like that’s a really stupid name. Who would ever go to that site? YouTube, so yeah, it was totally different world and that first business.
It made a little money. It wasn’t, super successful, but we got a taste.
Ben Fraser: And what was your pitch? Internet marketing. But what were you trying to do? Cuz that was such the early stages of internet marketing. It was like, Hey, we trying to help you rank better on Google? Or do you even know what like search engines were or what was your pitch.
Andy Hagans: Yeah, exactly. So I, eventually, Jimmy and I, we were experimenting with blogs and then I eventually set up a little agency. And worked for clients and made a little more cash that way. But our first big hit, so to speak, was in lead generation where we were publishing content and generating leads for other companies in the education space.
And so we built that company up, over a period of years. Not that many years to be honest, cuz like I said, it was a different world then. In a lot of respects it was easier cause there were just fewer people. Publishers, internet marketers, they were just less competition. And we were able to build that business up and sell it to a private equity group or I should say a strategic buyer who was private equity backed.
So that was our first liquidity event. And it gave us a taste. And you buy all the books, I, we bought like the Bogleheads books and that was actually I, my introduction to alternative investments cuz I bought Meb Faber’s book called the Ivy Portfolio. Which kind of planted the seed.
I’ll return to this that later, but I planted my seed. I was like, wow, people are really investing in like timber and, private credit. All this stuff I didn’t really understand, but I thought it was cool. But I ended up just doing like normal s and p 500, aggregate bond funds, that kind of thing with my kind of initial round of investing.
Ben Fraser: And so what was that first exit kind of life-changing money? You could have retired at that point, or was it was enough to be meaningful, but wanted to go back at it?
Andy Hagans: The latter. Yeah. It wasn’t enough to retire off of, when you’re in your twenties and you have an exit and you’re like I can go buy a house now and pay cash.
Like in a way it is life changing, right? Because sure. It gi it gives you the ability to say I can’t retire, but. I can go work on another business now for a whole year. Yeah. And wi without earning any other income. And so it does give you some freedom to take more risk. And I didn’t have any kids at that point, so we were just like, let’s go build some more businesses,
Ben Fraser: so that, that’s what you did then, right? You went and started some other businesses?
Andy Hagans: Yeah. And man, Jimmy and I have done a ton over the years, but. Officially we ended up building and exiting four different businesses throughout about a decade long period after college.
Two of the other ones that we built were also lead generation companies, and then we also started, this was around 2009. We started it was another website, an internet publisher called E T F Database. And that was right around the second wave of e, the E T f boom, I guess I would call it.
I don’t know. I’m sure most of your listeners are familiar with exchange traded funds. Yeah. At this point they’re very mainstream, but back then, in 2009 they were the new kid on the block competing with mutual funds still. They weren’t really novel, but They were really gaining assets, tremendous assets year over year.
Like the growth in the ETF industry was enormous. And we really benefited from that because we were publishing content. We were we were categorizing all of the funds in our own database, and we had this screener that allowed people to go to our website and they could screen through all these funds based on whatever criteria.
And at one point in time, we were arguably the largest. ETF centric publisher in the United States. Wow, very cool. So yeah. So we built that up to a good size, but then again, we sold it and like looking back, like honestly, maybe we shouldn’t have because. The company we sold it to, it merged with another E T F publisher, and then it grew and grew, and then it, then they exited to Urian.
And so now there’s this huge E t F business. Wow. That I own one, 100th of a percent of, I guess we got some stock in the exit but Jimmy and I is we had this pattern where we would get an idea, start a business. Grow it, scale it and sell it. And for me that is part of the fun.
Like I like to start things. I like to launch things, I like to grow things. But what we realized, and it took me a long time to learn this lesson, so I’m a slow learner, is you exit a business at seven x or 10 x earnings and then you turn around and you look at the bond fund. Yielding, what, 4% or 5%?
And you’re like wait a minute, that’s like a 20 x multiple. Or the s and p, the the PE ratio of the s and p is 18, 19, 20, 21, whatever it is. And you’re going, wait a minute. I just realized I traded this larger earnings stream into a smaller earning stream, and I You got the liquidity.
Yeah. And that was the aha moment. And by the way, I still, own ETFs. I still own publicly traded stocks and bonds, but I realized over time that, the private equity, entrepreneurship, alternative investment, that world just has more potential.
Ben Fraser: Alright, so Annie, lemme just pause you there. I wanna put a pin in this, cause this is a really important concept that I think I wanna make sure our listeners are getting this is a pretty big aha moment. So what you’re saying so theoretically say your businesses generate a million dollars of EBITDA per year, so net income, before interest, taxes, all that stuff.
You could sell that to a private equity or strategic buyer for about a seven to 10 x multiple of those earnings. So that’s anywhere from a seven to 10 million purchase price for that 1 million cashflow stream. And I actually price that probably on the high end, of what I’ve seen.
Cause I used to be in m and a transactions when I was a banker back in the day. And a lot of it depends on the type of business you’re in, but yeah that’s a good multiple. But then what you’re saying is if you use that same approach, it’s called a price to earnings ratio. Right?
Which people have heard the PE ratio. What’s the PE of, the whole basket of s and p 500, it’s about 18 times. So for that 1 million of earnings, you’re now paying 18 million versus seven to 10 million. And so you’re thinking, wow. I’m taking the money that I just generated this multiple on, I’m investing it into companies at about 50%, more expensive.
Or a hundred percent more expensive to get the same amount of earnings being generated. And so that’s where you’re like, oh man, I need to think more about what’s this alternative investment landscape? What is, what can you invest in at maybe better values? So I’ll hand it back to you.
What was that next. Layer of yeah. Yeah.
Andy Hagans: And just to hammer that home Ben, to, to use your example, let’s say you had a private business earning a million a year and you sold it for seven x multiple 7 million bucks. If you pay 15 or 20% capital gains I think 20% long-term capital gains rate, now it’s less than 6 million.
And then if you. Have to go and pay 20 x in the stock market for earnings. I’m not perfect at math here, but I think you just traded like a $1 million a year income stream for a $300,000 a year income stream. It’s once you factor in the transaction costs and taxes, sure it can be even more dramatic.
Now, I will say, when you are a business owner, if all your net worth is tied up in, in one business, There can still be value to say, even though I know that the income stream will be going down, I’ll have liquidity, I’ll have diversification. So I wouldn’t exactly say that I regret any of the liquidity events.
Maybe. But there’s just, there’s a part of me that kind of knows maybe financially that didn’t make the most sense. You know what I mean?
Ben Fraser: Yeah, no, that makes sense. But to your point, you’re now getting more diversification, to grow a business, to scale something, you have to have a lot of focus on that one business, that one asset, and you’re taking risk doing that, even if you’re doing it unknowingly.
But then when you have a liquidity event, you can diversify that, which is principle tenet of preserving wealth is diversification. So yeah, I, I see what you’re saying, but more from an to a passive. Earn in that standpoint. So you have less risk. You don’t have to grow the business.
Worry about employees, worry about, inflation, other things, and you can be passive. But it is an interesting, thought experiment to run through. What did I just trade for? And we’ve talked about this in our podcast before, that, that delta between those two is generally called the liquidity premium.
So basically the publicly traded stocks trade for a higher multiple because. They’re actively traded. You could go buy Amazon in the morning. You could sell Amazon later that day. There’s a market for that. And because of that ability to have liquidity, you’re paying a premium for that. But the argument is the premium worth that big of a delta?
And that’s where I think the disconnect sometimes happens. And real estate’s a great example of that. We’ve talked about this many times, but. Like when you’re investing in REITs, for example, real estate investment trusts, there’s some advantages to doing that because you have liquidity.
You can make moves and position your portfolio a lot quicker than investing directly into real estate. But generally you’re investing at price to book ratios. Over one. So price to book is similar to price to earnings, except your denominator is now the book value of the asset. So the market value of what you’re buying relative to what you’re paying for that.
So if you invest, say in a real estate syndication, you know there’s probably a little bit of fees or some other things, but you’re pretty close to one, you a hundred thousand dollars investment buys you about a hundred thousand dollars of real estate. And you know these changes all the time, but what we’ve seen recently on average of kind of some of the bigger REITs, they trade over from a three to say seven plus X price to book.
So say it’s, a five is on the average, that a hundred thousand dollars now is only buying you really $20,000 of real estate. And the rest of that. Is liquidity premium, right? With the premium you’re paying to have liquidity if you need it. So not to go too much on a diatribe there, but I think it’s such an important concept to understand why these alternative investments can be very attractive if you’re willing to give up some of that liquidity premium.
So you made the point, Hey, I’m not a hundred percent in alternatives and private alternatives. I still have some public because there’s advantages to that, but. The average high net worth individual is mostly all in public, and they’re not diversified into alternatives. So any other thoughts on that?
Andy Hagans: Ben, it’s interesting that you mentioned the liquidity premium. I’ve made this joke on my podcast a couple of times. It’s a dad joke, but my idea, and I’m not a fund manager, I’m not an investment sponsor or anything like that, but I have a product idea and this all stems from, there’s this huge liquidity premium as you pointed out.
Both with real estate products, but also just between private equity and the stock market. Huge liquidity premium, but a, statistically the vast majority of investors. Make behavioral mistakes, right? And liquidity can be their worst enemy. Like they’re paying a premium for that liquidity.
But then if you look at their behavior, investors tend to buy high and sell low. So my dad joke, my idea for a product is a’s gonna be an illiquid private equity fund with a 10 year, 10 year hold, no liquidity. It’s gonna charge 50 basis points of fees. It’s just gonna buy and hold the s and p. Because a lot of inve, honestly, a lot of investors, if they bought that, would still be better off than if they were owning like S P Y or an s and P ETF or index fund because of that behavioral challenge.
So as you point out, investors are paying so much for the liquidity, which number one, that liquidity is oftentimes their worst enemy. And again, statistically, if you’re listening to this, you might be the one in a hundred, the two in a hundred, whatever temperament. That truly, can be greedy when others are fearful or fearful when others are, but most of us aren’t, right?
When most of us panic when the market draws down by 40%. So it’s like you’re paying for this liquidity that oftentimes doesn’t help you. And then another question is, how much liquidity do you really need, right? If you’re a high net worth individual and let’s say, you’ve built up a 5 million portfolio, And you own your home, with no mortgage you paid off your mortgage.
How much of that really needs to be liquid? They talk about when you’re first getting started, like in your early twenties, build up an emergency fund, right? Because you never want to be maxing out credit cards and paying 19% interest rate. That’s smart, right? To keep three to six months. Or if you’re very conservative, nine months, maybe even 12 months in, in money market or whatever, just as that cushion.
But you don’t need like 20 years of living expenses liquid. That’s crazy. You just don’t need it. So I think just acknowledging that, again, that’s an aha moment that I had and I think a lot of people really never have this moment. You don’t need most of your portfolio to be liquid, beyond the cash that you’re gonna need to access in the next 1, 3, 5 years.
Like sure, keep that liquid. But most likely, if you’re a high net worth individual listening to this, you can afford to put a substantial portion of your portfolio into illiquid investments. It doesn’t mean you need to or that you need to do a certain percent, it’s just that concept that it’s okay to be illiquid.
Ben Fraser: Yeah, that’s some really good points. Cause I think you, you would think the liquidity premium is to your advantage, but because. We’re humans and we’re emotional and we act as a herd a lot of times. It actually hurts us more. It’s so contrary to what you think the benefit is and we all need liquidity.
But there’s a great research study done by Bain and Company several years back to where they looked at a lot of investors. I got family offices and also high net worth and basically, Did the estimates that they had for liquidity, was it accurate? And by and large it was inordinately way higher than they actually ended up needing, through multiple ups and down cycles.
People by nature just think you need more liquidity than you actually do, and so by. Investing in the private equity, in the alternative investment space, you can, protect yourself from those emotional mistakes, get better diversification and likely better returns because you’re not paying as much for that liquidity.
You’re paying, you have the illiquidity now. So what was some of that kind of first transition into kind of getting into the investment side of it? And it, actually, before I get there, I didn’t know the question on the liquidity. What’s your, and this is again, personal, if you don’t wanna share, you don’t have to in.
You give all the caveats you want for everyone else, but how do you view your personal liquidity? Do you have a hard line I wanna have nine months of, living expenses just in cash at all times where I wanna have X percent in liquid, public equities or bonds, or how do you think about your own personal liquidity?
I think just. Again, this is what your own decision is, but it’s helpful for people to understand how someone like you thinks about it’s been successful.
Andy Hagans: Yeah. That’s a good question. I don’t know that I have a hard and fast rule, but I would say as an entrepreneur, as someone who’s self-employed, if I had less than one year’s living expenses in liquid fun, that I would get nervous.
For sure. Yeah. And maybe I do have a rule, it’s just I don’t know that I’ve ever been like close to that minimum where I really started getting nervous or whatever. But I think that, cuz again, when you’re in your early twenties, I think having a three month emergency fund or six month emergency fund is great, but at a certain point it’s hey, make sure you’re maxing out your 401k or your ira, right?
So you kinda gotta balance these things. So I also think personally, there, you pay a penalty. Like I’ve been conditioned to think I don’t want too much in cash or cash like instruments because it’s shrinking in real terms every year in terms of its value, right? Because of inflation.
And now, money market funds are paying more in the last 12 months, but like my whole investment career really the past, whatever, 18 years. To me, that’s an aberration, right? I’m used to money markets paying basically zero. And so I also have that mindset. I don’t want too much to be liquid.
Like I, I wanna play offense, right? I want to be getting 6, 7, 8, 9, 10, 12, 14% annual returns. Depending on what bucket in my portfolio. It might be bonds, it might be stocks, it might be private equity, it might be real estate. I want it all to blend together. And generating an 8% or 9% annual return.
So I, I feel like I can’t have too much that is truly liquid, like in a money market or something.
Ben Fraser: Love that. So go back to the other question that I redirected from, but what was your first kind of foray into the alternative investment space? Was it buying businesses like private equity or was it real estate, or how did you make that first?
Investment into it.
Andy Hagans: So it was definitely with angel investing and I would almost call it micro private equity. And I think it’s just because, and I see this all the time, like with family offices, with other investors, they make their money in real estate and then they invest in other real estate deals.
I was an entrepreneur, so I felt like internet businesses, lead generation financial publishing these businesses. I understand. So I feel comfortable doing angel investments, investing in other entrepreneurs. I did my first private equity deal. I would call it, I would define it as micro private equity, where, I’m doing a partial buyout of a business and kind of what I’ve, I used to look at it like either you’re the entrepreneur, you’re, or the gp, you’re running the business, or you’re an LP and you’re just totally passive.
There is some gray area in here, and actually that’s where I got my start was in the gray area, which is I’m gonna invest in a business, almost like an lp, but I might be a, a. Like a strategic partner, someone who can maybe give some advice or connections or help the business.
That’s what angel investing or micro private equity is to me at least. And one of those investments did very well for me and wet my appetite, and it really hammered home. And by the way, I should also mention some of my angel investments ended up with zero.
So then that spectrum of investing of alternatives, venture capital and angel and micro private equity, you do have to understand it’s much higher risk. But then the stuff that works out, like my very best investment, I think the payback period was maybe four years, four and a half years.
And then since that time, it’s grown. And it’s just like playing with house money. And for me it’s, one of my biggest holdings in my portfolio, so it’s riskier, but for me it’s a lot of fun. And as an entrepreneur, that’s the first thing I was attracted to. And it was only later that I even opened my mind to the possibility of real estate, funnily enough.
Ben Fraser: I love that though. It’s so refreshing because a lot of our listeners, and me included, I. Come from the real estate side of things. And so the natural thought and the comfort zone is just investing more real estate. But I love hearing the private equity stuff. I’ve invested a little bit in venture and myself, but it’s something that’s more just fun.
I don’t really, I don’t really know what I’m doing. I got an b a and, used to be a banker and underwritten businesses, but it’s still, it’s a whole other world. And to your point, it’s a different you’re taking different risks. But the upside is so much higher, like on a real estate deal, a 20% i r is insane.
On a good real estate deal, a 20% IRR on an angel investment’s a ho-hum, because it’s good. It’s a single, it’s a double, maybe it’s a single, a double, but you want the a hundred x, right? You want the thousand percent return, the 5,000. And so it’s a very different way you think about it, but those winners, For the one winner, probably paid for all your losses and then some, so you’re actually net ahead. But a again, it’s a different risk reward, tradeoff you’re making
Andy Hagans: E exactly. And so that, that was really my entryway. And I think for a lot of people, I see this with frankly, almost every LP when they first get into alternative investments. It’s like they don’t buy a broad basket.
Okay, I’ll put, I’ll have an ALTA allocation and I’ll put 30% of real estate and 10% private credit and 20% in venture or whatever. They usually just start with one sector asset class that they already have passion for or, understanding of. And sometimes that’s they never even go beyond that, which is fine, it’s their money, but it’s interesting to me.
Because when people invest in, in the stock market, a lot of times they’ll buy s p y or an index fund or whatever. They don’t just invest in I really know a lot about food cuz I’m a chef, so I’m just gonna buy these food stocks. Or, you buy the broad basket. But with alternatives it’s very different, and I think that’s part of the reason is that alternatives are just more opaque. They’re harder to understand. I call myself an expert and I’m making quotation marks with my fingers right now for people listening to the auto version. Cause it’s almost it’s almost impossible to be an expert in alternative investments.
It I feel like by hosting the show and by talking to as many people as I do, it allows me to see the whole landscape. But then if you zoom in on any one asset class or product type, you quickly realize okay, now I need the real expert. Most people barely even know what private credit is.
But once you decide, okay, I wanna invest in private credit, like you’re gonna there’s a learning curve to really being able to understand each of these asset classes.
Ben Fraser: I love that. It is so cool to hear kinda the evolution too of how you’ve even viewed your portfolio, because I feel like a lot of investors, and it’s not a fault of anybody because it’s, I think just how you get into it where.
You start doing your first deal, do another deal. And it’s I’ve called it on the podcast before, just the sock drawer investments, right? You just they all end up in there. It’s a big pile of, I like this one that day and this one that day. And eventually you take that back wow, these are all things I’ve invested in, but there’s been no strategy behind, Am I diversifying across asset classes?
Am I diversifying against geographies? Am I diversifying, in different strategies within the a there’s a whole multi-layered approach to portfolio allocation. I think that’s where a lot of people can level up a little bit, is understanding, cause especially like I asked you in the real estate world, the syndication boom over the past five to seven years is just, It’s gone nuts, right?
Everyone is a multifamily syndicator now, and so most people have invested mostly in multifamily, but we’re seeing right now, where we stand today in mid 2023 multifamily is, having some challenges. And if you have a large portion of your portfolio and in your alternative portfolio in multifamily, that’s a risk that you’re taking.
Maybe you weren’t even realizing this, so how have you. What’s your portfolio look like today? Just kinda from a broad standpoint of public versus private at different asset class types? Are you still pretty skewed to the, angel private equity stuff? Have you done real estate? Tell me kinda what your broad allocation kind of looks like now.
Andy Hagans: Yeah good question. And honestly it’s almost, you’re putting me on the spot. I’m like geez, I have to I have to value or evaluate some of these private holdings, which might be, it’s hard to do that precisely sometimes with a privately owned business. But I would say as time goes on, I still believe in stocks.
I still even believe in B bonds, believe it or not. If you think back to 2008, 2009, the financial crisis, even just having some ballast. In your portfolio, then number one can help you withstand the psychological shock of a 50%, 40, 50% draw down Yep. In the stock market. And then it can also give you that opportunity to, By the dip, you can rebalance.
And I still believe, I’m not a, I don’t love bonds or anything. It’s like I, but I respect that they, I still think they have a place in most investors portfolios. So I own some stocks
Ben Fraser: And probably to your point right now when yields are a lot higher, one, they’re more attractive.
And two, if you believe yields go down over the next five to 10 years, That, has an inverse correlation to price. So you’ll likely have a certain appreciation and, if you hold to maturity. It’s an interesting time to be revalued in bonds specifically, but I, it’s a great point.
What would you say to set a broad level public versus private allocation? Or is it 50 50? Is it 70 30?
Andy Hagans: It’s not quite 50 50, it’s just, it’s, but it’s been moving there. Over the past, let’s say three to five years, it’s been slowly moving more towards 50 50 public, private. And, things this year for me have slowed down in terms of reallocating because I’m looking for value and I was investing, I’ve been investing more in real estate in the past couple of years, and I made a couple investments that I still feel good about.
Even at, the higher price levels of a couple years ago. But I’m having a hard time finding a lot of value in real estate right now, if I can be honest with you, Ben. But it’s, but it’s hard to find value in a lot of places because my, this is my personal opinion. So let me just editorialize for a minute.
With interest rates being higher, right? To me, valuations need to correct, and in some cases I don’t think they’ve corrected enough. To compensate for the fact that interest rates are higher. This is how I feel. So I’m I’m in a little bit of a holding pattern where I’m happy with what the investments I’ve made, and I have a little bit of dry powder, and I’m like looking for the next deal, the next opportunity.
And I think a lot of investors, a lot of family offices feel the same way. I think there’s a lot of wait and see going on right now. Private credit is one example. That’s an asset class that has been around forever. Obviously it’s, but it’s one I’ve heard more about. Even within the world of alternative investments, I’ve heard more about private credit.
In the past, nine to 12 months than I really had been hearing about previously and some family offices. And these are, ultra high net worth investors with, net worth of a hundred million, 200 million and more. They’re even tactically allocating to private credit and it’s not even a normal part of their portfolios, right?
But they’re just, because not only the bond market, as you pointed out, the yields there are better, there might be future appreciation in the bond market with private credit. There’s also a spread above what bonds are yielding. And so I think a lot of investors are saying, you know what?
I’m happy to earn seven or eight or 9% and just wait and see. So I’ve been slowly shifting more of my portfolio into private, and it’s fun. Like for me, it’s also enjoyable, to look at different offerings, to be n LP in different funds. So at this point in time I’m looking forward to what’s next?
And when it comes to the economy, I don’t want to say I’m not cheerleading for a recession don’t get me wrong, but a little bit of disruption can be a good thing, right? Like I I kinda wanna see some repricing in really just in any sector.
Ben Fraser: Yeah, no great thoughts and I appreciate the your sentiment and just what you’re seeing cuz you’re out there too, talking with a lot of investors and, sophisticated investors and hearing what, what’s going on.
I would make one kind of counterpoint, and not because I am biased, but I am biased. Two, real estate. I think timing matters. I think interest rates. Are going to push valuations lower cuz they’re, there’s an divorce correlation between yield and your debt cost and your price. But I do think in, in certain real estate asset classes, there’s fundamental supply shortages that will bear out over the next three to five years.
That are still gonna be there. And there’s still gonna be a lot of demand. Multifamily, I think it’s right now re you know, it’s being repriced. And to an earlier point, the private markets generally lag public markets and revaluations. And so we’re seeing that start to come to head.
We’re the same point. I think there’s still some. It’s an interesting time to be an investor and to be a buyer because if you can find the right strategies, I think they’ll actually play out to be in a good position. And so I think I share on your podcast, we’re shifting to more to development projects.
Right now it seems to be contradictory to what if we do go into a potential recession, but I actually think the risk adjuster returns are such that it, it makes more sense to do that than even value. Add other things right now and not to get the whole. It’s not of that, that, that thought process, but I totally hear what you’re saying.
And I, I definitely have heard a lot of private credit. Had a guy in the podcast the other day, is a private credit platform and they’re just blowing up right now. And it’s very interesting. You mentioned this a little bit ago, and I’d love to maybe break down a little, maybe you don’t have again, a kind of clear cut strategy, but you said you have different target returns for different.
Portions of your portfolio, right? So you slice it between public and private, but then maybe some other layers of, how much do you wanna invest in just income producing core plus type investments versus how much do you allocating to the angel, versus how much kinda that mid range of what kind of returns are you getting?
And then you blended, you said it’s about eight to 9%, which I think is a great tar target return for a whole portfolio. But how much do you tease out the nuance into that? Or is it just, you feel it as you go and reevaluate the overall allocation over time?
Andy Hagans: Yeah, that’s a good question. If, if I’m being honest, I’m probably not as organized with that kind of information as I should be but I will say this, That with, the public investments that I own. I try to have those inside tax advantage accounts as much as I can.
But eventually you run out of tax advantage space, right? If you’re, especially if you’re self-employed, or if you’re doing ira, you know that the contribution limit just isn’t very high. If you have access to a 401k, it’s a lot better, you still run outta that tax advantage space pretty quickly.
So I would say with private investments, That’s where I’m typically looking for a higher return. And additionally, I really look for tax benefit on that side of my portfolio because when you back in, a lot of times the tax benefits of a private investment can add like another 200 or 300 basis points of return.
Triple net return, net of fees and inflation and taxes. Especially this is, and this is where I’ve become a real estate convert. Cause like I didn’t come from the real estate world, it’s really only been in the past 3, 4, 5 years that I’ve been more open and starting to invest more in real estate.
Because I’ve seen, there are so many different different ways to invest in real estate. And it’s different for each investor, but different pieces of the tax code, totally legal. That can help you out as an investor, whether it’s, depreciation, accelerated depreciation, whether if you own a property and you’re doing a 10 31 and now of course DSTs have blown up so you can be active or passive there.
Opportunity zone funds. My partner Jimmy, was, is big into opportunity zone funds. He’s, one of the leading experts in that area. And that’s a great thing to look into if you’re sitting on a big capital gain, if you’re interested in ground up construction, those can be a great opportunity.
So it’s really been, by understanding and, to be honest, it took a lot of time. So I don’t want to mislead anyone and be like, investing in alternatives is so easy. Just take an afternoon and learn and then write a check, like you gotta do your homework. But there’s a lot. Out there.
If you’re willing to go, turn over some rocks and look underneath them. If you’re willing to put in some time, whether it’s listening to podcasts like this one, or go, read some books, read some blogs, whatever. There’s a lot of tax advantage, real estate stuff out there that more investors need to know about.
Ben Fraser: Yeah. No, I, I love that. I think we’re both very aligned and our goals are wanting to educate people to help make it easier to understand, for getting into the space. What would you say are the key things, looking back some of the earlier investments you did or. The kind of approach you went into investing and, what would you, what kind of advice would you give people just starting out now?
Like how should I educate myself? What, when should I make my first investment? And, what’s that process as, you’ve had some wisdom, you’ve been doing this for a while now, what would you give people as some thoughtful advice just starting out?
Andy Hagans: That’s a good question. I would say in terms of educating yourself, the good news is in 2023, talking about how different things are now versus 2005, you can consume content or educate yourself in whatever way you want, right? So like a podcast like this one is a great way to educate yourself.
You can do it on your commute, right? So you don’t necessarily need to go out and read books if you don’t like reading books or whatever, I would say though, in terms of how to get started, I alluded to most people with alternatives. They start in a specific asset class.
Whatever they’re attracted to or comfortable with, I think that’s okay. Like I don’t think you need to go out and say, I’m gonna buy a diversified bucket of alternatives. Right off the bat, I think it’s okay to say, you know what, eventually I might want 10% or 20% or 30% of my portfolio and alternatives.
Why don’t I start with 5%, three or 5%, and if I’m comfortable with real estate or multifamily or industrial or private credit or whatever, just start there and, understanding that it’s an individual investment. It’s not like an s and p index fund that’s diversified. Start pretty small, I think with the challenge for even high net worth individuals, depending on their portfolio size, is gonna be investment minimums, right?
Because if you have 2 million to invest, then a $200,000 investment minimum is 10% of your portfolio. That might be more than you wanna invest in an individual offering. But even offerings for accredited investors. I’m seeing more and more, it used to be a lot of offerings, had a 500,000 or $250,000 minimum.
More and more, you see a hundred thousand dollars minimum, sometimes even a $50,000 minimum. I was looking at a a farm farmland syndication platform, and their minimum was 15,000. So I hate to put frame it this way, but I’d almost start with an investment that you can afford to lose.
Yeah. It doesn’t need to be the world’s best, but you’re never really gonna care enough to learn. Until you start putting some of your own skin in the game. Yep. And invest in your own mind. So at some point you gotta be willing to make a mistake and take a risk.
Ben Fraser: I love that.
Talk about Wealth Channel and what you’re doing just with some of the events and just education for kind of creating a community and for these high net worths.
Andy Hagans: Yeah. So Jimmy and I, this is our newest venture and now it’s been around for about three years. It started, Jimmy actually started the company just covering opportunity zone funds.
So that original website is called opportunity db.com. But he recruited me, to get back, to get the band back together. So we’re business partners and we we parlayed his existing following with this very niche private equity real estate product called Opportunity Zone Funds.
And we’ve branched out into covering all alternative investments with our platform. So we have some podcasts and we do events. And to be very clear, I’m an lp, Jimmy’s an lp. We’re not financial advisors, we’re not investment sponsors. We don’t directly own, operate any apartment buildings or private credit fund or anything like that.
We’re more coming from the perspective of we are limited partners in a lot of these different products. We have been for a while. And so we started interviewing sponsors and fund managers on our podcasts. And then we created this online event series. And so the first one was just covering opportunity zone funds.
Now we have Wealth Channel Expo. And what it is it’s an all day virtual event, right? So anyone can log on. It’s all over Zoom and it’s part education. So we have educational panels where we talk about market conditions and different educational topics. And we also, at each event we have 12 different alternative investment fund managers with all kinds of different products.
Private equity, real estate, private credit. We’ve even had venture. And they’re basically, pitching their deals. Sometimes the deals aren’t open for very long, so it’s one of those things. You come to the event, you watch it live, the fund may be open for three months or it might be closing in two weeks.
It all just depends. And I’ll be honest, not every viewer stays for the whole, eight hour event. A lot of people will see which fund is presenting at which time and will come in and out of the day. But we do those six times a year and that’s how we make our money.
That’s our business model, is being that matchmaker and bringing together accredited investors on the one side and fund sponsors on the other. You alluded to this already the education aspect of what you do. What we do, and it’s interesting. It’s like I. I I feel like we could both release 10 podcast episodes per day and, kaya’s doing what they do, and it’s just, it’s like never enough.
There is, their investors and advisors are starving for this information and in increasingly, I think they’re starting to really embrace it. So it’s a, it’s cool to just be part of the revolution, if I can call it that, into alternatives. Yeah.
Ben Fraser: No, that’s awesome, man. What’s the best way for folks to just plug into the ecosystem?
What’s the easiest on ramp? Is it the podcast? Is it sign up for a newsletter? What’s the best way for people to get in the mix?
Andy Hagans: Yeah my podcast, the Alternative Investment Podcast, you can just, get on Spotify or Apple Podcasts and search for alternative investments, and that’ll pop up.
And if you want to attend our next event, if you’re an accredited investor interested in reviewing some different private equity offerings, private credit offerings, just go to wealth channel.com and we have a list of our upcoming events where you can register. If you’re an investor, it’s free.
Ben Fraser: Awesome. Andy, thanks so much for coming on man. This is really fun. I feel like you said, we could probably do five more of these. There’s so many like other things in my head that I’m buzzing with, but this has been so cool. I think it’s gonna be very valuable for our listeners and just really appreciate you, you
Andy Hagans: Thanks, Ben. I had a blast.