Brian King – The Market for Alternative Investments

Brian King – Alternative Investments

Unlocking liquidity in illiquid assets: How Brian King’s LODAS Markets is revolutionizing alternative investments.

Introduction

What if you could turn traditionally illiquid assets into liquid ones, opening up a world of new investment opportunities? Brian King, a seasoned veteran of the stock exchange industry, is making this a reality. Through his innovative platform, LODAS Markets, Brian King is introducing a groundbreaking secondary market for alternative investments. This development is set to revolutionize how investors interact with assets like private equity, real estate funds, and private credit. Are you wondering how this could transform your investment strategy? Let’s explore with Brian King to see how he is shaping the future of finance.

The Birth of LODAS Markets

Brian King’s journey to founding LODAS Markets commenced in the cutthroat world of stock exchanges. He was part of the founding team for BATS Exchange, which grew to become the third-largest stock exchange globally. His beginnings there and later experience at the New York Stock Exchange manifested the power of technology-driven innovation in financial markets.

King noticed a significant shift toward alternative investments. Companies were staying private longer, delaying initial public offerings (IPOs), and leaving private investors waiting for liquidity events. Through this, Brian King realized that alternative investments needed a secondary market. This insight led to his creation of LODAS Markets, a platform that allows investors to buy and sell alternative assets with ease—something traditional market structures lacked.

Addressing the Illiquidity Problem

Alternative investments like private equity, real estate funds, and private credit are inherently illiquid. Investors often find it challenging to sell these assets when they wish to; in addition to this, traditional exchanges such as the NYSE or NASDAQ do not support these assets, leaving a liquidity gap.

Through LODAS Markets, Brian King has established a solution. The platform enables secondary transactions for alternative investments, making it possible for investors to buy and sell assets previously locked until maturity. By introducing liquidity to these markets, King offers investors new flexibility and the ability to adjust their portfolios.

Expanding Access to Alternative Investments

In recent years, wealth management firms like JPMorgan and Goldman Sachs have started offering alternative investments to their clients. According to Brian King, this shift indicates where the market is heading. As more individual and institutional investors gain exposure to alternative investments, the demand for liquidity will only increase.

With LODAS Markets, investors now have access to a secondary market for assets like private credit funds, energy funds, and real estate funds. King mentions that in today’s tight credit environment, private credit is especially attractive because traditional banks have reduced lending. For investors seeking yield, private credit offers significant opportunities, and LODAS Markets provides the platform to access these assets at competitive pricing.

By creating a marketplace where illiquid assets can be traded, Brian King has opened doors for more investors, to participate in alternative investments without indefinitely locking their capital. This increased accessibility will encourage further investment in these markets, expanding the investor pool and boosting valuations in the long term.

A Model for Transparency and Trust

A vital aspect of Brian King’s approach is ensuring transparency and trust within the LODAS Markets ecosystem. Unlike traditional stock exchanges where pricing is straightforward, alternative investments can be challenging to value due to limited disclosure and varying asset structures. King and his team address this by requiring funds to disclose necessary information, allowing buyers to make informed decisions.

For example, many of the funds on LODAS Markets have an established Net Asset Value (NAV), serving as a pricing reference point. However, given the nature of alternative investments, trades often occur at a discount to NAV. This creates unique opportunities for investors willing to assess the risks and potential rewards. LODAS Markets also provides data tools to assist in evaluating these funds, ensuring investors have a clear view of the assets they’re purchasing.

The Future of Alternative Investment Markets

Looking ahead, Brian King foresees a future where spreads—the difference between buy and sell prices—compress for alternative investments, much like they have in traditional asset markets. With more participants and increased transparency, he believes trading efficiency will improve, which will lead to better pricing and reduced liquidity premiums.

King called on the example of Blackstone’s BREIT, a well-known real estate investment fund. On LODAS Markets, BREIT’s discount to NAV narrowed significantly, witnessing growing confidence among investors in alternative markets.

Brian King compares his vision for alternative investments to traditional equity markets, where companies no longer need to maintain cash reserves to provide liquidity to shareholders. Instead of this, exchanges efficiently match buyers and sellers. Similarly, he hopes alternative investment funds won’t have to be the sole source of liquidity. LODAS Markets can serve as a central hub, connecting buyers and sellers and establishing fair pricing for these assets.

Brian King’s Legacy in Financial Markets

Brian King’s work at LODAS Markets represents a significant evolution in alternative investments. By addressing the illiquidity problem, he has made these assets accessible and appealing to a broader audience. In addition to this, his platform is founded on transparency and trust.

Through Brian King’s groundbreaking approach, LODAS Markets has shaped, and is continuing to mold the future of investing. Alternative investments, are now becoming more flexible and accessible to those seeking to vary their portfolios beyond traditional equities and bonds. As LODAS Markets continues to grow, the impact of Brian King’s work will echo across the financial industry, providing a new generation of investors with the tools  to navigate alternative investments with confidence.

Conclusion

Brian King’s introduction of a secondary market for alternative investments through LODAS Markets is a game-changer. By unlocking liquidity in illiquid assets, he has paved the way for the future of investing. Whether you’re an institutional investor or an accredited individual, as you incorporate LODAS Markets into your investing, it will change the future of your alternative investment strategy.

TRANSCRIPT

Alan Olsen

Welcome to American dreams. I’m here today with Brian King, Brian, welcome to today’s show.

Brian King

Thank you so much for having me.

Alan Olsen

So Brian, for the listeners here, can you give us your background to how you got to where you are today?

Brian King

Yeah. So my background has mostly been in the stock exchange world. So in the Kansas City area, many people might be familiar with bats exchange. It grew to be the third largest stock exchange in the world. I was fortunate to be a part of that startup team, and I had the fortune of being able to also move over to London to be able to start bats Europe. That was an exciting time to be able to build that we were the first Pan European exchange. I moved back, I helped to start our Options Exchange and then our ETF business, and so a really cool path there. The Chicago Board of options ultimately bought us. Around that time I left, and I went to the New York Stock Exchange, and spent about five years there, overseeing trading and market structure and ETFs, and then saw this tremendous shift towards alternative investments, and ultimately I knew that that’s kind of where the puck was going in the financial markets world, so I wanted to be a part of that. And having built so many marketplaces, ultimately what we did is we created a secondary market for alternative investments, and then we also, once we saw that, we built that product, we realized how significantly dated the operational ecosystem is for alternative investments. And so we also created a transfer agent product as well. So within our ecosystem, we really can help people from everything from fundraising alternative investments all the way to its managing those assets, all the way to the ultimate exit. Through a secondary event,

Alan Olsen

you were able to sense a gap in the market, launching the bad exchange. The New York Stock Exchange is a fairly competitive environment. You shouldn’t see people starting new exchanges every day when you first started off, what helped you get a sense of that this bat exchange was going to succeed?

Brian King

Yeah, so I was fortunate to be a part of that startup, but Dave Cummings was the was the founder of bats exchange, and he had a significant trading business. He was one of the pioneers of automated trading, so what has been later coined as high frequency trading, and he did that through trade bot. So that’s another company that’s based here in the Kansas City area, and again, very successful. But there were because there was kind of a duopoly between the New York Stock Exchange in NASDAQ, there wasn’t a tremendous amount of competition for innovation among the exchanges. So he had, he basically saw the opportunity to say, hey, if we were to create a new exchange, it would really forge an opportunity for firms like us who leverage technology to be able to really succeed and thrive in that ecosystem and really evolve the marketplace and and ultimately, that’s exactly what happened. And so there are a lot of major financial institutions, bulge bracket firms, trading firms, that were very had a very vested interest in the success of bats, and so they became investors in the organization, and really were the a lot of the catalyst for that early success.

Alan Olsen

What was the attraction of Kansas City? You know, you got on the market, the Pacific exchange, New York exchange, Chicago Board of, you know, Option Indexes. But the Kansas this was a new venture coming into the trading world. It

Brian King

is yes. So again, I think a lot of it was convenience from this, from the point that this is where Dave is, is based, and so when he was founding that company, since it was here in Kansas, that was the that was the big driver. Is just it was here now. But when you look at the two biggest competitors, NASDAQ and the New York Stock Exchange, both being in New York, they had a significant cost disadvantage right to be able to operate those exchanges in those cities is very, very expensive overhead between office space and what you’re paying employees, etc. But there was a really significant marketplace, not for not just because of the type of how inexpensive it is to operate an office here, but there’s a large talent pool of engineers, and at the end of the day, the exchanges is a technology company, and so to be able to leverage some of that existing technology talent that’s based here in Kansas City. Was, it was a big advantage, and because you could do it at a dramatically lower cost,

Alan Olsen

what inspired you to start Lotus?

Brian King

So again, it was, it was really the idea of opportunity, as I mentioned, I saw this the major Mark. Right shift in the ecosystem. One of the biggest things was, and we’ve heard this a lot, but you know, companies are staying private longer, right? So because of that, a lot of investors were wanting to be able to participate in those private markets, be able to invest before those companies go public. But even bigger than that, for me as a catalyst of why I wanted to start lotus, was because we started to see this other shift happen, where, historically, the bulge bracket firms like the JP Morgans, the Morgan Stanleys, Goldmans, etc, that have wealth advisory channels, they did not historically expose their clients to a lot of alternative investments. And so now, all of a sudden, we saw that they were exposing them to alternatives. That was a big change than in what they had done in the past. But even more so, they also were now creating products for that. And so when you start to see these massive institutions start to create product and start to change behaviors towards something, you’d know that that’s kind of where the puck is going. And the more you have individual investors investing in alternative investments, the more important liquidity becomes. And so again, becoming an exchange helping I’d spent my whole career in the exchange world making, you know, candidly, liquid things more liquid. The idea of being able to make illiquid things more liquid was very desirable.

Alan Olsen

Have you found in today’s environment of quote, illiquidity that the exchange has been more popular?

Brian King

Absolutely So timing of when we launched our business, we were kind of going through the blueprinting and kind of the idea ideation of it in 2020 we hired our first team members to start building it in 2021 and if you recall, obviously that was right in the throes of COVID, and there was a lot of concern that people had With liquidity, and it did have a massive impact on real estate. So when we think of alternatives, the types of alternatives that we trade today, largely Those are real estate related investments, funds, really all types of structures, energy funds and private credit funds, and we’ve seen big movements in all three of those areas, but especially on real estate. So being able to create liquidity events for some of these real estate funds where people are maybe nervous about what’s happening, or other things like that, it gives them flexibility that historically they had not had

Alan Olsen

Hedge funds and the REITs seem to have recently come under fire with the change in interest rates and liquidity. What has been the primary challenge for keeping those things solvent and tradable? Yeah,

Brian King

so I think right now for us, we’re a young company so early, early days, it was just letting people know that we exist. We were fortunate that right out of the gate, we had a lot of buyers kind of show up. They were very interested in being able to provide liquidity. But candidly, as we’ve grown and we have tremendous additional products on our marketplace today, you might have a lot of people that are very interested, but they might be interested in this subset of funds or products or real estate deals, etc, to so we’re constantly needing to find more people to be able to diligence each additional fund that gets added to the marketplace. So that becomes the biggest thing for us is in order to find liquidity. Most things have a price, it’s just really trying to figure out what exactly that price is. If it’s a registered fund, they’re filing their information with the SEC so you can diligence it pretty easily. If it’s a private fund, you’re it’s a little bit harder to find exactly what that valuation is. It’s it depends on how much information that sponsor of that fund is willing to disclose.

Alan Olsen

I’m going to jump over to alternative investments. What are some of the alternative investments that people don’t realize that they are able to invest in through an exchange?

Brian King

Yeah. So I think some of the most common ones that we have today are we do a lot of secondaries for private credit funds, so that could be in a BDC structure or some other type of a note. And private credit is really significant right now because the banks are largely locked up in the environment that we’re in today. So there’s a lot of people that are issuing debt, and so to be able to create a secondary environment there is has been very attractive to a lot of people, especially if you think about the fact that you can get a yield at let’s say that a yield on private credit is 10% but if it’s in an alternative investment and somebody is looking to have a secondary event, usually there’s a liquidity. Discount built in, right? So they might get it at a 10% discount. Well, if you can get the investment at a 10% discount, not only is there a price appreciation opportunity there, but there’s also you’re getting a higher yield, effective yield, because you’re buying it at a discount too, right? And so that becomes an extra value, like I mentioned earlier, energy funds are pretty heavily traded on our marketplace today, whether it’s renewable energy or oil and gas type funds, a lot of different land type investments. But of course, you do have a lot of private equity in VC, and I think there’s been a lot of those that have fallen out of favor a little bit. Because I think going into 2020 there was some really incredible pricing that was happening for some of these individual companies that were inside of those private equity so they were raising money at really incredible valuations. And I think there’s been a bit of a reset there. And so being able for some of those people to say, you know, realize what those markdowns might actually be, it’s been painful. And so some people aren’t sure where that bottom is going to be, so they’re looking for liquidity today. Say, You know what, I want to I want to remove myself. But anytime people are saying they want to remove themselves from risk, usually that’s opening up an opportunity for other people that want to be buyers in that situation, right? They say, well, it it might be depressed now, but there’s probably going to be an upside at some point in the future. So one man’s crisis is another man’s opportunity.

Alan Olsen

Do you have minimum requirements before a company is able to list on your exchange?

Brian King

Uh, largely, no so if it’s a registered fund, there’s typically like, again, they’re filing case and Qs so their information is readily available. Rarely do we have a situation where we wouldn’t list that fund on our marketplace, and then from from the private funds, usually they have to be able to disclose at least some amount of information. There’s oftentimes some type of a transfer restriction, whether it’s first rights or refusal, and so if it’s a private fund, we need the sponsor to sign off and say that, hey, we’re allowing secondary transactions here, but assuming that they say yes and they’re good with it, as long as they make some minimal level of disclosures of the investments and that type of thing, so that a buyer can legitimately diligence it. Then we’ll allow it to trade on our marketplace. So there’s really not a size or a volume, not really no again, from a tech we’re a technology company at our core, so we operate, in some ways, as a SaaS type of a model for some of the things that we do secondaries is a little bit is definitely transactional. But from our perspective, being able to match buyers and sellers, it’s an automated function, right? So we match them fully, in a fully electronic way, and so it doesn’t really matter to us what the size of the transaction is, but I will say, because we’re dealing with largely private investments, to be a buyer on our marketplace, at a minimum, you have to be an accredited investor, right? So we have a lot of institutions that are buyers, a lot of family offices that are buyers, but at a minimum, you have to be accredited as

Alan Olsen

a person. Sign up for your fund as a buyer.

Brian King

Yeah. So to become a buyer on our marketplace, they can go to our website, which is Lotus markets.com and it takes about five minutes to set up an account. So it’s really easy and fast, and then, assuming that the person’s approved, they would be able to because you are effectively setting up a brokerage account, but assuming that you’re approved, then you’d be able to trade right away. And so be it, be a buyer, and see, see opportunities. We operate in a fairly traditional format, where we have limit orders on buys and sells, but also a buyer has the ability to express their interest in various investments through an IOI. So it’s it’s non binding, but it says, I have an interest in being a buyer, and in this particular fund at a set price or price range,

Alan Olsen

can can accounts be custody that the main brokerage houses, or does everything need to be cussed at your exchange?

Brian King

So yes, we can work with all the different custodians that are out there. We can work with Schwab fidelity. We do have a custodian that we partner with when we need to have a custodian involved, and that’s called Axos. It’s, it’s a large bank custodian, but it’s a very alternatives friendly, so we work closely with them, but no, you don’t have you’re not required to custody something with us. Okay,

Alan Olsen

so the Lotus Lotus markets being relatively new, and. Yeah, how do you maintain the high degree of confidence in this trading platform? Obviously, a lot of people want to come to you and say, Hey, we need liquidity, so let’s come jump in here. And you know, how do you stop the people from coming in that you really don’t want listed on your exchange, meaning that maybe they don’t have complete disclosure information, or it could be problematic for buyers.

Brian King

Yeah, so good question. Fortunately, we haven’t really had too many of those types of problems yet, but at the end of the day, we are gatekeepers of what funds get listed on our marketplace, and so we do have final say and discretion over that. And so for us, we are able to kind of maintain that that type of integrity. And we have compliance department within our organization. They’re able to do diligence on each individual fund that’s listed on our marketplace. So we, we take that very seriously.

Alan Olsen

Are Companies required to undergo audits?

Brian King

In many cases, the answer is yes. In most cases, the funds that we have, that’s a natural part of their organization that they’re doing audits, and we can have access to those and that type of thing. And if they’re made available, we try to make it readily available on our marketplace. So we we have some really cool data tools that we’ve built, and that helps any buyer that’s coming in to diligence the fund, it really displays their data very, very elegantly in some cases. So Blackstone, for instance, Blackstone, their be read fund, is listed on our marketplace. We actually have more financial data about be read on our marketplace and they have on their website. So it’s it’s a really interesting place to be able to look and diligence different types of funds and maybe even learn about those different funds.

Alan Olsen

So the pricing trends when we’re dealing with fairly illiquid investments. Obviously, there’s a gap the market discount market rate. Is that set? Or how does that? How do you guys come to the the determination is all that dumb, electronic trading. Or, yeah, offer at one price and seller at another price? Or, Yes,

Brian King

it’s a great question. So many of the funds that are listed on our marketplace, they do strike a nav. Those navs are either struck on a on a monthly basis or a quarterly basis, or sometimes as rarely as an a yearly basis, but for the most part, they have some type of an NAV that reflects their net asset value per share and so And usually, trading happens at a discount to that price. And so there might be some situations in the future. We haven’t seen it yet, where it could be at a premium. You know, you referenced hedge funds. There are sometimes hedge funds are they perform really well and but they’re closed. They aren’t taking in new investors. And you could imagine a scenario where somebody really wants to get into a particular fund that’s performing really well, but somebody else has a need for some reason to exit. You could see how there could potentially be a premium to get in. We don’t operate in that world right now. We aren’t seeing a whole lot of premiums for these for alternative investments. Usually it’s at some element of a discount, but those prices are often driven by the buyers. So usually the buyers come in, they diligence the fund, and they say, this is the range in which I’m open to being able to buy. And the seller then can see that price, and they can enter in their own limit order and say, Well, I don’t like that price. I’d like to be able to get a little bit more for it. And they can, you know, put in their own, their own offer price. And so the buyer then might be able to see that, and they might lower their price. And so it’s all automated display, but each individual is kind of triggering where they’re willing to be a buyer or a seller. So it’s, it’s we don’t drive price, we don’t make recommendations. We’re just a place that helps facilitate those transactions and then provide as much transparency as we possibly can to those who are looking to to execute the trend

Alan Olsen

with ill liquidity solutions. It seems that with these credit markets still relatively tight, what do you see for the future, in the next five years, with your exchange?

Brian King

Yeah, so my my hope is that, and I’ll answer that question with with a real, live scenario. Our hope is that we’ll see prices really compress. Right spreads compress. So last year, I referenced earlier, Blackstone’s be read. It’s one of the more famous alternative investments. It’s a big household name Blackstone is and their B read is a at the. Time was a $70 billion fund, and so because of some of the things that were happening in the market, there was a significant rush towards the exit and be REIT has a built in liquidity mechanism in their fund. So on a monthly basis, they provide up to a certain percentage of their assets can be redeemed. And so people can can make their shares available for repurchase from from the fund. But there were so many people looking to sell last year, literally multiple billions of dollars over subscribed for that redemption queue, so they weren’t able to meet their redemption requests. And so because they were so significantly oversubscribed, people wanting to sell that couldn’t sell, we listed it on our on our marketplace, and made it available. When we did that, there were a lot of institutions that got very excited about the opportunity to be able to buy at a discount. So they came in. We’re saying we’ll buy it 10% discount or 15% discount. And while that’s I can understand the rationale for wanting to put that kind of a discount on it, we had other investors, particularly financial advisors, who they have a mandate for their investors to be able to buy their funds, to be able to buy Blackstone into their clients portfolios, so they could either buy their funds directly from Blackstone at nav or they could buy it at a discount on Lotus. And so what we saw is the spread compressed dramatically, where now all of a sudden, people were bidding and executing at a 4% discount, which is significantly better than what the institutions were bidding and so we saw that that spread decreased dramatically. And so I believe that as the alternative investment world evolves, we’ll continue to see those spreads decrease. Now I’ve used this analogy before. Is, you know, when somebody, because a lot of these funds are trying to create a mechanism that allows them to be buyers, to buy back their own shares for liquidity purposes. But if you buy IBM stock, IBM doesn’t need to sit on a pile of cash to be able to buy back your shares when you need liquidity. There’s an exchange that helps to match those buyers and sellers, right? And so very similarly, you have a real estate fund, that real estate fund shouldn’t be the one that has to buy back those shares. There should be a an organized marketplace that efficiently can match buyers and sellers. And so the more that trend evolves, I believe we’ll see those spreads really, really compress, and I believe that will unlock the future for more people having an interest in being able to participate in the alternate investments, liquidity is the number one barrier.

Alan Olsen

So Brian, it’s been a pleasure having you today on the show American dreams, a person wanting to access your exchange. How would they go ahead and do that one more time for the listeners, yeah, so

Brian King

they can visit us at Lotus markets.com Lotus is l, o, D, A, S, stands for liquidity on demand as a service. And so they could visit us there, they could, of course, contact me and follow me on LinkedIn. Brian King, so I’m happy to have any conversations with people that want to learn more. All right.

Alan Olsen

Thank Thank you, Brian. Awesome.

Brian King

Thank you so much.