Alternative Investments Are All the Rage. Even Wall Street’s Oldest Names Are on Board.

Even more significantly—and what gives the conference its zip—are lesser-known big fish, some of whom hold sway over tens or even hundreds of billions of dollars. Names like Kipp deVeer, head of the credit group at

Ares Management
,

the giant global alternative investment manager; Ken Kencel, CEO of Churchill Asset Management, a division of Nuveen owned by retirement giant TIAA, and a heavy-hitter in private credit; and Lawrence Calcano, CEO of iCapital, which has created a platform to allow wealthy investors to participate in alternative investments.

Ah, yes, alternative investments—or “alternatives” for those more familiar, or just “alts” for those most familiar. Alts are high finance’s business du cycle. If software has been eating the world from the Silicon Valley side of American business, then alts have been doing so from the Wall Street side. As I note in the Guide to Wealth that accompanies this week’s magazine, “privates” (yet another moniker for nonpublic investments), which include private equity, private credit, and venture capital, and specifically offering these esoteric vehicles to retail investors, are where the action is, or at least they’re all anyone could talk about in Greenwich—interest-rate cuts, the Mag Seven, and the election be damned.

Yes, some 87% of companies with over $100 million in revenue are private, so there’s a huge volume of business to be had here. But equally appealing to Wall Street is the massive sales opportunity. Leaving aside whether it’s prudent for Ma and Pa Kettle to fork over hard-earned scratch for private investments, the sharpies are salivating over an uncharted sales channel with oodles of dollars.

U.S. households’ liquid financial assets totaled $66.4 trillion at the end of 2023, according to the Securities Industry and Financial Markets Association. While institutions’ average allocation to alts is 23%, individual investors have only about 5% in privates. According to investment company

Brookfield
,

retail allocations to alternatives should grow by 12% annually over the coming decade, outpacing institutions. 

Calcano’s iCapital was founded 11 years ago and has investments from, or counts as clients, Fidelity,

BlackRock
,

and

Bank of America
.

It has doubled assets traded on its platform to some $200 billion over the past three years. The firm’s head count is up from 700 to 1,600 over the same period. “We’ve been really focused on creating an operating system and building out the pipes for the industry,” says Calcano. “Growth has been really significant, and all of these [private] products are part of that.”

It isn’t just newbies looking to take the plunge into privates. Old school Wall Street is learning to walk this way, too, including companies at the conference such as Barings, which traces its origins to 1762, as well as executives from two firms on a CEO panel that I moderated: Dina DiLorenzo, president of Guggenheim Investments (one of the two units of Guggenheim Partners), and Mehdi Mahmud, CEO of First Eagle Investments. All three firms have pedigrees that go back before, say, the Panic of 1893, which figures in the history of both Guggenheim and Barings.

The troubles of 1893 were in part precipitated by the failure of European investments in Argentina, which had been encouraged by the Argentine agent bank, Baring Brothers. Those investments went sideways—as investments there seem wont to do.

Yes, this is the same Barings, the hoary British bank, torpedoed by rogue trader Nick Leeson in 1995 after he ran up a $1.4 billion trading loss out of its Singapore office. (Young Nick employed a favorite strategy of inveterate gamblers: Every time he lost money, he would bet double the amount he was down in hopes of recouping, which ended predictably.) 

Dutch bank ING bought Barings the year it failed for one pound sterling (not a typo), and a decade later sold Barings’ asset-management business to MassMutual. Barings today, with $431 billion in assets specializing in public and private credit, is based in Charlotte, N.C., and led by CEO Mike Freno, who was in Greenwich this past week, talking about “where credit goes next.”

Guggenheim’s connection to 1893 is less direct, but it speaks to perhaps the hottest sector of that time, silver. How much silver to mine and whether it should be convertible into legal tender were front-page issues in the late 19th century, engendering both the Sherman Silver Purchase Act and the Free Silver Movement.

Investors flocked into mining, including Guggenheim patriarch Meyer Guggenheim, who had immigrated from Switzerland in 1847, and in 1881 paid $5,000 for a one-third interest in two silver and lead mines around Leadville, Colo. Overmining ensued, and by 1894, silver prices fell by almost half from four years prior, to 60 cents an ounce. Like the aforementioned crash in Argentina, the meltdown in silver prices contributed to the 1893 Panic.

Guggenheim hung in there, and by 1917 silver prices rebounded to over $22 an ounce. Meanwhile, Meyer had expanded and in 1901 gained control of the giant mining company that would become Asarco. By the end of World War I, Guggenheim and sons controlled over 80% of the world’s supply of silver, copper, and lead, making them one of the richest families on Earth.

The family would go on to become philanthropists, creating, of course, the Solomon R. Guggenheim Museum in New York, funding the early rocketry industry (way pre-Musk), founding Long Island’s Newsday newspaper, owning a horse, Dark Star, that won the Kentucky Derby in 1953, and more, which you can read about on the Guggenheim Partners website. 

Peter Lawson-Johnston, 97, great-grandson of Meyer, had been the frontman for the family for decades until recently handing off responsibilities to his son Peter Lawson-Johnston II. According to Fortune, in 1999, a friend of Lawson-Johnston the elder’s, J. Todd Morley, suggested combining the Guggenheim family office with his firm and asset-management company Liberty Hampshire of Chicago, run by Mark Walter. Morley and Walter provided the big bucks and Guggenheim had the name. Todd Boehly, who today runs investment company Eldridge, helped supercharge the firm’s growth, and Sammons Enterprises, a diversified Dallas-based holding company, bought a large stake. Today, the Guggenheims have only a small position in the firm, which has $320 billion of assets under management and 2,200 employees worldwide. Did I mention that Guggenheim is big in alts?

“The Guggenheim family virtues and philosophy are embedded in our firm,” says DiLorenzo. “That spirit of innovation and entrepreneurship definitely flows through our veins.”

First Eagle CEO Mahmud has a slightly different view of a legacy organization. “There was a feeling in the firm that we’ve been around for 150 years, it’s inevitable we will be around for 150 more years. My mantra is there’s no guarantee we will be here for 10 years, let alone 150. If we want to survive, we’ve got to reinvent ourselves.’ ” Not that Mahmud, a Yale University graduate with an electrical engineering degree who worked at

J.P. Morgan
,

doesn’t know from tradition. It’s just that sometimes a firm with roots going back to 1864 needs a little prodding. Founded by the Arnhold Brothers in Dresden, Germany, the firm bought Adler Bank in 1928. “Adler,” as the company notes, is the German word for eagle, which “ultimately served as the basis of the company’s future renaming as ‘First Eagle.’ ” 

Three years later, Arnhold merged with another bank, S. Bleichroeder, and in 1937 moved the firm, Arnhold and S. Bleichroeder, to New York, as it was “faced by the realities of a deteriorating global political and economic environment,” as the firm history puts it rather too delicately. 

The firm, which became First Eagle in 2009, at various points employed George Soros, Jim Rogers, and Columbia Business School professor Bruce Greenwald, along with members of the Arnhold family, including Henry Arnhold, who served in the U.S. Army as one of the Ritchie Boys, German-speaking soldiers specializing in interrogation and counterintelligence.

First Eagle built a mutual fund business over the decades, teaming up with dapper French value investor Jean-Marie Eveillard in 1979 and then 20 years later buying a majority of the asset management business of

Société Générale
,

the large French bank where Eveillard worked. The Eveillard deal was a soaring success for First Eagle, with Eveillard fund assets growing from $18.9 million in 1979 to $2.8 billion in 2003 and returning an annualized 15%. More recently, First Eagle, now majority-owned by

Blackstone

and Corsair Capital, has moved into, yes (sigh), alternative investments.

I decided to ring up Eveillard, 83, to ask him about his old firm. “There was a healthy culture there,” he says. “There are so many Wall Street firms that would say, ‘You did well for a while, but now we don’t want you anymore.’ John Arnhold [Henry’s son, who led the firm] really let me be.” 

While I had Eveillard, I decided to ask him about gold, as he was a gold bug for decades. Was he surprised by its recent megarally? “No,” he said quickly. “Americans have never been very interested in gold. I continue to own some. People would say, ‘Hey, it will be good for a few years, but it will not be a genuine investment.’ And I don’t think that’s the way it should be.” 

If Eveillard’s, and indeed the market’s, bullish take on gold has you wincing and considering the alts world, remember that none other than J.P. Morgan said, “Gold is money, and everything else is credit.”

Write to Andy Serwer at andy.serwer@barrons.com and subscribe to his At Barron’s podcast