Pure-play consultants are becoming a rare breed amid consolidation

Alternative investment consultants also engage in activities other than strictly non-discretionary advice. In June, alternative investment consultant Cliffwater LLC launched its first fund, an evergreen private debt fund aimed at high net worth investors through its registered investment advisers, family offices and small institutional investors.

“We were seeing significant demand from RIAs and family offices for our services (particularly private debt) and believed we could provide them more cost-effectively through a registered fund,” said Stephen L. Nesbitt, CEO of Marina del Rey, California. Cliff. “We had past experience of serving as a sub-advisor for registered vehicles, so we knew how these are implemented and regulated.”

So far, the fund has raised $160 million, all from RIA and family offices, he said.

Cliffwater’s officers take steps to avoid conflicts of interest. For starters, they can’t recommend their fund to clients because it’s a conflict, Mr Nesbitt said.

Additionally, Cliffwater clients choose whether they want the company to provide non-discretionary or discretionary services before hiring the company, he said.

“We cannot recommend a move from non-discretionary to discretionary,” Nesbitt added. “With respect to investments, all Cliffwater clients receive equal treatment on investment allocations, in accordance with our allocation policy.”

TorreyCove Capital Partners LLC can avoid potential conflicts because it does not manage investment funds, said David Fann, president and CEO of New York-based TorreyCove.

The company acts as a non-discretionary adviser to an affiliate, Alternative Investment Capital Ltd., and receives a portion of management fees and carried interest, according to a report from LACERA staff to the board. However, the report notes that this is a relatively small part of TorreyCove’s business.

Indeed, LACERA’s new alternative investment consultant, Albourne, was ranked with the fewest potential conflicts of interest on a spectrum ranging from discretionary conflicts of interest – more potential to non-discretionary and less potential conflicts of interest, according to staff reports to the board.

The StepStone semi-finalist was the most discretionary on the LACERA scale. A table of strengths and concerns highlighted StepStone’s four-person compliance team as a strength. But, the board noted as a concern that StepStone has “inherent conflicts regarding fund allocations between their managed segregated accounts and fund-of-funds, and their non-discretionary advisory clients.”

Aksia LLC, which has a $4.7 billion fund management business while advising on $52 billion in assets under advisement, and Cambridge Associates LLC, with 20% of discretionary client accounts, were ranked at the middle of the conflict of interest scale. Cambridge Associates had $2.4 trillion in institutional assets under deliberation as of June 30, 2018, according to Pensions and investments‘ database.

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