Alternative investment consultants are also edging into other businesses beside strictly non-discretionary consulting. In June, alternative investment consultant Cliffwater LLC launched its first fund, an evergreen private debt fund aimed at high-net-worth investors through its registered investment advisers, family offices and smaller institutional investors.
"We were seeing significant demand from RIAs and family offices for our services (specifically private debt) and felt we could deliver them more cost effectively through a registered fund," said Stephen L. Nesbitt, CEO of Marina del Rey, Calif.-based Cliffwater. "We had past experience with serving as a subadviser to registered vehicles so we were familiar with how these are implemented and regulated."
So far, the fund has amassed $160 million, all from RIAs and family offices, he said.
Cliffwater executives take steps to avoid conflicts of interests. For starters, they cannot recommend their fund to clients because it is a conflict, Mr. Nesbitt said.
In addition, Cliffwater clients choose whether they wish the firm to provide non-discretionary or discretionary services before they hire the firm, he said.
"We cannot recommend a switch from non-discretionary to discretionary," Mr. Nesbitt added. "Regarding investments, all Cliffwater clients receive equal treatment on investment allocations, consistent with our allocation policy."
TorreyCove Capital Partners LLC can avoid potential conflicts because it does not manage investment funds, said David Fann, TorreyCove's New York-based president and CEO.
The firm does serve as a non-discretionary adviser to an affiliate, Alternative Investment Capital Ltd., and receives a portion of the management fees and carried interest, according to a LACERA staff report to the board. However, the report noted that this is a relatively small portion of TorreyCove's business.
Indeed, LACERA's new alternative investment consultant, Albourne, were ranked with the least potential conflicts of interests on a spectrum from discretionary-more potential conflicts of interests to non-discretionary, less potential conflicts of interests, according to staff reports to the board.
Semifinalist StepStone was the most discretionary on the LACERA scale. A table of strengths and concerns highlighted StepStone's four-person compliance team as a strength. But, the table noted as a concern that StepStone has "inherent conflicts with regard to fund allocations between their managed separate accounts and fund of funds, and their non-discretionary advisory clients."
Aksia LLC, which has a $4.7 billion money management business while consulting for $52 billion in assets under advisement, and Cambridge Associates LLC, with 20% of discretionary client accounts, were ranked in the middle of the conflict of interests scale. Cambridge Associates had $2.4 trillion in institutional assets under advisement as of June 30, 2018, according to Pensions & Investments' database.