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Investors look for more than stocks, bonds, mutual funds to build their nest eggs
September 12, 2018
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DALLAS: Brad Heppner has built a new company in Dallas on the idea that as the numbers of US millionaires rises, investors will look for more than stock, bonds and mutual funds to build their nest eggs.

He holds up his mother’s IRA statement.

She’s a retired secretary and sends him a copy now and then. It’s not $1 million, but it’s a good sum of money, he said. She has nine funds to select from. He points to the part of the statement that shows allocation breakdowns _ large cap, mid cap, small cap, international, mutual funds and bonds.

“There will be one more box soon _ for alternative assets,” he said. And he expects that to happen within three years.

What’s driving people to other types of investments has as much to do with wealth accumulation as it does with fewer rich people seeing the stock market as the be-all and end-all of investing.

But those alternative assets are tied up in investments that are slow to untangle, such as private equity, hedge funds, oil and gas, timber or family businesses. Nothing else is as easy to convert into cash as a stock index fund.

So he founded Beneficient Group, which he refers to as BEN, with $2 billion in capital to be a lender to wealthy Americans who need money fast. The company will turn non-liquid assets into cash and return the asset to the borrower once the investment pays back Beneficient.

Some may call it a first-world problem, but it’s real and common among the nation’s almost 10 million millionaires to not have access to their wealth.

“People die and their estate needs money. People get divorced and need to split assets,” he said.


Beneficient is focused on the 1.3 million ultra-high-net-worth households _ people with assets between $5 million and $25 million _ because they are already in alternative investments. He’s also targeting institutions with less than $1 billion in assets, as well as private equity funds.

While the stock market has soared since the 2007-09 recession, fewer companies are now traded on the exchanges. The recent peak was in 1996 with 8,025 publicly traded companies, but that was down to 4,336 by the end of 2017.

Today US investors own $3 trillion worth of alternative assets around the world, Heppner said.

Rene M. Stulz, an Ohio State University finance professor who recently published a report for the National Bureau of Economic Research on the shrinking stock market, said there’s a definite concern for individual investors.

“It means that most individual investors who are restricted to public firms are restricted to a shrinking investment universe that does not include as many young and innovative firms as it used to,” Stulz said in an emailed response. “They get to invest in older firms,” he said. “Hence, they are not as diversified as they think they are or used to be.”

Private equity firms and hedge funds are taking more and more companies private. Mergers and acquisitions have accelerated, taking even more companies off the trading markets. And the number of initial public offerings has been lackluster.

But most investors can’t log on to their 401(k)s or IRAs and buy a piece of an office tower or a hedge fund.

At some point, rules related to risk that restrict investors with only $1 million or $2 million from being solicited into alternative investments will change, Heppner said. There will be modified investment opportunities for people with assets of under $5 million, he said, and that opens up another 8 million-plus millionaires who are defined as accredited investors. And that means liquidity will be even more important, Heppner said. He set up a method to convert assets quickly that he describes as unique.

“We’re trying to make the process as simple as possible,” he said, noting that Beneficient boils down what used to take six to nine months and hundreds of pages of legal documents to 45 days and 20 pages of an “easy-to-understand” contract.

Beneficient is repaid by the asset, which is placed in a trust for as long as it takes to have the lender’s principal and interest returned. It may take a couple of years or 10 years.

To build out the nascent business, Heppner has assembled a board of heavyweights, people with big reputations in government finance, accounting and investing to supervise him. The board includes:

Thomas Hoenig, former vice chairman of the Federal Deposit Insurance Corp. and a former president of the Kansas City Federal Reserve Bank and the Federal Open Market Committee. Richard Fisher, former Dallas Fed president. Tom Hicks, who many call a pioneer in the private equity business and former owner of the Texas Rangers and Dallas Stars sports franchises.

Bruce Zimmerman, former CEO and chief investment officer for the University of Texas/Texas A&M Investment Management Co., the second-largest US endowment fund. Sheldon Stein, president of Southern Glazer’s Wine and Spirits, one of the largest US private companies.


Billie Williamson, former partner in Dallas at Ernst & Young and an expert in finance and audit. She’s not officially on the board until September. Bruce Schnitzer, founder of private equity firm Wand Partners.

David De Weese, general partner at Paul Capital. Michelle Caruso-Cabrera, former chief international correspondent for CNBC.

Luring Caruso-Cabrera away from the popular business news TV network ended up shining a big spotlight on Beneficient, which Heppner had quietly been building in recent years.

This year, he’s also hired four of the top enforcement attorneys in the US Securities and Exchange Commission Fort Worth regional office and plans to have a staff of 80 people by year-end.

Instead of inventing a technology platform, Beneficient this summer purchased ACE Portal, a hub for private placements located in the New York Stock Exchange. ACE provides investment banks and others a place where stocks, bonds or securities are sold directly to private investors, rather than through a public offering. Heppner raised $2 billion to lend to his wealthy customers: 40 per cent of that is his own money, about 10 per cent is from other investors and board members and 50 per cent he just secured in a transaction with Minneapolis-based GWG Holdings, a firm that buys life insurance policies from individuals.

Heppner was surprised that the addition of Caruso-Cabrera, who is leaving CNBC this month even though she’ll occasionally appear on-air as an expert on international issues, was what brought the company into the limelight. “I really thought Tom Hoenig was going to be the attention-grabber,” Heppner said.

While at the FDIC and the Fed, Hoenig was an outspoken critic of monetary policy and its unintended consequence of low interest rates creating bubbles that break, such as the housing crisis in 2008.

Heppner wanted his board of directors to be Texas top-heavy and located Beneficient in Dallas instead of. New York because this is where he has been successful.

“This city is great for finding talent and, once they get here, they don’t want to leave,” he said. He came to Texas from a small farming town in Kansas as an 18-year-old to go to Southern Methodist University.

Tribune News Service

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