Get three smart guys together in a bar, give them a few drinks to get the "creative" going, and they're bound to hit on an idea. It's cliché to talk about the proverbial "cocktail napkin" moment, but the founders of CAIS proudly note they still have a picture of theirs.
"Yeah, there is actually a cocktail napkin; you want it?" Matt Brown, the firm's co-founder and CEO, helpfully offered.
Throw in the phrase "alternative investments," something that's received quite a bit of attention since 2008, and you quickly realize why their idea has taken off.
CAIS has launched what it calls the first global alternatives exchange, known as CAIS-X, which provides advisors with a platform for conducting due diligence, analysis and trading of alternative investments. The idea is that it will bring private vehicles into the public (advisor) space. With greater interest among advisors of alternatives in recent years, the value is readily apparent; something to which their 10% monthly growth can attest.
But don't let the name fool you. The firm's CAIS-X platform may be described as an online exchange, but Brown was quick to note they refer to it that way only to emphasize its product-neutral structure.
"Sometimes when we use the word 'exchange,' people jump to the conclusion that maybe it's a trading of existing interests in [alternative] funds or products," Brown explained. "Like a secondary market. But we always like to make it very clear that even though we use the term 'exchange,' our platform is for primary investment transactions. And we are custodian- and product-neutral."
Brown and cofounders Rafay Farooqui and Jeremy Norton have wirehouse backgrounds, and it was something they all noticed at their respective firms that got them thinking.
"My background is capital markets," Farooqui, the firm's president, said. "I started my career at Goldman Sachs and spent a lot of time there [with] alternative investment firms. The common thread we all saw was the departure of talent from the large infrastructure of the wirehouse to the independent space."
"The thought process was, 'Let's build an independent firm around that theme,'" Brown, a Shearson Lehman Brothers and Smith Barney alum, interjected. "The clear starting point was with the investment advisors, because of their interest in alternatives and the fact that so many are leaving large institutions."
They began in January 2009, and the platform went live with institutional clients in January 2011. It's strictly a B2B play: Their clients are advisors, and they target relationships with RIAs, broker-dealers, private banks and other professional wealth management institutions.
"That's a big distinction in our business, as well," Brown added. "We're highly focused on the solutions that advisors need to win and compete in the marketplace."
The core of the CAIS-X platform relies on bringing together members of what they refer to as the CAIS ecosystem, which includes custodians, product providers, administrators, due diligence providers and, of course, the advisors themselves.
"What you end up with is a single venue that has access, independent due diligence [and] execution, which is streamlined and integrated with the custodian's infrastructure," Farooqui (left) added.
The firm's intuitive, easy-to-use interface includes a dashboard with multiple features that he proudly trumpeted without seeming to take a breath.
"It's a monitor of tasks outstanding," Farooqui ticked off. "It's an alert-setting system so advisors can get a quick idea of the exposure their clients have in the alternative space. The product menu is set up to filter in much the same way as if you're buying an airline ticket. By that I mean if you want to go from New York to Miami, you'll have certain options. If you'd like a CTA manager in the same way, you'll also have certain options. You can set the criteria to get to the product that's right for you. We have a robust analytic system as well to analyze in depth each product. We are really in that business of making the advisor's experience seamless and with the fewest obstacles to enable them and empower them to go out and grow their businesses."
"[Relief] of friction and pain points by providing the solution is seen in every aspect of our exchange," Brown added more succinctly.
It's no secret the traditional hurdle to alternative investments is a lack of access, but it's one that's quickly crumbling as more products and services continue to move down market to the masses. It's also no secret that platforms like CAIS-X are largely the reason.
So when they speak of the alternative investment universe how, exactly, is that defined?
"The first stop for CAIS was to solve what we believed to be the most complicated piece of the puzzle, which is the traditional hedge fund investment," Brown (right) said. "The larger hedge funds are in demand by advisors, but have very high minimums. They might be getting access to those funds at bigger wirehouses, but outside of that architecture, no one has connected the dots with all the critical players. So getting hedge funds operationally accessible was step No.1."
The platform currently claims over 40 hedge fund product offerings and is growing. The second step, he continued, was to enter the private equity world.
"Like our hedge fund offering, we started with some of the top names in the space with seamless execution and integrated reporting and an independent due diligence framework."
The three steps are selecting the product, indicating which clients the advisor would like to buy for and entering the trade details and execution.
It's that much more of a challenge, and opportunity, when the platform is expanding globally. Co-founder Norton is heading up operations in and around the Pacific Rim and Asia, relying on the connections he made from his past experience in alternative asset management, marketing and distribution, having worked at firms including Fuji Bank, Castlestone Management and Brownstone Advisors.
