Matt Brown - Founder & CEO of CAIS

Colbert Cannon: Welcome to Season 9 of the HPScast. I’m your host, Colbert Cannon. If you’re new to the pod, HPS is a global investment firm. We manage just over a $100 billion in assets for a broad range of institutional and individual investors. That capital is invested across private credit and public credit strategies.

Each week, I sit down with key relationships to, partners of and friends of the firm to learn from their experience, ask how that experience shapes their current roles, and give insights into HPS and how we operate. So, with that, let’s bring in our guest. Our guest this week is the Founder, CEO, and Chairman of CAIS Group, a leading platform connecting independent financial advisors with alternative asset managers.

After graduating from St. Mary’s, in California, this gentleman started his career as a financial consultant at then Shearson Lehman before striking out on his own, founding several asset management and advisory businesses along the way. In the wake of the Global Financial Crisis, he founded CAIS, recognizing a need for better access to and education on alternative investments for the independent financial advisor community, and equally, understanding the value and opportunity in opening up that world to investment firms managing alternative businesses.

In the last almost 15 years now, he’s built CAIS into an incredibly valuable partner to both firms like HPS and the advisor world and has attracted a blue chip roster of minority investors, including Apollo, Franklin Templeton and Motive Partners.

He’s a thoughtful and dynamic CEO and entrepreneur, and we at HPS greatly value our relationship with both him and his firm. So, without any further ado, I’m thrilled to welcome in this week’s HPScast guest, Matt Brown, Founder and CEO of CAIS Group.

Matt, welcome to the pod.

Matt Brown: Colbert, thanks for having me. Great to be here.

Colbert Cannon: Alright, Matt, I’d like to start from the beginning. Let’s go all the way back. Where are you from originally?

Matt Brown: Born in New York, raised in Southern California. My father moved our family out to LA in 1972 from New York. And, as my mom describes it, it was basically like we were moving to the moon.

Colbert Cannon: Undergrad at St. Mary’s, Matt. Why was that the right fit for you?

Matt Brown: My brother went there. I liked their basketball program, didn’t play basketball for them, but I come from a more creative perspective, so I was drawn to the liberal arts program there. It was in California and really enjoyed it. It was a great school.

Colbert Cannon: The pipeline from St. Mary’s to finance isn’t as robust as from other places. How’d we end up pursuing finance right out of school?

Matt Brown: I was graduating from St. Mary’s, and on the way to film school, and took kind of a flyer interview with Shearson Lehman Brothers. And to be totally honest, I had absolutely no idea who the firm was, what they did, what a financial advisor’s role was. I met with a guy who was substantially older than I was in a pinstripe suit, and we spoke for two hours. He liked the fact that I could hold the conversation. I remember leaving the interview and saying, gosh, he was a nice guy, and I still have no idea what that business really does.

Off to film school I go. Next day, the phone rings, and he says, “Would you like to join the Shearson Lehman Brothers financial consultant training program?” So I joined and became a financial advisor.

Colbert Cannon: Tell me about that decision, I mean, because, you were, as you say, on your way to film school. What was the hook? Why’d you look at that and say, “Well actually, maybe this is the right path for me?”

Matt Brown: You know, the way it was being described, it was a lot about communication. It was a lot about working with people. Those were quite interesting. I actually asked the gentleman: “Of all the people you could hire that have great finance backgrounds, why would you hire a kid from St. Mary’s College that had a liberal arts degree?”

And he said, “Well, after spending two hours with you, I realized that you could talk. I realized that you could communicate, realized that you had the ability to build trust, and those are the core elements of business, and I can teach you the math.”

And that, kind of, launched my career.

Colbert Cannon: The human aspects of what we do and the relationship aspects of what we do are often the hardest. So, I hear you on that. Tell me about that first job. What are you actually doing as a financial consultant for Shearson Lehman?

Matt Brown: This was the old days, so this is the ‘90s. And when you’re a financial consultant for a big firm like that, it’s a bit of a sink or swim environment there. So, I went through the program. And then it’s about building your book of clients. So, that is a lot of phone calls. You’re building relationships, you’re trying to win business. and it is a definite tough environment. And that taught me a lot about being resilient, taught a lot about, kind of, just being a survivor out there, and I think those skills definitely carried through.

Colbert Cannon: So, for then that next step after five years at Shearson Lehman, you strike out on your own, you found Brown Simpson Asset Management. Why was the entrepreneurial path the right one for you?

Matt Brown: I was an entrepreneur without knowing it. Even before college, you know, I started my first company in high school. It was a painting company. I hired a bunch of my friends, and we painted houses. And there’s, kind of, a nice feeling about seeing those crisp dollars in your hand when you’re a kid.

I think frankly, being a financial advisor in a huge organization, was probably the only hybrid that I enjoyed, because even though you are working for quite a large organization like Shearson Lehman Brothers, you’re still running your own business within that, and they really encourage that kind of build a business within a business. Whether it’s a painting company or the first financial firm that I launched in the ‘90s, that ability to innovate, create, hire, and kind of have it all on your own shoulders is just something I’ve always gravitated towards.

Colbert Cannon: Tell us about that first business you built then. What was Brown Simpson up to?

Matt Brown: It was a private equity business. We were investing in small cap public companies and private companies, and it was one heck of a learning experience. It was a really unique time in the market. It was the beginning of the internet boom, and the idea that we had was that a lot of smaller companies needed capital, and they couldn’t access the public markets even if they were public. So. we were providing private capital, and that was a great business. We took that from an idea to almost a billion-dollar platform.

Colbert Cannon: You know, I always feel like entrepreneurs will tell you those first couple of years, you mentioned this, the lessons you really take with you. What do you hold with you from that experience? What were the lessons learned from those early days?

Matt Brown: That one I can clearly point to. That’s when I first really became hyper-aware that the people around you are really the key ingredient to your success. I was fortunate to have some good partners. I’ve also experienced the opposite side of that, not having great partners. This is, kind of, a life lesson now that I’ve been able to put words to, but, even as an entrepreneur, you might have the idea, but if you don’t have people that you trust around you, to embrace your ideas as their own, and then take it to a new level, even a place that you couldn’t take it, you’re not going to be successful. You have to have great partners in order to succeed.

Colbert Cannon: I couldn’t agree more. As you say, you then moved on to founding Brownstone Advisors. Talk me through the path post your first step with Brown Simpson to then to getting to the CAIS side of things.

Matt Brown: Well, I would say that every step in the journey kind of led to CAIS. You don’t realize it, but oftentimes you know what you do in life is a collection of your experiences. Working in wealth management taught me everything I needed to know about the wealth side, and that’s of course the market I serve on the investor side. Brownstone was the beginning of the platform business, and what I was doing there was taking asset management and thinking of it through either, kind of, more of a fund-to-fund approach or a platform approach. And when I started building that in early 2000, I actually called that the beginning of CAIS. I go back, and I read some of the documents and marketing materials that I had created for that business, and I can tell that a lot of the ideas that we’re working on today were kind of being…

Colbert Cannon: Was the proto CAIS.

Matt Brown: Yeah, it was the proto CAIS. So really, CAIS has been on the drawing board for the better part of two decades, and that was a good business. And that’s when I realized I had to just take the full jump to building a platform of technology.

Colbert Cannon: So, let’s talk about this. It’s ‘08, ‘09, the Global Financial Crisis hits. You land on CAIS as the right next business to build. As you say, this wasn’t out of nowhere. You had built this, but what was the first initial idea? What was the need in the market that you looked at and said this needs to be filled?

Matt: I knew and had friends at wealth management firms, the largest ones. And their alternative investments were doing fairly well. They were holding up. Obviously, public markets were not holding up as well. And spending so much time in wealth, I was, of course, quite familiar with the independent wealth community, the RIA channel, and then in Europe, the IFA and Private Banking channel. And I knew their access to alternative investments just wasn’t there. So, I started to look at how JP Morgan, Morgan Stanley, and the big banks had built platforms like the one I was thinking about building, and how successful they were delivering third-party product asset management firms into the wealth channel. And it was a real differentiator for the financial advisor. They got access to great funds. They were able to talk to their clients, win new business, and be more competitive. But when you look at the rest of the wealth community, which represents 50% of the assets — the independent wealth community — no one firm was big enough to build their own platform like JP Morgan. And as a result, they didn’t have the tools in their toolkit to be able to protect client assets in down markets like the Global Financial Crisis, or they didn’t have tools in the toolkit to take advantage of opportunity. And I thought, could I be the universal utility platform?

And that was the idea. It was a moment to really see if we could empower the underdog, level the playing field. and we set out with that mission from day one. We’ve only worked with financial advisors. We don’t go to the C in the B2C. We’re B2B2C, and we only work in the independent wealth channel. Really, we have become a partner for the independent wealth advisor, the RIA, to be competitive.

Colbert Cannon: That makes complete sense. If you’re an independent advisor, this gives you access to an education on an alternative asset channel that you wouldn’t have had access to. From the other side, firms that are alternative asset managers, it opens up an investor universe. How do you gain credibility early on from both sides? Because it makes all the sense in the world, but I could imagine those early days, people probably looked at you like you had two heads. How’d you pull it off, Matt?

Matt Brown: It was a combination of a few things. First of all, as I tell every entrepreneur, you have to have access to capital. Capital is ultimately what’s going to allow you to have the runway to build a business. And I’ve always cultivated relationships with investors and was fortunate enough to have great investors, individual investors starting off, to back the business. So, we had the runway to be able to stay in the game, which is critical.

Number two is that we were able to attract good people with the idea. So, with capital, good people, and a good idea, I think you’re at least in a good spot. Now, that’s not going to guarantee a win, but it’s going to guarantee that you have time to figure it out.

Now, when we started the platform, we were the only ones doing it. We were just, kind of, creating it as we were going. We’ve crashed a few cars along the way, for sure, but every accident that we got in, we learned, and we learned how to stay on the road. And that’s really valuable.

The other thing that we had going for us is that I think building a business in a down market is a great idea, because when people are having a harder time, they’re often open to new ideas. When things are falling apart, like the Global Financial Crisis, everyone, kind of, is open. And who was open the most were asset managers looking for new ways to bring in capital, and there’s this huge multi-trillion dollar channel over here that’s never been accessible to them. We’re able to bring that into view.

Colbert Cannon: It makes complete sense, Matt. We’re going to talk about some of the reasons for this, but over the last 15 years, you know, the firm has grown impressively. Walk us through the current status of CAIS. Help us understand the scale of the business today.

Matt Brown: Yeah. For the first five years, I’ll just say, very quiet, and I would describe it as we were on a surfboard, freezing in the water, hoping for a wave to come. And they just weren’t coming. 2015 to 2018, we got more and more momentum, and we kind of started playing into that momentum. Firms like Fidelity selected us to be their platform. So, some really meaningful wins started to come through.

COVID happened. Financial advisors didn’t leave their home, nor did asset managers, but transactions still needed to happen. So, that’s a catalyst moment or a major change in behavior that forced people onto our platform. And then, as you can imagine, once people get used to a certain way of doing business that’s easier and better, they don’t go back.

So, 30,000 financial advisors using CAIS that control close to $4 trillion. That’s our channel. On the asset manager side, we have, I would say, about 70 asset managers on the platform, all of which have multiple products on our platform.

But the one number that I like to watch the most is what we call the “shopper to buyer” moment, where a financial advisor is on the platform, and they are investigating which funds they’d like to buy. They’re learning about the different funds, and then they go and make their first investment. So, right now, that’s at an all-time high. About three to four times per business day, a new firm is making an allocation across our platform or adopting the technology. So, we’ll bring in 600 to 800 new firms this year alone that will be using the CAIS technology to allocate to alternative investments.

Colbert Cannon: Okay Matt, let’s talk about capital, because capital is incredibly important as an entrepreneur, right? You need it in order to be able to build your business. But, what do firms bring to the table beyond capital, though? What’s important to you in a partner?

Matt Brown: A few things. The capital that we received largely was balance sheet capital and not fund capital. We took in some great capital, first from a firm called Eldridge, which is run by a gentleman named Todd Boehly. He’s more known for investing in sports teams like Chelsea, the Dodgers, and the Lakers, but he also has a big portfolio of non-sports companies.

A year later is when we did our first institutional round led by Apollo, Motive, Franklin Templeton, Reverence, and Hamilton Lane. They’re bringing their networks, they’re bringing their relationships and credibility to the table. I would say that all of the firms that I mentioned that invested in CAIS brought so much.

You know, Reverence is an acquirer of wealth management firms, so his insights into that community are second to none. Motive is a fintech private equity business. They have an arm called Motive Create that does nothing but work with their portfolio companies’ technology teams to really help them think through complex problems. So, everyone is bringing something slightly different, but it’s a lot more than just capital.

Colbert Cannon: Let’s talk about the evolution of your business and the growth of it. So, as you say, you have had a 15-year run here. There’s been certain tailwinds that have helped you, right? There’s been a massive growth in alternatives during that period of time. Why is that? Why do you think there’s been such a tailwind for the alternative space?

Matt Brown: First of all, financial advisors, they now have access to alternatives, but they’re quite disappointed with this outcome of the 60-40 portfolio. So, to add alts and create a modern three-dimensional portfolio of equities, fixed income and alternatives is just delivering better outcomes for their clients, and they can see that, so they’re drawn to that.

Firms are also contributing to this narrative. Diversifying shareholder base with wealth management assets is newer to the equation. Five or eight years ago, when I’d have conversations with asset management firms, they were very institutionally focused in terms of their capital base. Now, wealth management is a main event. It’s a huge pool of capital that’s largely untapped, about to allocate to alts for the first time.

Colbert Cannon: Push and pull from both sides. No, that’s interesting. Alternatives is a broad term, and it encompasses a lot. What are the fastest growing sectors for you on the CAIS platform these days?

Matt Brown: It changes every year. We can look at the hedge fund community and then the different strategies there. We can look at private credit. We can look at private equity, real estate. We’re seeing a lot of pickup right now in the hedge fund community on the multi-strat side. So, the more liquid strategies are also coming back into favor as well.

So, as a platform, we don’t advise. We observe. And it’s an interesting point of view which leads us to the question of: What do you do with that data?

Colbert Cannon: Matt, what do you do with that data?

Matt Brown: Well, data insights, as a technology business, it’s becoming more and more interesting for us. You could see CAIS, at some point, potentially selling data. You can see us in the very near-term, being able to bring the value of that data to the users of our platform for an enhanced experience.

Colbert Cannon: And it’s interesting Matt, because you do sit in a really unique seat. The insights are incredibly powerful. And as you say, I mean, I always think about your mission. It’s not just access — it’s education. Alternatives require you to educate the RIA community in a different way.

Matt Brown: We’re getting to the point where the data initiative is robust enough that many doors are opening for how we can use data. But you mentioned access and education. Those are two really important areas. But I will tell you, what’s becoming even more important is the management of alternative investments for financial advisors. We call that the trade and post-trade experience.

As use of alts increase and more and more advisors and their end clients have access to and then invest in alternative investments, that’s the good part. But the bad part is now they have to manage those, and that’s capital calls and that’s statements and how do you execute? That’s really where technology can also make a huge difference.

So, as we think about our mission, Colbert, it’s not just bringing access, but it’s making the experience of buying and owning alternative investments, a positive one from what, you know, historically was challenging operationally.

Colbert Cannon: Well, your post-trade point is exactly right. There is a friction to it, and there’s a complexity of the operations that’s different and your ability to simplify that for your partners, I think, is incredibly compelling.

Let me pivot to the macro for a second, Matt. As you say, you don’t advise. You sit as a platform, but you do have insights and data. We’re recording this in the late summer of ‘23. The markets feel better at this exact moment. Recession and inflationary concerns are, sort of, ever present. What do you think are the most interesting themes in alternative investments in this kind of market?

Matt Brown: So, we do try to stay neutral, but again, through observation, we have —advisors that I don’t believe feel that the market is substantially better. I think they’re facing a higher interest rate environment. So, they’re getting rewarded for holding cash in a different way than they ever can remember.

The geopolitical landscape is challenging. We have a war going on in Europe. We have, in the US, a very unusual election cycle that we’re facing with a lot of volatility there and uncertainty.

We’re seeing the adoption of alts as a result of all of that. And then within that, you’re seeing a tremendous amount of positioning of portfolios to be able to respond to some of those impacts. So, it could be infrastructure as a big theme. It could be, again, private credit as a big theme. You are seeing the market neutral strategies on the liquid side very much improving in terms of their popularity on the platform and interest.

Colbert Cannon: Let me take you outside of work for a second. You know, outside the workplace, you are passionate about entrepreneurship broadly. I want to hear, and our listeners get the benefit of what you’re doing with Endeavor. It’s interesting stuff.

Matt Brown: So, Endeavor was a journey that I went on from 2000 to 2017. What an unbelievable experience.

It started as a small nonprofit organization trying to help entrepreneurs build businesses in emerging market countries. Endeavor, as an organization, would surround them with know-how, help, mentorship, and oftentimes, in countries where it was very difficult to have an infrastructure or a community for entrepreneurship, it has since grown to be the largest entrepreneurship program globally in, I think, over 40 different countries. The amount of employees at these companies have been able to hire as a result of Endeavor; the amount of businesses that have been launched, oftentimes with men and women who maybe didn’t have that advantage built in countries like Turkey or South Africa. Endeavor has now since come to America, where it’s helping in some of our cities where we need more entrepreneurs to create jobs and create economic change.

So, it was a big chapter in my life. CAIS has taken up most of the energy, I would say, in the last 10 years, for sure. But I’m very thankful for that experience that I had there, working with those entrepreneurs and working with Endeavor overall.

Colbert Cannon: I love it. Exciting stuff, Matt. Great catching up, exciting stuff already for CAIS, and I know much more to come in the future.

With that, Matt, I want to move to the last segment of the podcast, something we like to call “Best Ideas” where we offer up something that’s added value in our lives recently. “Best Ideas” because it’s our goal as investors to maximize exposure to those.

Matt, as our guest, I’m going to ask you to go first. What is your “Best Idea” this week?

Matt Brown: So, I recently read the book “Winning” by Tim Grover. He was quite well known as a coach, a mentor to Michael Jordan, Kobe Bryant, business leaders, and he wrote a book called “Winning.” And there’s a quote that he uses in that book. He says, “Time for everything equals time for nothing.”

And what he’s saying, of course, is that if you aren’t focused, and you just are too distracted by too many different things, ultimately, you’re not going to do any one thing well. So, time for everything equals time for nothing.

I actually think about it a lot, making sure that the hours that I spend are either with my family, building my company, and really cutting out any distractions. So, I’ve become very protective of my time, and sometimes, that’s not easy. You have to turn things down and not say yes a lot. But in order to build a business, you can’t just be passionate. You have to be obsessive, and you have to make sure you carve out the time to be able to do it and have that focus.

Colbert Cannon: That’s a great recommendation. I’ll only add to it. His other book “Relentless”  I also thought was fantastic.

Matt Brown: That was great too.

Colbert Cannon: And I agree wholeheartedly with the message from that, it makes complete sense.

Listen, I’m going to go a little more low brow for my recommendation. But Matt, I do like to be inspired by the guests of the week. As you heard earlier, Matt’’s from New York, grew up in SoCal, worked in LA. I started thinking about one of my favorite TV shows I watched recently set in Los Angeles. I’ll also note, I have three teenage kids. This was a family crowd pleaser. I loved it, but my 14-year-old son who’s hard to convince to watch anything that isn’t on Twitch or YouTube also loved it, so it’s got range.

My “Best Idea” this week is the show “Jury Duty” streaming now on Amazon Prime. It’s got a remarkable concept to it. They put out a casting call where they told those auditioning that they wanted to do a deep dive on the jury duty process and would follow a case and tape everything, including interviewing the jurors for a documentary about the trial and courtroom process. They find a good candidate, shows up the first day, but unbeknownst to him, every single other person – jurors, the plaintiffs, lawyers, judge – they’re all paid actors. And things go off the rails quickly.

It’s incredibly funny, but it has this remarkable warmth to it, and it features this incredible performance by the actor James Marsden, who is in fact playing himself as if he was on jury duty. It shouldn’t work. Like, it’s an absurd conceit, but they pull it off. And the final episode is a deeply satisfying unveiling of all they had to do behind the scenes to ensure its success. So, in honor of a SoCal guest, let me recommend the fantastic “Jury Duty” on Amazon Prime as my “Best Idea” this week.

Alright, Matt, with that, it’s time to wrap up for the week. As you said, you’re a busy man. We are honored that you came on. It’s truly a pleasure to have you. We appreciate you taking the time today.

Matt Brown: Colbert, thanks so much. Great being on. We deeply value the relationship with HPS, and more great things to come.

Colbert Cannon: Awesome. Thanks, Matt.

Matt Brown: Take care. Bye.