3 Key Takeaways from IPA

Monday, April 23rd, 2018 and is filed under AI Insight News

It was great to connect with many of our AI Insight subscribers and industry partners last week at the 2018 IPASummit in Washington, D.C. to discuss the increasing importance of due diligence and impacts future legislation may have on our industry. Here are three key takeaways to keep in mind:

1. SEC proposes new standard of conduct rules for brokers

If the rule passes, “broker-dealers will be required to act in the best interest of a retail customer when making a recommendation of any securities transaction or investment strategy involving securities to a retail customer.”

Our take: The industry seemed more accepting of the SEC taking the lead on a uniform standard of care proposal versus the Department of Labor.

2. A push for institutional products

  • The industry seemed to agree that the best way to improve the non-traded marketplace was the growing push towards an institutionalized product structure – more streamlined (lower and simplified) fee structure, further transparency around fees and conflicts of interest, and managing performance expectations.
  • What does this mean for the product wrapper itself? It seems the industry is still trying to figure this out. The Non-Traded Evergreen (Perpetual) REIT seems to be the front runner with the success of Blackstone and Jones Lang LaSalle (JLL), and now Nuveen entering the space with a perpetual REIT.

Our take: It will be interesting to see how the existing landscape of sponsors will handle the institutional pedigree of Blackstone, JLL, and Nuveen entering the market. It seems some will be able to survive the transition, others will not. Also, it seems that there is risk that the initial transition to an institutionalized product is going to lower the number of products available on the market, at least initially.

3. The jury is still out on interval funds

  • The product structure seems to make a lot of sense on paper and there have been sponsors who have had success in both the IBD channel and the RIA channel.
  • However, concerns still exist around (a) down market performance and what this will do to the liquidity provisions, and (b) what exactly is the health of the distributions for these funds. Industry still seems to be figuring out how coverage works and its impacts to the investor. Both are simply just going to require more time for these funds to develop a healthy performance track record as an industry.

Our take: An establishment of a performance track record will also help with determining whether there’s value in using one of these products versus one of their liquid mutual fund counterparts. Do these products provide enough alpha/diversification/volatility reduction to make it suitable for an investor to give up daily liquidity?