Highlights

• Monetization strategy decided: management fee per SPV
• First secondary deal published

Lowlights

• Deal pipeline running slower than desired

Monetization Strategy

Our Request for Comment process generated a monetization hypothesis to test:

Management fee of 2% of paid in capital. At close, we envision that the SPV admin will:

• Keep the admin fee for itself
• Send the Blue Sky fees to respective states
• Send the contract deal analyst fee to the contract deal analyst
• Send the management fee to the Alliance’s management company
• Sign investment docs with the target company and wire the rest of the paid in capital

We will only close a deal if the all-in expense ratio is 10% or lower. The all-in expense ratio is (admin fee + blue sky fees + management fee+ contract analyst expenses) divided by paid in capital. We will aim to maximize invested capital. This will reduce the impact of the relatively fixed portions of the fee structure (admin fee, blue sky fees, contract deal analyst expense). I want us to eventually reach an average all-in expense ratio of 5% or lower

Benefit of this structure:

• Only investors participating in a given SPV incur the cost.
• This simpler than a subscription model. We don’t have to manage subscribers, churn, deal level access, etc.
• The SPVs (and not individual LPs) are the clients of the management company.
• The SPV will reimburse the contract deal analyst (~$500 or less). LPs will incur this cost pro rata like the other SPV level fees. The management company will cover analyst expenses for deals that get cancelled. This approach minimizes variable operational expense. It also incentivizes the Alliance to find ways to prove demand before launching a deal.

The first new deal under this structure will launch with one of our new admin provider partners.

First Secondary Deal Published

We have published our first zero carry/management fee secondary deal to the group. The demand (in the form of indications of interest) has been enthusiastic. I’m optimistic on the structure and the sourcing/structuring partner. We may bring more secondary opportunities like this to the group.

Musings

• I wonder if there is a way for us to create a Vanguard like structure where the Alliance management company is owned entirely by members who have invested in the SPVs.
  • It could look something like each SPV investing a small amount of its paid in capital in the management company and therefore investors in each SPV own part of the Alliance.
  • Another version is that an investor in Alliance SPVs has the right but not the obligation to invest the same aggregate amount in the management company. For example, if an investor has invested $300k across 3 SPVs ($50k, $100k, $150k), they would have the right to invest $300k into the Alliance management company.