Brad Heppner on Carving New Paths in the Alternative Asset Industry
“One that blazes a trail to guide others.”
That’s what one finds when looking up the Merriam-Webster definition of the word “trailblazer.”
Brad Heppner started his team at The Beneficient Company Group, L.P. – Ben for short – with three simple values: trust, teamwork and chief among them, trailblazing. Embodying what it means to be a financial industry trailblazer, Heppner has been living and breathing in the world of alternative assets for over 25 years and has successfully started, grown, and sold several alternative asset companies that still operate today. After Heppner sold a previous company to Lehman Brothers, he watched them struggle with an interesting dilemma: they saw institutional investors achieve liquidity for alternative assets, but were not sure how to handle liquidity for individuals invested in these kinds of assets who need to unlock the value of their investment ahead of lockup periods. And, looking beyond the market for large institutional investors, they wondered, could there be an entirely new market for individual investor liquidity in alternatives?
While asset managers since Lehman Brothers have continued to build a market foundation to offer alternative investment opportunities to individual investors, Heppner, along with his team at Ben, has sought to pioneer new and innovative ways to develop the remaining two building blocks of this market foundation that Heppner believes are necessary to truly democratize the alternative asset industry. Those remaining two building blocks – providing liquidity and programming of transparent information on investors’ holdings by regulated trust companies – are at the core of Ben’s unique value proposition. Through these two building blocks, Ben is addressing an emerging demand for regulated fiduciaries that provide liquidity and information on individual investors’ alternative asset holdings as custodians and trustees, a first for the industry.
In a recent interview, Heppner discussed the origin of Ben, why seeing around corners is paramount, and what the future holds for the company.
The Genesis of Ben
The story of Ben’s creation goes back to the sale of my asset management firm, Crossroads Group, to Lehman Brothers. Crossroads Group was one of largest fund of funds advisers in the alternative asset space for private companies. After the sale, Lehman Brothers took our investment products and started distributing them to small institutions and high-net-worth individuals across the United States.
Our firm raised capital for investment products through large institutions with minimum investment requirements in excess of $10 million. Lehman Brothers lowered those minimums to just a few hundred thousand dollars. As a result, more small-to-mid sized institutions and individuals invested in alternative assets.
It wasn’t long after we sold Crossroads Groups that we watched Lehman Brothers struggle with handling their small customers’ liquidity requests and need for more information on their holdings. I vividly remember their first customer who came to us looking for liquidity from their investment, and I thought, “Wow, how many others are out there in the same situation?” It turns out there were many, and after doing some research, we determined that there was an untapped new market for smaller institutions and high-net-worth individuals holding alternative assets seeking liquidity and related information management services for their investments.
We estimated this new emerging market to be roughly a $40 billion opportunity annually, assuming a slightly higher turn rate than is present in the institutional market due to life events and other individual circumstances that create a heightened need for liquidity. The market was also competitively favorable compared to the existing secondary market that is dominated by a small group of legacy players catering almost exclusively to large institutions. We knew that if individuals and small institutions continued to invest in alternative assets at the same rate, then we could reasonably convert on this opportunity if we captured at least 10 percent of the market each year.
The existing market for secondary liquidity was — and in many ways still is — mired with complexity, inefficiencies, and expensive processes. Large institutions act not as fiduciaries but rather in their own interests (with teams of attorneys, investment consultants and intermediaries) and drive most transactions in the secondary market, which look more like a merger or acquisition than a simple exchange of liquidity for an investment.
Put a different way, it became abundantly clear to me that there were firms popping up every day focused on getting smaller institutions and individuals into alternative assets in a so-called effort to “democratize” the alternative asset industry, but very few or perhaps none focused on getting them out while delivering transparent data on the investments. I also realized that while smaller institutions and individuals were accustomed to turning to fiduciaries when getting into alternative assets, they had no such fiduciary to turn to when seeking to exit these assets.
Brad K. Heppner, CEO
Staying a Step Ahead
Demand for investments into alternatives among U.S.-based small institutions and individuals has grown rapidly. This group now holds over $1.7 trillion1 in professionally managed assets, and the market is poised to grow even further.
As we suspected, new demand for liquidity and related information management services started to increase among small institutions and individuals with alternative asset holdings. We determined that while these investors needed a financial institution to operate in a fiduciary capacity for these services, no such firm was addressing this demand as a fiduciary, partially because practical market infrastructure was lagging.
Thus, Ben was born out of the need for a regulated entity authorized with fiduciary powers to deliver liquidity and custodian services using standardized customer documentation and a tech-enabled platform that could handle a high volume of liquidity transactions. Being classified as a fiduciary is an incredibly important distinction because it tells our customers that their interests become ours and that we only do well if they do well. It builds trust and assures our customers as well as wealth managers, who also work in a fiduciary capacity, that they can confidently turn to us for the services and solutions they need for their alternative asset holdings.
We knew that if we thought differently about delivering our products in a highly scalable and regulated way using a simple, rapid, and cost-effective approach, that this new market would respond favorably. It boiled down to us having an uncompromising view on delivering efficiency and access in a fiduciary capacity for smaller investors seeking liquidity and other services.
Our industry is at an inflection point, and I believe Ben is primed to continue blazing new trails. Most recently, we’ve been working with legislators and regulators in Kansas to establish the Technology-Enabled Fiduciary Financial Institutions (TEFFI) Act, a first-of-its-kind statutory framework for the establishment of regulated trust companies that will serve as fiduciaries to deliver on the growing need for liquidity among investors in alternative assets. Ben recently received its charter from the Kansas Office of the State Bank Commissioner, which allows us to serve as a regulated fiduciary in all respects of providing liquidity, full-service custodial, and trustee management services to alternative asset investors.
The alternative asset marketplace is still well behind much of the public marketplace. While many consider the industry as being “democratized” through the ability to purchase alternative assets, it’s lagging in two other critical areas: custodial services and access to liquidity. In the public market, it’s easy for individuals to buy investments, have transparency into the asset owned, and eventually sell the asset at a time desired, all through an individual or entity acting as a fiduciary.
While individuals and small institutions today can more easily purchase alternative assets – the first of three essential aspects to democratization – it is difficult for them to receive transparent information on the assets’ near-time performance. They ultimately are not able to liquidate the asset at a time that makes the most sense based on life events or other circumstances, a challenge that large institutions don’t share.
Through Ben’s commitment to trailblazing, trust, and teamwork, our aim is to solve this issue and enable a more efficient asset class for alternatives by providing the other two pieces to democratization. We do this by acting as a fiduciary providing liquidity, information transparency through our custodial services, and other services to individuals and small institutions that have otherwise been non-existent.
Commitment to Leading the Industry
As many firms have taken important steps to increase access into alternative investments, this is only one piece of the puzzle and does not represent true democratization. I am incredibly proud and excited about the role we have played to further the industry’s democratization. Without democratized liquidity and more transparent information, the alternative asset marketplace will never be fully accessible to individual investors, and Ben is committed to changing this.
Ben’s unique products and leading technological capabilities are critical when it comes to differentiating ourselves in the industry. We will continue to do this by drawing on the collective strength and the ingenuity of our people – our core competitive advantage. We are a team of trailblazers who share a long-term view of how Ben can lead the evolution of our industry. We understand and are ready to take on the challenges – and opportunities – that lie ahead.
At Ben, we have crafted a suite of reliable, ongoing liquidity solutions for investors in alternative assets. Our process seeks to give investors access to hard-earned investment capital, with liquidity provided from our own balance sheet. Contact us today to schedule a consultation with our expert team.
These materials are provided for illustration and discussion purposes and are not intended to be and do not constitute financial, tax, legal or investment advice or recommendations, or an offer to sell or exchange, or the solicitation of an offer to buy or exchange, any securities. Securities brokerage services are offered through Ben Securities Company L.P. (“Ben Securities”), which may provide certain materials to recipients. Ben Securities is affiliated with The Beneficient Company Group, L.P., and/or any of its affiliates, subsidiaries and successors (collectively, “Ben”) and is a broker-dealer registered with the Securities and Exchange Commission and various states and a Member FINRA/SIPC. Investments involve risks and are not suitable for all persons.