Alternative Investing – From Renegades To Politically Correct

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From the early days of macho dealmaking (think Henry Kravis and George Roberts as the “barbarians” in the buyout in 1988 of RJR Nabisco) and cutthroat investing (think George Soros breaking the British Pound in 1992), many alternative investing firms have passed to the next generation of leaders as the industry steps up to become more mainstream.

It used to be when one heard Steve Schwarzman of Blackstone BX or David Bonderman of TPG speak, there seemed to be a room-size flag unfurling behind them—updated from colonial times, but with the same message— “Give me liberty!” —after all, they believed they deserved to be independent—masters of the universe, they. 

This next generation of leaders have their own issues beyond the early survival and then thriving of their firms. Today alternatives firms are under the microscope for different reasons, especially with the industry facing increased scrutiny as it moves from mostly institutional investors to include the large inflows expected from the retail sector.

First, the alternative investing industry is under pressure to become more transparent. Any past questionable practices are being culled. Calculating fair fees, charging appropriate levels and types of expenses, and treating investors equitably are just a start. Suffice it to say the $1 million severance payment paid to an employee to settle a sexual harassment claim probably will not be run as a fund expense anymore. Nor can the CEO submit fictitious invoices for $5 million to create additional non-reported personal income at the expense of the firm’s partners.

Second, alternative investment firms join all investment firms in finding their way to adopt environmental, social and governance (ESG) standards. Some of the biggest alternatives firms like KKR KKR and Apollo have been early converts to ESG. And as one example of taking ESG measurement seriously, Blackstone seeks to cut the carbon footprint of firms it acquires by 15% within the first three years.

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Alternative Investing is a proven component of sophisticated and diversified investing. The industry continues to evolve for relevance and excellence, readying for tremendous growth.