Lovell Wealth Management’s Stephen Lovell Highlights Real Estate as Starting Point in Alts 

Sophisticated, institutional investors who can lock their wealth for long stretches of time have largely favored alternative investments over traditional assets such as stocks and bonds when it comes time to deploy capital. 

In recent years, however, alternative assets have become increasingly mainstream among investors who have developed a desire for something besides the familiar mix of stocks, bonds, and cash and can now buy into high-growth investments, including previously illiquid private assets. 

Stephen Lovell, president of Lovell Wealth Management and ADISA Board member and Chairman of the Education Committee, discussed the primary drivers of the growing demand for alternative assets, the value of education, the new developments in the industry, and what he is advising his clients about, among other topics.  

CM: The data clearly show that the appetite for alternative investments is rising. 

SL: What do you identify as the main drivers of this increase?  

• Desire for income 

• Desire for tax-advantaged income, especially in high-tax states, such as New York and California 

• Capital gains tax reduction 

• For the retail investor, especially for those with relatively greater wealth than their peers or for those who are more astute in investing, the opportunity to individualize their portfolio  

• For the institutional investor, the many decades of experience with Alts, which has “proven” that they offer an attractive risk-return ratio in comparison to stock and bonds. This “endowment model,” pioneered at Yale University by David Swensen, has held sway at institutions for a long time. 

CM: We often hear that investor education is a top priority when investing in alternative assets. Do you agree, and how does that impact your work? 

SL: I agree wholeheartedly. As the Education Chair at ADISA, one of my duties is to educate our members regarding Alts. As the leader of the ProVisors’ affinity group, Silicon Valley Succession & Estate Planning, I am introducing speakers to our members whose task is to educate attorneys, CPAs, and other professionals regarding Alts. As an advisor to my clients, education regarding Alts is constant. I have noticed that over time clients more readily accept Alts. Many of them have multiple Alts positions and the latest portfolio additions tend toward greater complexity. 

CM: Where should investors start when considering alternative assets? 

SL: The familiar: real estate. Those closest to the well-known, i.e., ’40 Act funds. These are interval funds or liquid Alts. Progressively, product sponsors are offering more redemption opportunities. This widens the investor population.  

CM: What emerging trends do you anticipate the industry will see more of in the short-term and long-term? 

SL: In the short-term: 

• More movement from public to private markets. 

• Continuing and growing use of digital assets by all investors because they are being adopted by governments and by large, well-known institutions, such as JP Morgan and Morgan Stanley. 

In the long-term: 

• Greater adoption of Alts by younger investors as sponsors stress impact investing. 

CM: What made you decide to get into alternative investing? 

SL: [The] introduction to BDCs (Business Development Companies) in 2006 by a friend whose investment credentials were sound: that of CFA and, later, CAIA and the self-evident advantages of Alts over traditional investments such as higher return, portfolio allocation diversification benefits, and significant tax benefits. 

CM: What are the most common questions your clients are asking now and what are you telling them? 

SL: They often want me to recommend more Alts when they experience wealth growth and tax savings. I suppose the question is, how do we get more of this? 

CM: How does this market compare with other periods of dislocation over the past few decades? 

SL: I do not believe this market is immensely different. The GFC (Great Financial Crisis) is recent, and it was extravagantly destructive. What is nerve-wracking is the upcoming U.S. election and the terrorist Russians and the imperialist Chinese. 

CM: What are some alternative strategies worth considering? 

SL: For tax savings: 

• Oil and gas 

• QOZs 

• 1031 Exchanges 

• 721 Exchanges 

• Investments offering a discount for completing a Roth conversion. This is available through both oil and gas and REIT investing 

 For high income: 

• Various types of Alts offer relatively high income, most based on real estate 

• Private debt 

• Private credit