Business Breakdowns: Increasing Access to Alternative Investments

Semi-Liquid Product Design Framework

Asset-Liability Matching for Private Market Retail Products

A structured approach to designing semi-liquid private market products for retail investors that balances illiquid asset exposure with predictable liquidity needs. The framework synthesizes lessons from BREIT's successful navigation of redemption pressure and Third Avenue's failure to match daily liquidity with illiquid distressed debt. Core principle: liquidity promises must match asset liquidity, with safety margins provided by liquidity sleeves and transparent redemption caps.

When two economically similar entities have vastly different allocations to an asset class, there exists an arbitrage opportunity for those who can facilitate the rebalancing. In this case, institutions allocate 20-30% to alternatives while retail allocates 2-5%, creating a $4 trillion addressable market for intermediaries who can bridge that gap. The arbitrage exists because both groups have similar return requirements and risk tolerances, but different access to the asset class.

In Practice: Opening discussion of the $4 trillion opportunity in retail alternatives

Demonstrated by Leg-jc-001

Rigorous diligence processes don't create problems, they expose pre-existing problems. When private credit firms uncovered issues in First Brands and other troubled situations, the diligence was functioning as designed: filtering out bad credits before committing capital. The mental model clarifies that the presence of a diligence process in a fraud discovery doesn't implicate that process as complicit; rather, it demonstrates the process working correctly. This distinguishes between causation (diligence caused the problem) and correlation (diligence was present when the problem was discovered).

In Practice: Clarkson defending private credit against accusations it caused First Brands collapse

Demonstrated by Leg-jc-001

The duration, liquidity, and risk profile of assets must match the obligations t

In Practice: Comparing BREIT's redemption handling to Third Avenue's gating crisis

Demonstrated by Leg-jc-001

Assets that generate contractual cash flows (interest, rent, dividends) provide

In Practice: Explaining why credit products dominate the retail alternatives market

Demonstrated by Leg-jc-001

Higher costs are justified when they fund activities that create proportionally higher value. In direct lending, the costs of maintaining origination teams and in-house structuring capabilities are higher than liquid credit funds that trade with banks, but these costs enable access to higher-yielding, lower-competition assets with better downside protection. The mental model guards against simplistic cost-cutting by focusing on net value creation: does the incremental cost produce more than incremental value? It also suggests that in industries where cost structures vary widely, investors should evaluate returns net of fees rather than focusing on fee levels in isolation.

In Practice: Clarkson defending higher fees in private credit products

Demonstrated by Leg-jc-001

In industries where performance compounds into market share, the largest players are necessarily high performers because poor performance prevents reaching scale. This creates a natural quality filter: if you restrict consideration to firms above a certain AUM threshold, you're implicitly selecting for sustained outperformance. The mental model applies to private markets where successful fundraising requires strong prior performance, creating a ratchet effect where scale itself signals quality. This is distinct from other industries where scale can be achieved through distribution, brand, or first-mover advantage without commensurate quality. The corollary is that in such industries, concentration of assets with the largest players may indicate rational market behavior rather than irrational herding.

In Practice: Explaining why large alternative asset managers can justify higher fees

Demonstrated by Leg-jc-001

Institutional distribution requires deep credibility with a narrow audience of sophisticated allocat

In Practice: Explaining why Blue Owl, Ares, Apollo, and Blackstone will dominate retail alternatives

Demonstrated by Leg-jc-001

When budget-constrained competitors face well-funded rivals in brand-building, the solution is not p

In Practice: Clarkson advising specialized managers on competing with megafunds

Demonstrated by Leg-jc-001

When regulations restricting communication are loosened, the early adopters of the new freedoms gain

In Practice: Explaining how marketing rule changes create low-cost brand opportunities

Demonstrated by Leg-jc-001

Thought leadership built for institutional audiences (memos, speeches, media commentary) creates lat

In Practice: Using Oaktree/Howard Marks as example of institutional brand converting to retail advantage

Demonstrated by Leg-jc-001

When a market reaches saturation (high penetration rates, most growth coming from share-taking), strategic firms pivot resources to greenfield markets with low penetration and expansion-driven growth. In saturated markets, success requires winning competitors' customers, which is expensive and zero-sum. In greenfield markets, success requires converting non-consumers to consumers, which expands the total pie and can deliver winner-take-most dynamics to early movers.

In Practice: Clarkson explaining why retail alternatives is the growth frontier despite large existing AUM

Demonstrated by Leg-jc-001

Consumer Product Market Saturation and Share-Taking Dynamics (Toothpaste Market)

Josh Clarkson draws a parallel between institutional private markets saturation and consumer packaged goods saturation, specifically the toothpaste market where Crest and Colgate compete. In mature consumer markets, growth comes from taking share from competitors, not from expanding the total number of consumers. Similarly, in private markets, the institutional channel has reached penetration levels where additional growth requires winning assets from other managers rather than converting new institutions to alternatives. The retail channel, by contrast, represents a greenfield market analogous to introducing toothpaste to a population that doesn't yet use it. This parallel illuminates why alternative asset managers are pivoting so aggressively to retail distribution: the institutional pie is fixed, the retail pie is expandable. The analogy also suggests that as the retail channel matures, it will eventually follow the same pattern from penetration-driven growth to share-taking competition.

Clarkson explaining why retail distribution represents a strategic inflection point for alternative asset managers despite already managing $20+ trillion

Institutional Investor / Backstop Provider

UC Regents provided liquidity backstop to Blackstone's BREIT during 2022 redemption surge.

• Provided liquidity facility to BREIT during redemption stress

Co-Founder of Oaktree Capital Management

BSL

Broadly Syndicated Loan, a large leveraged loan arranged by banks for institutional investors

“First Brands was a massive BSL issuer.”

506(c)

Securities regulation exemption allowing general solicitation if investors are verified as accredited

“The no-action letter made it easier for managers to use 506(c).”

Co-founder of Oaktree Capital, known for investment memos

Alternative Investments

Asset classes outside traditional stocks and bonds: private equity, private credit, real estate, hedge funds

Quality of Earnings Analysis

Due diligence examining whether reported earnings reflect sustainable economic reality

Non-Traded REIT

Real estate investment trust not listed on exchanges, offering illiquidity premium

Interval Fund

Registered closed-end fund offering periodic redemptions rather than daily liquidity

No-Action Letter

SEC guidance stating it will not recommend enforcement action if party complies with described conduct

Direct Lending

Private credit strategy where fund lends directly to companies, bypassing banks