The transcript from this week’s, MiB: Lawrence Calcano, iCapital CEO, is below.
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Masters in Business — Lawrence Calcano of iCapital
Barry Ritholtz [00:00:16] This week on the podcast — wow, another great conversation. Lawrence Calcano has built iCapital since 2013 into what has become the dominant financial technology platform for alternative investments — for wealth managers, for advisors, for banks. I found this informative and quite interesting, and I think you will too. With no further ado, my discussion with iCapital’s CEO, Lawrence Calcano.
Lawrence Calcano [00:00:47] Thanks, Barry. It’s great to be here.
Barry Ritholtz [00:00:49] It’s great to have you. I’ve been looking forward to this for a while. Before we get into your time with iCapital, I want to work back through your career. You got a bachelor’s from Holy Cross and an MBA from Dartmouth. What was the original career plan?
Lawrence Calcano [00:01:09] I don’t know that I had one coming out of the gate. My dad was raised in an orphanage. His father died when he was two, so he was in an orphanage until he was 18. He went into the army, and then he came out and had to put himself through school. He didn’t have a regular path that would lead him to say to me as a teenager, “Here’s the way to do it.” So he was learning, and I was learning a little bit. I was a hockey player, and I got recruited to Holy Cross to play hockey. When I was there, I was an economics major and a theater minor — spent a lot of time doing theater. Then I went off to Morgan Stanley, and that was an interesting decision because I was in a professional play and had been asked to be in a second play. I had a bit of a career crisis early on in terms of what to do.
Barry Ritholtz [00:02:04] What was the first play?
Lawrence Calcano [00:02:05] It was called The Murder Room — a James Sherkey slapstick play. I played a young Texas millionaire who was engaged to a wealthy British woman. The play takes place at her father’s manor in the U.K. It was full of sight gags and jokes.
Barry Ritholtz [00:02:23] On Broadway or off?
Lawrence Calcano [00:02:25] Off Broadway. It was a lot of fun. I was offered a role as the father in The Diary of Anne Frank as a follow-up. At that point, I had also gotten an offer to go to Morgan Stanley, and I was in early trade-off mode. Ultimately, I figured I needed to eat — I had a lot of student loans — so I decided to go off into the world of finance.
Barry Ritholtz [00:02:47] You spent a few years at Morgan Stanley. What were you focused on while you were there?
Lawrence Calcano [00:02:51] I was in mortgage finance. We were helping S&Ls raise capital and do M&A, and also structuring some of the new products — Ginnie Mae securities, Fannie Mae securities, REMIC CMOs, things like that. A lot of structured-type investments.
Barry Ritholtz [00:03:07] This was late eighties, early nineties.
Lawrence Calcano [00:03:10] Late eighties — ’85 to ’88. Then I put in one application to business school. A good friend of mine who had been an analyst before me left and went off to Tuck. I visited him. I had an offer to stay on at Morgan as an associate, but decided that after my weekend at Tuck, that would be a good thing for me — to stop, reassess, figure out what I wanted to do. So I went off to Tuck.
Barry Ritholtz [00:03:38] I have to ask the obvious question. There’s a whole industry helping students figure out which is the right school for them — their first school, their safety schools, their reach. It’s a whole side industry. You applied to one MBA school.
Lawrence Calcano [00:03:53] I applied to one MBA school, and part of the reason is that I had accepted the job to become an associate. I went up on the visit, as I mentioned, and I just had this feeling that I was making the wrong decision. I loved Morgan — it was a fantastic firm — but I had this sense that maybe staying wasn’t the right thing to do, and going off to business school for two years would be the right decision. I loved it. It was an incredible two years. I’m on the board of Tuck.
Barry Ritholtz [00:04:25] But why apply to just one school if you’re deciding, “Hey, this path isn’t exactly how I want to get an MBA”? If you’re applying to Dartmouth, you could apply to Stern, to Columbia, to wherever. Why only one school?
Lawrence Calcano [00:04:42] I was just wrapped with it. I went up there — it’s a small school. When I was there, there were 160 or so in the class. It’s very focused on team — study groups, teamwork, and so forth. I just felt like it was the right place for me. I wasn’t too worried about it. If I didn’t get in, I was going to become an associate at Morgan Stanley, so it wasn’t like I was putting all my eggs in one basket.
Barry Ritholtz [00:05:12] Really interesting. How did you end up at Goldman Sachs? Was that while you were in business school or afterwards?
Lawrence Calcano [00:05:19] When I went to business school, I said to myself, “I’m going to think about all the different things I can do.” After about two months, I said, “I really did like finance a lot, and I want to go back there.” So I applied for summer internships and had a few offers.
Barry Ritholtz [00:05:36] More than one?
Lawrence Calcano [00:05:37] I did. I applied to all the summer internships, and obviously coming out of Morgan Stanley was helpful to my candidacy. I ended up getting an offer to be a summer associate at Goldman, which I took, and I was fortunate to have an offer to come back post-graduation, which I did. I spent a long time there and had a very good experience.
Barry Ritholtz [00:06:00] I’m curious — they’re such large and yet such different firms. What were the culture differences? What did you learn from each?
Lawrence Calcano [00:06:10] They are different — and there are a lot of different ways to skin the cat. Goldman had a very team-oriented culture, and I think Morgan Stanley does too, but at Goldman it’s right there in front of you. They’ve got 14 business principles, the first of which is “Our clients come first.” When you think about the things you learn early on in your career, there were several from that experience that really stuck with me — starting with business principle number one: your client’s interests always come first. And secondly, the importance of working as a team. My wife used to make fun of me because I would be in the office early, and if there were a party or some social event, I was always the last to leave. She would say to me, “Dude, you don’t have to actually be there till the end.” I just loved it so much. That camaraderie was powerful — smart from a business perspective, but mostly as a person, it was just fun being in that group.
Barry Ritholtz [00:07:18] You ended up co-leading Goldman’s global technology banking group. Was your focus on tech and financial technology deliberate, or did it evolve organically over time?
Lawrence Calcano [00:07:30] It just evolved. I was a generalist in corporate finance — it was then called Global Finance. My Morgan Stanley friends used to make fun of me and call it Intergalactic Finance, but it was Global Finance. I did that as a generalist for a couple of years, and then I was asked to start the East Coast tech group, which I did.
Barry Ritholtz [00:07:50] This was mid- to late nineties.
Lawrence Calcano [00:07:52] Early nineties. I was a third-year associate. It was late ’92, early ’93. We started to win some business, and as you recall, the internet started to really kick in with the Netscape IPO in ’95. We went from having a really good business to being on fire and drinking from a fire hose, given all that was going on with the internet.
Barry Ritholtz [00:08:21] Really fascinating. So you’re there right through the dot-com boom and bust — probably the most transformative technology of the last 30 years, at least before AI. What did that teach you about how capital markets operate, the way investors behave? That had to be a wildly instructive era.
Lawrence Calcano [00:08:42] It was wildly instructive, and it was all happening so quickly. As you recall, people were trying to figure out how to even value these companies. We had a great team — research, salespeople, bankers — we all worked really well together. We would make presentations to potential clients, and we’d talk about where we saw the market going apart from valuation. What did we think the adoption was going to look like? We had what then was viewed as wild assumptions about internet adoption. At the time, people were afraid to put their card numbers in a computer to buy anything. What happened was, for a while, the valuations kept pace and at times exceeded the hysteria. But even though the valuations came back at the end — mid ’01, the internet valuations came down; mid ’02, the comm-tech valuations came down — the reality of what was happening was even wilder than what our projections suggested. The adoption rate of the internet, and how it would fundamentally change people’s lives — the way they bought things, reviewed things, communicated — was so powerful. We saw that wave; we saw the communications-equipment wave. Now we’re obviously looking at a different wave. For me, there are several massive lessons. One is: you’re never safe. When I started, the big technology companies were called DEC and Wang. You remember those companies?
Barry Ritholtz [00:10:31] Oh, sure. Wang Computers — not Wang who owned Computer Associates. Wang Computers.
Lawrence Calcano [00:10:36] Wang Computers, not Charles Wang. That’s right. Those companies all got replaced — first by client-server, then a lot of the client-server companies got displaced by the internet, and now you’re seeing another interesting potential risk of displacement. One of the big things is: you cannot be afraid of new changes in technology waves. You’ve got to adopt. If you remember, when Amazon was growing, many of the bookstores and music stores — hope is not a strategy. You can’t hope it’s going to go away. You’ve got to adopt, even if it means changing your business, even if it means your business model has to change and maybe your margins aren’t going to be the same. You’ve got to adapt. The one thing I would say is this always takes a little longer than people think. The hype is always ahead of the reality. I think there’s a little of that right now. But AI is a massively important trend. We’re spending a lot of money on it, as are lots of companies — and you’ve got to be willing to adopt or run the risk of dying.
Barry Ritholtz [00:11:57] If there’s any lesson to be drawn from Elon Musk and Tesla, it’s that — or maybe the lesson comes from Amazon and Jeff Bezos: your margin is my opportunity. If you don’t pivot hard, they’re going to come along and eat your lunch. It happens so regularly.
Lawrence Calcano [00:12:19] Yeah.
Barry Ritholtz [00:12:19] The cycle never stops turning. So at what point did you decide, “Hey, I could do a lot with this technology and these various platforms”? What led you to move from Goldman to helping build and lead iCapital?
Lawrence Calcano [00:12:38] The real story is that I left in ’07. With one of my former partners, we were going to start a technology buyout fund. You may remember there were some events in ’07 and ’08 that were not too pleasant.
Barry Ritholtz [00:12:54] Don’t really recall. Everything’s kind of blurry.
Lawrence Calcano [00:12:55] It reminds me of the Leslie Nielsen joke in Airplane: “I picked a bad week to stop sniffing glue.” There was a little of that. We went off to start a private equity fund in the middle of the GFC.
Barry Ritholtz [00:13:06] You should have started a distressed asset fund. Probably perfect.
Lawrence Calcano [00:13:09] We weren’t smart enough to figure that out. So we put it on pause. It was a little bit of an unplanned cleansing in a sense — I coached my kids’ football and lacrosse teams. I worked from home, and it was actually very exciting. Did a few entrepreneurial things. Then with a great group of folks, we looked at what was happening in the independent space — a space you obviously know well. We saw a lot of firms, a lot of advisors, going off and starting their own firms. That trend was significant. There were hundreds of billions, or early trillions, of dollars now being managed by these independent RIAs. One of the things we looked at: almost by definition, the firms leaving were the firms with the largest asset bases and, generally speaking, the largest clients. Those clients typically invested in alts.
Barry Ritholtz [00:14:15] Meaning family offices, ultra-high-net-worth?
Lawrence Calcano [00:14:18] Think about some of your clients and the types of products they’re interested in buying. The wirehouses do — and still do — a phenomenal job providing outstanding products, support, and services. So when somebody leaves to be independent, they don’t have a platform. We felt we could create a platform to help advisors have access to alts in the right way. It’s different because at that moment in time, there was no technology. Investing in alts was a highly manual process.
Barry Ritholtz [00:14:53] To a large degree, for a lot of firms, it still is. The various funds don’t all play well together.
Lawrence Calcano [00:15:02] We’ll come back to this experience point, but we felt that firms that were independent really needed a technology chassis. They needed access to product, education, diligence — and a technology platform. We felt we could build that end-to-end — not just the diligence, not just fund sales, but the whole end-to-end solution. We started to build that out and realized it was something clients really needed. The other interesting thing we found out along the way — and I would say this was not a pivot as much as an expansion — we had assumed the wirehouses had absolutely everything they needed because they knew every manager in the world and had close relationships. What they didn’t really have at the time was much technology. They had a lot of people doing a great job serving advisors, but they didn’t have technology. We felt we could offer them a full technology platform. We rethought our role in the ecosystem to be one where we were going to serve advisors wherever and however they choose to practice. That’s allowed us to serve advisors at the wirehouses, advisors at RIAs and IBDs — and really help create a great experience for them and for their clients.
Barry Ritholtz [00:16:31] Coming up, we continue our conversation with Lawrence Calcano, CEO and Chairman of iCapital, discussing how he built the firm out to a trillion-dollar platform. I’m Barry Ritholtz, you’re listening to Masters in Business on Bloomberg Radio.
Barry Ritholtz [00:17:05] I’m Barry Ritholtz, you’re listening to Masters in Business on Bloomberg Radio. My extra special guest this week is Lawrence Calcano. He is the chairman and chief executive officer of iCapital, where he has been helping to build the firm since 2013. They now service over a trillion dollars in client assets on behalf of advisors and other professionals. So how should a traditional 60/40 investor — thinking about some allocation to private equity or private credit — access your platform? Is it directly through their advisor? Tell us what the process is like.
Lawrence Calcano [00:17:41] It’s very much an advisor business. We are very focused on helping financial advisors serve their clients. It’s not a B2C model — it’s a B2B2C model. All the clients at iCapital are advisors and, obviously, the GPs trying to reach those advisors. For financial advisors who are large, we can build a whole white-label capability for them, so they can have an operating system to run their alts, structured investments, or annuities business — as well as the data aggregation they have to do for clients with information that’s everywhere. For advisors that are a little smaller and don’t have a persistent need, they can come to our marketplace and see a menu of hundreds of funds where they can avail themselves of those funds for their clients.
Barry Ritholtz [00:18:33] Really interesting. I like the description of iCapital as the world’s alternative investment marketplace for advisors and wealth managers. When you joined in 2013, what problem were you trying to solve?
Lawrence Calcano [00:18:51] We were trying to help the advisors who, as I mentioned, had left their homes to start their new businesses. We felt we could create for them an investment platform to allow them to service their clients consistent with how they had previously served them.
Barry Ritholtz [00:19:11] Part of the problem we’ve seen with alternatives over the years is they all seem to be a slightly different widget. They don’t all fit on a platform easily. You have to onboard the assets, align the capital, go through subscription documents and capital calls and custodian and performance reporting, and then all the analytics. They’re all a little different, and it’s a big lift. How have you addressed this issue at iCapital?
Lawrence Calcano [00:19:45] We think technology is essential to creating an experience that lets you deal with all of those things effectively, in a way that will encourage you to do the business with your clients where it makes sense. Everything from what happens before you make any decisions — education for you as an advisor on the asset class, education for your client, the tools to help build a portfolio, research to help you learn about funds — and once you’ve worked with a client and developed a portfolio perspective, tools to help you subscribe. Then automation to help you manage all the things that happen post-investment: capital calls, distributions, redemptions, transfers, reporting. We help create an experience that, as an advisor, will give you time back to serve and spend time with the client. We feel strongly about going through advisors because there’s so much about a client that an advisor will know that a platform will never really be able to know — what is their real feeling toward illiquidity? One of the issues the industry is dealing with today is illiquidity and people’s expectations about it. Advisors have a deeper perspective on how a client really feels. We want to be partnered with advisors in bringing the solution to market.
Barry Ritholtz [00:21:11] I’m glad you brought that up, because every time there’s some issue with illiquidity, it seems people don’t really understand what a lockup means. It should be fairly self-explanatory. We saw this a couple of years ago with BREIT — which part of “seven-year lockup” was confusing to you? I know what happened in 2022: the Fed raised rates, and people thought, “Hey, let’s get out of illiquid real estate before the marks reflect the reality of pricing relative to rates.” But that’s not how private investments work. How do you educate investors and their advisors as to what illiquidity means?
Lawrence Calcano [00:21:56] It is a journey. There’s no one answer. We spend a ton of time and energy on education, as do most of the GPs in our system. When you look at the documents around some of these funds, the liquidity rules are not on page 98 in small print — they’re on the front page. The reality is, people want to hear what they want to hear. These are illiquid investments, whether wrapped as a 3(c)(7) private fund — clearly illiquid — or in an evergreen wrapper, a registered fund. The underlying investments are still illiquid. Some are shorter duration than others. Private credit is shorter duration than private equity or real estate. But a private credit investment is still an illiquid investment. The problem is, when they get wrapped in a wrapper that says “you can sell up to or redeem up to 5%,” it confuses people. When the industry uses terms like “semi-liquid” — I don’t even know what that means.
Barry Ritholtz [00:23:25] I always think of that 5% gate as a widows-and-orphans clause. If somebody is suddenly no longer a suitable investor for this — say the person who made the investment passed away — now the wife and kids can get out of it. It shouldn’t be, “Oh, I could sell 5% a quarter for as long as I want.”
Lawrence Calcano [00:23:45] People should make these investments because they think they’re going to provide medium- to long-term positive impact in their portfolio. If you’re buying it to get a return this quarter or next quarter, it’s probably not the right investment. I’m not a financial advisor, but you need to buy these things with the right duration in mind — and that’s not a short one. The products do provide what I think of as liquidity features — opportunities, if things change in your life, to potentially redeem all of it if there’s not a big queue, or redeem up to 5% if you need to. That’s a flexibility and liquidity feature in the wrapper. But it doesn’t mean the product is liquid. People should invest thinking these products solve an investment need that’s medium to long term, not short term.
Barry Ritholtz [00:24:43] Let’s talk a little bit about demand for this product. We’ve seen, at least on the institutional side, flows into alts now exceeding a trillion dollars a year. As that scales, what are some of the challenges and bottlenecks for advisors to allocate more to privates?
Lawrence Calcano [00:25:02] Education is still a very important issue for advisors. A lot of the advisors in the mix have been doing it for a while, but there are still a lot who haven’t really gotten into these products yet. They’re going to need more education — that’s point one. Point two: how they invest is probably going to be different. A lot of advisors use models with respect to their liquid portfolios. We believe models will be a very important way people invest in alternatives — either models of just alternatives that get married to an otherwise liquid portfolio, or models that include both liquid and illiquid investments together. We have brought both types of products to market in partnerships with managers, as well as partnerships with the infrastructure players. Models will represent an important way advisors allocate client assets to alternatives.
Barry Ritholtz [00:26:06] I’ve been hearing more and more about interest overseas in a global alternatives platform. What do you think is driving the demand internationally versus what’s driving the demand here? Is it the same thing, or a different approach?
Lawrence Calcano [00:26:22] I think it’s the same thing. Adoption is a little bit behind U.S. adoption on our platform. In the alts space, we have over $65 billion of alternatives allocated from investors who live outside the United States. Half of our 20 offices are outside the U.S. We think it’s a really important growth area for the market and our business. A lot of the same things that drive advisors to introduce these products to clients — potential for incremental return, portfolio diversification — are the same things that drive international interest as well.
Barry Ritholtz [00:27:00] Let’s talk about end-to-end technology. I know this is more than just a menu of alternative funds. Tell us about your whole tech stack and what it provides for your clients.
Lawrence Calcano [00:27:16] A lot of what people want help with out of the gate is just how to build these portfolios. We talked about education, but how do you build the portfolio? How do you construct portfolios that match a client’s goals and objectives? We’ve built technology to do that, which includes alts, structured investments, and annuities, along with the liquid products they might need. One thing we’ve tried to do as an organization is not only build an end-to-end solution for alts, but do the same thing for structured investments — those are important products for advisors and clients — as well as annuities and insurance. What’s happening in the market today, which is a really interesting and ongoing trend, is that people are looking at the different types of wrappers — ETF wrappers, insurance wrappers — wrapped around things like hedge funds, private equity funds, credit funds. Being able to help advisors think about how the products should be structured, and how they could address client needs, is a really important part of what we’re doing. As I mentioned earlier, being able to automate the whole workflow is critical. I’ll make one other point as it relates to tech: one of the issues for the industry is around data management. We live in an ecosystem. When we first started the company, people used to say, “Oh, you guys are so disruptive.” I would politely correct them and say, “We’re not trying to be disruptive — we’re trying to be enabling.” There are a lot of infrastructure players we’re trying to help achieve their goals. We’re not trying to, like Amazon did to Borders, push them out of business. We’re trying to enable them to participate. One of the things that has to happen now in the industry is that all the different big constituents — administrators, transfer agents, custodians, firms like iCapital, advisors, GPs — have to work together to support clients. If we can get all of our systems to be better connected, things like tokenization and blockchain will help. It will end up paying huge dividends for the advisor and for the end client.
Barry Ritholtz [00:29:40] It’s funny — you mentioned “disruptive.” In 2013 there was nothing to disrupt. It was just a series of private offerings — no umbrella, no platform that pulled everything together.
Lawrence Calcano [00:29:55] That’s right. It was really a greenfield, which is why I say we’re enabling, not disruptive. The truth is, we’re still scratching the surface. BCG does a report every year on global wealth. Late in December they put out a report saying there’s $153 trillion in wealth owned by individuals. That’s a huge number. It rivals the size of the institutional market. In the U.S., the estimates are something like 2 to 2.5% allocated to alts. Outside the U.S., it’s even less. There’s a significant amount of wealth that’s going to be looking to build more sophisticated portfolios. Tools, technology, AI, tokenization — all of these have to evolve to create a great experience for advisors and clients to make the best decisions they can in the asset-allocation world.
Barry Ritholtz [00:30:58] Really interesting. Let’s stay with technology and innovation. You’ve built a number of fairly innovative technologies. You’ve bought, you’ve partnered. What’s the calculus? How do you decide whether you’re going to buy something, build something, or partner with a provider in the space to build out the platform?
Lawrence Calcano [00:31:19] It’s a combination of things. It’s time to market, it’s culture. Everything we’ve purchased — we’ve made 24 acquisitions — we’ve integrated. To me, that’s really important. If the goal is to provide an integrated solution for advisors and GPs, and you don’t integrate the things you buy, you’re not really doing that. Point one. Point two: if the people who join aren’t integrated, then it doesn’t work either. It’s not just about technology — it’s actually more about the people. So spending a lot of time on culture and trying to figure out how to bring things together — how do you create what I often refer to as “one iCapital” — is critical. As time has evolved — I was always very focused on culture from the start, when we were just a couple of people — it’s even more important than ever. It probably continues to occupy a very significant percentage of my time: getting people working together, putting people in the right seats to be successful, creating simple ideas they can rally around. Clients come first. What is it we need to do to help our clients succeed? And everything we do, we have to do together. Those two things are really unifying to our culture.
Barry Ritholtz [00:32:48] You did a big capital raise in 2025 that valued you at a substantial multibillion-dollar level. What are you looking at for further raises? How are you deploying that capital? Is it just build, build, build, until eventually you become the biggest player in the space?
Lawrence Calcano [00:33:09] We’ve announced a couple of acquisitions since then. We’re about to close our acquisition of Hector. Hector provides an EAP for annuities — that helps us complete our annuities vertical. M&A will continue to be an important use of cash, and we continue to actively look at what’s out there. We continue to grow organically, but the model is self-financing, so we don’t need outside capital to run our business. I’m a believer, though — given the duration of these assets, when we talk to financial advisors, they have to know we’re financed to be around for a long time. So we’ve tried to finance ourselves in a way that our partners can look at us and say, “They’re going to be here to support me.” A lot of it is just making sure we have a strong balance sheet to support our clients.
Barry Ritholtz [00:34:04] It’s always interesting when we see these big private entities go public in the alternative and private space. How do you think about that? How do you think about the Blackstones, Carlyles, and Apollos of the world?
Lawrence Calcano [00:34:24] Going public allows firms to have access to capital, leverage their growth, and provide secondary markets for employees and other investors. For us, we spend very little time actually thinking about that, other than wanting to make sure we run the company with the discipline of a public company. We get our quarterly reports turned around, our monthly reports by the second day of every month, quarterly reports by the third day of the new quarter. We turn the year-end results in a fair period of time as well. The process of being public creates some disciplines that we want to make sure we have. But it’s not something we’re focused on. There are two sides to every coin. When you go public and the stock is going up, everyone’s really excited and happy. When you have massive corrections, which we live through pretty regularly, and the stock goes down — now you’ve got to deal with the opposite of motivation. There’s concern. You’ve got to make sure your employees aren’t staring at the — I was going to say Tron, but only you and I would know what that means.
Barry Ritholtz [00:35:51] It’s so funny — I had a buddy whose firm got bought by Yahoo in ’96. He was telling me in ’99, people were just refreshing the screen constantly. That’s all they did.
Lawrence Calcano [00:36:02] There’s an element to it that’s super unproductive. That’s why we’re in no rush to do that. As I said, we want to make sure we have a strong balance sheet, strong capital structure. Equity is an important part of our compensation for everybody. A hundred percent of the employees have stock at iCapital. To me, that’s a big cultural point in terms of bringing people together. But if you’re going to provide that as part of someone’s compensation, there needs to be some opportunity for people to get some liquidity. Over our history, we’ve provided four such opportunities, and as long as we stay private, we’ll continue to find a way. It’s limited, of course, but we try to find a way for people to get some liquidity from their equity holdings.
Barry Ritholtz [00:36:50] Really interesting. Coming up, we continue our conversation with Lawrence Calcano, CEO and Chairman of iCapital, discussing how he built the firm out to a trillion-dollar platform. I’m Barry Ritholtz, you’re listening to Masters in Business on Bloomberg Radio.
Barry Ritholtz [00:37:25] I am Barry Ritholtz. You are listening to Masters in Business on Bloomberg Radio. My extra special guest this week is Lawrence Calcano. He is the chairman and chief executive officer of iCapital, where he has been helping to build the firm since 2013. They now service over a trillion dollars in client assets on behalf of advisors and other professionals. Let’s talk about what’s going on today. Obviously, alts have been very hot for the past 10 years or so, increasingly so. They’ve been in the news for other reasons the past few months. But let’s talk about the underlying structural shift before we get to any of the noisy stuff. How are advisors and individuals changing the way they access alternative structured investments, annuities — any of the products on your platform?
Lawrence Calcano [00:38:17] If I can make some divisions by wealth: the wealthier clients have tended to buy the private funds. Perhaps they’ll invest directly if they can make a $20 million investment, or if not — if they’re a $1 million or $5 million investor — they usually come through a vehicle that we’ll set up for them to access. We aggregate that capital and we look like one large investor to the institution, to the GP. So the wealthier clients tend to invest through those private vehicles across the board. From a platform perspective, the way you’ve got to build these portfolios — if you have a credit and equity portfolio, debt and equity, and you want to build them or rebalance them, you can do that with a few mouse clicks. With alts, if you target an allocation of 10, 15, or 20%, you’ve got to build that.
Barry Ritholtz [00:39:16] It takes time, in other words.
Lawrence Calcano [00:39:17] To allocate, it takes time. You need to make sure you have persistent access to quality product across all the strategies — equity, credit, real estate, infrastructure, hedge funds. Our platform tries to provide that. The wealthy individual will probably use private funds to build it. The accredited investor will probably use registered funds. They’ll either buy individual registered funds, or they might buy registered funds wrapped together. That’s something we’re seeing a lot of the market do today — wrapping three, four, or five different funds together to give people exposure to maybe a growth-oriented product, where there’s a buyout, growth, and venture component, or maybe an income-oriented product, where you’ve got credit and real estate, or maybe multi-asset, where you’ve got all of that wrapped together. Every individual has a different set of needs and objectives. It’s important that there’s a lot of flexibility in the system so people can allocate precisely what’s important to a given client.
Barry Ritholtz [00:40:29] What you’re describing sounds fundamentally different from how portfolios used to be constructed. How significant are these changes compared to — I won’t even mention the nineties — but the 2010s?
Lawrence Calcano [00:40:44] What’s happened, which is a good thing, is clients have access to more products to potentially meet their needs. That doesn’t mean these products are right for everybody — they’re probably not right for a lot of people. But for those that have the ability to make these investments and the willingness to tolerate the illiquidity we talked about before, these products provide more opportunities to build the right portfolio. If you think about the public markets — you’ve spent a lot of time thinking about them — there are probably 150,000 private companies with EBITDA or revenues greater than $100 million. There are 4,000 to 5,000 public companies. The private markets are so much larger than the public markets. And as you know, the public markets are increasingly dominated by a small number of stocks. Accessing the private markets gives you access to a much broader set of possible investments. Not right for everybody, but for those looking to build more involved portfolios, there’s an opportunity that the private markets enable you to pursue that you just don’t get by buying just stocks and bonds.
Barry Ritholtz [00:42:04] That’s one compelling reason — you can access companies you wouldn’t get otherwise. What are some of the other reasons? Why else should an investor or advisor who is alt-curious explore this space?
Lawrence Calcano [00:42:20] I am decidedly not trying to sell anybody on anything, just to be clear. But it’s like anything else in life — we’re all better off when we have more choices. Those choices can be bucketed to make it easier to go through the decision-making process. If you have more choices to build a portfolio where you’re seeking longer-dated returns and more portfolio diversification, these products provide more flexibility to create a diverse portfolio and potentially have a higher-returning portfolio. Ultimately, every person has to make a decision they can live with on the products.
Barry Ritholtz [00:43:06] During the 2010s, we had 0% interest rates and QE and all that fun Fed stuff. I think that’s where private credit really caught the attention of a lot of investors and advisors. “What do you mean my bond portfolio is yielding 3%?” All right — you’re trading off a little liquidity and you get 5, 6, 7, 8%. That’s pretty attractive relative to the alternatives. You’ve got to deal with a K-1, which nobody likes, but your accountant will deal with it for double the yield you’re getting in traditional treasuries or corporates. How has that moved from straight-up credit to private infrastructure, private equity, private real estate? It seems like that whole world has opened up dramatically.
Lawrence Calcano [00:44:02] It has. A lot of the private credit investments you can look at are floating rate, so they still can provide opportunities for excess return — real alpha — because of the way they float. It was interesting in the early part of this century coming out of COVID. You had people very actively buying private credit. When interest rates went up to 5%, some people were earning 10 to 12% on their private credit investments. They were then looking not at private credit versus public credit, but at private credit at 10 to 12% versus private equity, which is shorter duration — was that the right mix for them? Right now, we’re seeing a lot more people focusing on equity as well. But you definitely had a period of time where private credit was very, very attractive. Where we sit today, a lot of people are anxious to understand what the underlying credit quality is in these products. There are certainly disruptive forces from AI that we’ve talked about — the industry talks about every single day. It’s not clear to me that the existing portfolios are in bad shape. I actually think the portfolios are likely in better shape than people think. I’ve spent a lot of time talking to various managers — both equity and credit — about what they’re seeing in terms of adoption. While everybody is working on how to implement AI, it’s not like existing software vendors are seeing their businesses dry up. That’s not happening. A lot of those are the borrowers of these private credit assets. We’ll need to get more information over the next several quarters on where we are with private credit. But my guess is the portfolios are in a lot better shape than people think.
Barry Ritholtz [00:46:07] We could talk about navigating some of the headlines, but you mentioned AI, and now I’m legally obligated to ask you a question. What are the most meaningful near-term applications of artificial intelligence within the alternative space? Is it administration and workflow? Identifying better or less great funds? All of the back office? How is iCapital using AI in your business?
Lawrence Calcano [00:46:39] We have pilots going on across what we do. If you take our tech stack, there are really two ways to think about it. One is the tech we use to empower clients and the technology that clients engage with. The second is the technology we use to run our business. There are big applications in both. To give a couple of examples: when a manager comes to iCapital to raise a fund, we build a sub-doc. AI can build that sub-doc for us very quickly. When a client comes to our marketplace and wants to describe what they’re interested in — they hit toggles and go through a few steps to inform us — AI can do that really quickly. There are also a number of ways we collect data. One of the services we provide to clients is helping advisors aggregate client data, because a client might have held-away data in lots of different places that you want to aggregate so you can present a holistic picture. How we get that data, how we retrieve it, how we extract data from documents, and how we reassemble it — AI can drive a lot of that. The applications of AI are significant across our entire platform.
Barry Ritholtz [00:48:06] Really interesting. We’ve been dancing around some of the negative headlines. How are you helping advisors navigate that these days? For the most part, it’s a relatively small handful of companies. Everybody knows their names. But the cockroach theory has people waiting for the next GFC to unroll. We haven’t really seen much like that.
Lawrence Calcano [00:48:30] This is such a smaller magnitude than the GFC. I don’t think we’re anywhere near those types of concerns. We are big believers in communications. I made a point earlier about how the ecosystem needs to work together — it really needs to work together now in terms of helping people understand what’s happening. Generally speaking, the asset management industry has to be even more transparent today than ever before. That’s a good thing going forward. Alternative asset managers probably need to be more transparent to clients over time. Being out in front of clients, helping them understand the landscape and what’s going on, has been a big part of how we’ve spent a lot of time. One of the things we’re doing now is trying to bring the industry together — getting people on the GP side working together. Transparency, information, educational material — not promotional material, but educational material — to try to help create a better and deeper level of understanding about these products.
Barry Ritholtz [00:49:48] I’ve been hearing a little bit about convergence lately between public and private markets. You are known as dealing with the private side. Do you ever see a day where private and public both end up on your platform — completely full wallet share?
Lawrence Calcano [00:50:06] For us, we’re really focused on helping people have very successful journeys with their private investments, structured notes, annuities, etc. The way in which we will interact with the public markets will be more around the model portfolios I talked about — collaborating and partnering with the GPs and the public-company people who either provide models or have public investments, and helping to create model packages for investors to invest holistically in a portfolio. That’s probably how we’ll play the public space — in partnership and in concert with people who are experts in that area.
Barry Ritholtz [00:50:52] Makes a lot of sense. Last question before our speed round: given all these major technological shifts, what do you think is going to redefine asset management going forward? You mentioned tokenization. We hear about blockchain, AI, data analytics. What’s the next big thing?
Lawrence Calcano [00:51:11] The next biggest thing is the deep implementation of those technologies. We’re still scratching the surface. Tokenization hasn’t even hit private markets in any meaningful way yet. AI — same. There’s significant application of those technologies that will be meaningful. For financial advisors, this reminds me of 10 years ago when all the robos were coming out. There was this big debate: robo-advisors versus human advisors. I always thought that was a false choice. The best answer for clients was a great financial advisor who leveraged technology to create an incredible experience for their clients. The same is true today. The best financial advisors are not going to be afraid of technology. They’re going to adopt it and embrace it to create an incredible client experience. That’s how I think the market will evolve in a constructive and positive way.
Barry Ritholtz [00:52:15] All right, let’s jump into our speed round. These are quick answers so people get a flavor of who you are. Starting with: who were your mentors? Who helped shape your career?
Lawrence Calcano [00:52:26] I had a lot of mentors growing up. I always tried to watch people and see what they did. There were several senior people at Goldman Sachs that I learned things from. I remember the head of investment banking once told me, when I was a young associate, “The loneliest job on the planet is the CEO’s job. So if you want to be a successful investment banker, make a friend of the CEO and be a sounding board, and you’ll have a good career.” That was pretty good advice. The other piece of advice I got from another senior partner in banking was: you always have to be intellectually honest. A lot of people are afraid to be intellectually honest because they’re calculating what’s happening in the room versus being true to what they think and saying it — not being afraid to do that. I’ve tried to really do that in all the things I’ve done as I’ve grown in my career.
Barry Ritholtz [00:53:26] Really interesting. What are you reading these days? What are some of your favorite books?
Lawrence Calcano [00:53:31] I’m overwhelmed with work reading right now between what we’re doing in our business and client stuff. I’m reading a lot on AI. The honest thing is, I keep reading new AI books — about AI and technology, AI in general. There are a lot of incredibly positive things about AI. There are a lot of risks with AI, and a couple of the books I’ve read recently were really focusing on the risks — around unemployment, around control and governance. When you get to natural intelligence, when AI reaches sort of human intelligence, what happens then? There’s a really exciting and bright side, and there’s a dark side that’s going to need a lot of governance to protect all of us.
Barry Ritholtz [00:54:21] Lots of guardrails. If you don’t have time to read, do you have time to listen to podcasts or watch anything? What are you streaming?
Lawrence Calcano [00:54:29] I’m married 33 years. Honestly, my wife and I are just binge-watching a series of shows. We’ve gone through the whole Yellowstone saga, the prequels and —
Barry Ritholtz [00:54:41] Did you get to Landman yet?
Lawrence Calcano [00:54:43] We finished Landman. Love Landman. Looking forward to watching the Peaky Blinders movie, which we haven’t seen. When I get home, when I put the work down, my wife and I tend to watch shows together.
Barry Ritholtz [00:54:56] That sounds fun. Our final two questions. What sort of advice would you give to a recent college grad interested in a career in alternatives or investing?
Lawrence Calcano [00:55:07] I would say: the world owes you nothing. This is what I’ve said to my kids — I have several who have graduated college — and what I’d say to anyone at iCapital generally: the world owes you nothing. What you get in this life is a function of what you work for. People need to be flexible. They need to have an open attitude. At a given level of intelligence, attitude makes the difference. It’s funny — we all went through this work-from-home during COVID, and now some people want to continue to work remotely. When you asked about mentors, a lot of the mentorship I got — that a lot of people got — was just being in the office, watching people, listening to people. How do they act? How do they treat other people? How do they behave in meetings? That stuff is super valuable.
Barry Ritholtz [00:56:09] Osmosis learning. You don’t get that when you’re sitting in your apartment on a Zoom screen.
Lawrence Calcano [00:56:17] A Zoom screen is one-dimensional. Life is multidimensional. So I’m a huge — some people in the company love this, some don’t — but I’m a huge work-from-the-office person, because I believe that multidimensional experience is much more powerful, and it’s better for every individual from a learning perspective.
Barry Ritholtz [00:56:34] I couldn’t agree more, although I do love those Fridays from home.
Lawrence Calcano [00:56:48] No doubt.
Barry Ritholtz [00:56:52] And final question — what do you know about the world of alternatives and investing in technology today that might have been useful back in the mid-1980s when you were first getting started?
Lawrence Calcano [00:56:52] I’ll generalize that a little bit: patience. I was young and just hard-charging, as a lot of us are. But you have to be patient. It’s funny — we sponsor golfers, and I watch golf. I love golf. You see people bogey holes. Jon Rahm won the Masters a few years ago. He double-bogeyed the first hole. I remember I was standing there watching it and I was like, “It’s over.” It wasn’t over. It was one hole. It reminds me — my youngest daughter graduated Dartmouth a few years ago, and Roger Federer was the speaker.
Barry Ritholtz [00:57:35] I recall that speech. It was really amazing coming from him.
Lawrence Calcano [00:57:40] It was an amazing speech. One of the things he said is that in his career he’s won — I may get the numbers slightly off — 80% of his matches and 54% of his points. His point was: it’s just a point. I think that’s a huge lesson. It’s just a point. It happened. You lost it, you won it, you lost it. You move on. I think that’s great advice — and advice I wish I had had when I was younger.
Barry Ritholtz [00:58:09] Lawrence, this has been absolutely fabulous. Thank you for being so generous with your time. We have been speaking with Lawrence Calcano, CEO and Chairman of iCapital. If you enjoyed this conversation, check out any of the 650 we’ve done over the past 12 years. You can find those at iTunes, Apple, Spotify, Bloomberg — wherever you get your favorite podcast. I would be remiss if I didn’t thank the crack team that helps put these conversations together each week. Alexis Noriega is my video producer. Sean Russo is my researcher. Anna Luke is my podcast producer. I’m Barry Ritholtz. You’ve been watching Masters in Business on Bloomberg Radio.
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