1. Family Office Club - San Francisco July 2017
“What are the 6 benefits for advisors who do include alternatives in client portfolios?”
Craig Martin, MSFS

2. Craig Martin
Master of Science in Financial Services (MSFS), CFP, ChFC, CLU, CASL
President, The Family Wealth Consulting Group (FWCG)
Financial planning firm in Silicon Valley
Co-invest with clients in alternative investments using two funds
12 year Member Keiretsu Forum an International Angel Investment Group
I will talk from my experiences as an angel investor and how important it is to see how angels and entrepreneurs and you are connected.

3. “Alternatives are anything but stocks or bonds”
Direct Real Estate
Angel Investments in start-ups
Private Equity
Alternative Income (Market Loans)

4. Allocating to Alternatives is a premier choice
1. Risk-Management Tool decreases volatility
2. Inefficient Markets allows for effective DD
3. Increase expected returns in the total portfolio
4. Focus on high-impact investments
5. Maximizing the illiquidity premium (with income)
6. Manage / transparent costs

5. “Diversification is your only safety” Craig Martin
“Diversification is a free lunch” Harry Markowitz, Nobel Laureate
“Diversification is your buddy” Merton Miller, Nobel Laureate
Effective diversification using alts

6. Alt’s are the best risk-management tools this chart is the advisor’s dream
Dissimilar price movement
Reduces price volatility
Increases expected returns
Equity Institutional; Alternate Routes: 4 Ways Alts Can Optimize a Portfolio 2016

7. Yale Endowment has 65% in alts
83% of investors are interested
67% of advisors say they NEED more education
At best, 10% of investors are invested in alts
$150B new $ allocated to alts by 2020
Source: Alternatives in the Mainstream, March 13, 2017
Blackstone Education and Investment News

8. Real estate is in an inefficient market my due diligence has earned higher returns
Local demographics, timing, location
People, People, People
Due diligence locates RELP’s with 20+ year track records of earning 2X+ of benchmarks
Equity and / or Income
One big problem = liquidity

9. Getting income from non-marketable real estate applicable to institutions or individuals
Original plan is for RELP to sell in 5 years
A lump sum investment in 1st year produces expected liquidity in the 5th year
Spread that out over 2 years produces 2 years of expected income
Annual investments produce annual LTCG income after the 5th year
Diversification by the 5th year is in dozens of managers with different investment methodologies owning many addresses in multiple geographies with different demographic drivers AND during many rolling economic timeframes.
Diversification is maximized in all the elements determining returns
Diversification is your only safety

10. FWCG Opportunity Fund, LP Equity alts in real estate
2015 and 2016 sales proceeds earned at 20%+ IRR
14 different RELP in 26 states
Law of Large Numbers creates confidence of earning an average return
There is no guarantee that any of these returns will occur. All investments have a risk of loss of principal or underperformance.
“Diversification is your only safety”

11. Alternative Income using Market Loans
Loans from people to people (P2P) or people to businesses (P2B)
Digital marketing, credit scoring and payments
Collateral
Leverage
Liquidity
Earnings
Diversification is your only safety

12. FWCG Diversified Alternative Income Fund, LP
14 different alt income funds
P2P + P2B
Leverage
Collateral
90 day liquidity
As of paying 7.6%
There is no guarantee that any of these returns will occur. All investments have a risk of loss of principal or underperformance.
Diversification is your only safety

13. Professional due diligence requisite
Big Institutions
Ultra High-Networth Family Offices
Individual advisors

14. Who is an angel investor?
An Accredited investor with greater than $1M assets under management or $300K of family income
12.5 million qualify as accredited - maybe 305,000 angels (2.4%)
I am going to talk about start-up businesses and some of the details about how they get funded.
I am a fee-only financial planner during the day. I have two funds my clients & I use to invest as angel investors in start-up businesses. For the last 12 years I have been a member of Keiretsu Forum, a worldwide angel investment group with chapters on 4 continents, including China. That location is always amazing to me. This will be relative to you when talking to your clients or associates who are either an angel or an entrepreneur.

15. What do they do?
Angel Investor: invests their own money into a private business that is owned and operated by a stranger to fund business plans
Typically they buy stock, common stock or invest in a (convertible) note with a definite plan to be sold at exit = IPO or M&A for an acceptable multiple = 5-10X… or …100% IRR
Direct investments in high-impact, sustainable, disruptive ideas
Typically invest the 1st $1.25M funding major milestones
Trade daily on LEGAL insider information
Kauffman Foundation says angels earn an average of 25% IRR

16. How do angels compare to VC’s
How do angels compare to VC’s? “Entrepreneurs are changing the world, and angels are perched on their shoulders”
angels VC’s
# of deals 73,400 3,665
$ volume $24B $50B
New EE’s hired- 30,000 (?) 2,000 (?)
Average IRR 26% 13% late; % in emerging
M Lemerle & A Davis “Build Your Fortune in the FIFTH ERA”
JOBS Act
Qualified Small Business Stock is Section 1202 = tax free gain
JOBS Act is evidence that the politicians definitely want to promote investments in start-up businesses. It offers a new opportunity for non-accredited to participate in this equity growth.
You know, if the ROTH IRA is the best tax-wise investment vehicle, then QSBS must be the best investment category. Basically if stock is held 5 years the sale is tax free. That is a major criteria for planning with angel investors.

17. Angels will be bold and go where other investors will not go
Angels combine with new CEO’s to produce disruptive changes that the world wants. It is very exciting to be out in front with such people and ideas.
Giving wings to great people, the best ideas with challenge and excitement

18. Alternatives are a premier choice
1. Risk-Management Tool decreases volatility
2. Inefficient Markets allows for effective DD
3. Increase expected returns in the total portfolio
4. Focus on high-impact investments
5. Maximizing the illiquidity premium (with income)
6. Manage / transparent costs

19. Craig Martin FWCG is a financial planning firm in Silicon Valley
Maximizing the many benefits of using alternative investments
Equity alternative investment Fund offering a choice in either real estate or start-ups
Alternative income fund with 14 different funds paying 7.5%
“Diversification is your only safety”