From Quarterback to CIO: John McArthur on Alts, AI, and the Future of Wealth at Krilogy

In this episode, Jeff Malec sits down with John McArthur of Krilogy to trace his path from backup quarterback at Mizzou and Northwestern to CIO of a nearly $6 billion independent wealth management firm. John talks about how college football shaped his views on timing, opportunity, and accountability, then connects those lessons to building a planning-first advisory culture outside the wirehouse world of AG Edwards and Morgan Stanley. The conversation dives into how Krilogy builds portfolios using a mix of active and passive tools, daily-liquid alts, private markets, and fixed income, with a particular focus on left-tail risk, crisis alpha, and why diversification still matters in a market dominated by mega-cap tech and AI narratives. John explains how the firm thinks about private equity, private credit, secondaries, and interval funds, emphasizing liquidity trade-offs, client education, and realistic expectations around distributions in a higher-rate world. Jeff and John also tackle the economic and market implications of AI, both as a powerful productivity engine and a potential source of labor disruption and how that overlays with client fears about geopolitics, inflation, interest rates, and elections. They wrap by getting practical on college savings strategy when markets are at all-time highs, the behavioral side of advising (part therapist, part portfolio architect), and close on a lighter note with John’s football roots and his personal Mount Rushmore of gridiron stories, including a nod to Bo Jackson’s legendary 30 for 30. SEND IT! Welcome to the derivative by RCM Alternatives. Send it. Hello there. Welcome back to the derivative, brought to you by RCM Alternatives, where yours truly just won the annual golf outing last week. Well, my team had Jeff Eisenberg call him Oz from Ohio and Jamie from Arkansas rounding out the winning team. Speaking of golf, we're doing a few golf events in and around the Presidents Cup, which is coming to Chicago to Medina this month, so go check it out. Let us know if you can make some of the events at rcmalts.com/golf. Okay, on to this episode where I sit down with John McArthur, CIO of Krilogy Financial, who we first started talking with five plus years ago, and has really been looking into alts in a big way since then, and are now nearly at $6 billion under management. Impressive. We'll forgive them for being Cardinals fans during the Cubs' postseason run here. But how do they view the market? How do they use alts? And what should I do with my college savings? Send it. All right, everyone. We're here with John McArthur. How are you, John? I'm great, Jeff. Pleasure to be on. Thanks for having an easy name for me to pronounce. Sometimes there's five minutes of me figuring out how to pronounce the the guest name, but you ran on it. We're here. We're recording on end of August. I think tomorrow. It's a Friday. Tomorrow's week zero of college football, and we were just chatting offline for a sec. You got some college football experience?John McArthur  01:46A little bit, yeah, a little bit of college football experience a long time ago. I was at Mizzou for a couple years, University of Missouri, and then Northwestern for a couple years. So had a unique experience to get a couple years at both places.Jeff Malec  02:00And you don't look like an interior D lineman. What what were you playing? I'mJohn McArthur  02:03not an interior D lineman. I was a quarterback.Jeff Malec  02:07Nice.John McArthur  02:07Yep. Little backup, some backup action on special teams. SoJeff Malec  02:12there you go. So what? High school star in Missouri, and then ended up at Mizzou.John McArthur  02:17Yep, ended up at Mizzou. Missed most of my senior year. Actually, I broke my foot a week in high school. Yeah, week before game one, missed most of my senior year. Unfortunately, but that's how those things go. So,Jeff Malec  02:31did they win the state title without you?John McArthur  02:32We did not win the state title. We wouldn't have won it with me or without. So, fun, fun, fun experience.Jeff Malec  02:41So let's do a little. Was Missouri was in the Big 12 when you were there?John McArthur  02:45It was. Yeah, that day. Yeah.Jeff Malec  02:47Now SEC. But so what? What do you have? A Big 12 preview or an SEC preview or just a Missouri preview?John McArthur  02:54Yeah. Gosh. Or none ofJeff Malec  02:55the above.John McArthur  02:56Yeah. Probably none of the above. As as I'm, still I still you know am involved to some extent. Pay attention a little bit, but but not nearly as as I did at one point in time. Mizzou should be should be good. I look forward to going to a couple games this year.Jeff Malec  03:15I was surprised when they joined the SEC. I didn't feel like they would be able to hang, and they've done a pretty good job of. They did,John McArthur  03:20yeah. They hung they hung right away yeah they've done a good jobJeff Malec  03:25and then I'm gonna sneak some bears fandom in here that Luther Burden who came from a zoo is just unbelievable we're excited about what he can doJohn McArthur  03:32yeah this should be a big year for himJeff Malec  03:35let's hope so stay healthy not come withJohn McArthur  03:38credibly that's for sureJeff Malec  03:40do you ever sit here now and and curse like you could have gotten all this NIL money and all that all that stuff?John McArthur  03:48It's a different era. Yeah, it's a it's a different era. I mean, I don't know. I yeah, I don't I don't I don't go to that mental space. But yeah, it's it's fascinating how how things have evolved. I actually I think it's a negative as it like the trickle down effect. Not to digress too much, but if you think about esports and some of the fanaticism and the youth level, I don't I don't know that it helps that side of things. You know, the the parent versus the kid who wants it more, and you know, it'sJeff Malec  04:16for sure it's it's incented the parents greatly, right? Like, hey, you can get off the payroll quick more quickly,John McArthur  04:21yeah, yeah. We did a says it is anyway, butJeff Malec  04:26we did a podcast with Scott Carl, who was an MLB pitcher for a while, and we're diving into all this of like just the incentives have gotten screwed up. Something's got to change. It feels like, but itJohn McArthur  04:35does. Yeah, I don't, I don't know what it takes, but I agree with that. Yeah,Jeff Malec  04:39and then like who's managing that money? Speaking of right, as a wealth advisor, like you're a 18 year old getting millions of dollars. Yeah, I mean, it's it's like it's well documented. It's been hard enough for you know grown adults, you know, to to manage kind of newfound wealth from so many different aspects, and now we're now it's happening at two years. Point at a at a much younger age, and then the yeah, and sports, especially football, right? The cool, you're going to make $2 million maybe for three years, but your peers are going to make whatever 300,000 for 40 years, right? And like the math will work out better, and they have to budget themselves and all That stuff weird.John McArthur  05:30When did you think, okay, I'm not, I'm not going to the NFL. I got to think of a real job. Yeah, you know, it's I think opportunity and timing is is really important. I mean, at the at the college football level, at any level, Division One, Two, or Three. I mean, there's you're you're with a lot of folks. They they can all play, right? And so you know, being able to take advantage of opportunities and you know timing, some of those things are out of your control. I feel super blessed that the experience. I think it helped me just from a life experience perspective, more than anything about kind of growing up and you know self advocacy and and some of those types of things. Because when I transferred, I had to I had to walk on off a year of eligibility and then and then had to rearn a scholarship. And so,Jeff Malec  06:14at Northwestern,John McArthur  06:15at Northwestern. So that's you know that'sJeff Malec  06:17was that like Pastor Fitzgerald was playing era when yeah yeah heJohn McArthur  06:21was I transferred there in the winter of 96 and they had just finished their citrus bull season soJeff Malec  06:28niceJohn McArthur  06:28yeah that he had just finishedJeff Malec  06:30Darnell Otry I'm trying to remember all those names but somewhere yeahJohn McArthur  06:33Steve Schnur Steve and I went to the same high school Steve had a storied career at Northwestern yeah andJeff Malec  06:41then so you got to Northwestern, and you didn't convert to a Cubs fan. You stayed a Cardinals fan.John McArthur  06:45I stayed a Cardinals fan. Yeah.Jeff Malec  06:46Damn it. Yeah. We nearly had you. No, but you've you've had the better of that for most of the past 20 years.John McArthur  06:56Wow, the tide has shifted here lately. ButJeff Malec  06:58let's hope. So out of Northwestern, you said, "Hey, like every young boy's dream, I want to be a wealth advisor. What did that look like to get into that space?John McArthur  07:07You know, I had always been interested in markets. I think my my first fascination was, you know, markets in general, and the wealth advisor path is the one that I that I took. I, you know, I needed to learn how to become a professional as opposed to a college kid. So my first job was at Transamerica in Los Angeles. They had a two-year management training program, on-campus interview at Northwestern. It was perfect, actually. I got to move to a whole bunch of different departments, mutual fund research, and you know, you name it. Just to again learn how to be a professional and have a corporate job of sorts.Jeff Malec  07:42Were you in the famous like Transamerica building there in San Jose? Oh,John McArthur  07:46I was in Los Angeles. That one is San Francisco. But yeah, it was it was downtown LA. Lived in Pasadena. Went to UCLA at night to get like educated on the financial planning side of things. So yeah, that's where it started. The wealth advisor path, and I've always loved working with people. So that was that's where it started, and then spent a couple five six year stints at AG Edwards back when it was around, great Midwest based firm, and then Morgan Stanley for a similar period of time, which were both really good in different ways, and then joined actually former teammate of mine at Mizzou, quarterback as well, Kent Scornia. He founded Trilogy in '09, and I came at the beginning of 2012, and and here we are.Jeff Malec  08:32Nice, and you guys avoided any like quarterback logo or in the name something, right? LikeJohn McArthur  08:38there might have been touchdown WealthJeff Malec  08:40Advisors,John McArthur  08:41yeah, contest of throwing a ball over a pond in our old office at one point, but our skills have diminished.Jeff Malec  08:49Like after trading here in Chicago at the trading floors at the Merc, it's right backs up against the river, and cocktails were flowing, and invariably a guy would bet some guy like I bet you can't throw this across the river, and you have people like, "Oh, sure, like $5,000, and it's probably 80 yards, right? Wow! So maybe Lamar Jackson could do it, maybe some guys could do it, butJohn McArthur  09:12yeah, yeah,Jeff Malec  09:12maybe,John McArthur  09:13yeah, yeah, properly went over and everything, which I'm sure wasn't the case. It wasJeff Malec  09:19not the case. And then, so always interested in markets. You were wanted to trade ever. You were like, was there ever a point of like, hey, should I go hedge fund route or something? No, no,John McArthur  09:27not necessarily. Just you know, more more macro portfolio construction. I got my SEMA certification in those early Krilogi years to kind of align with the transition into CIO role, which when which was in those early days of of Krilogy, and you know I've honestly been just blessed to have a ton of smart people around me and on our team, and you know we have we have fun doing it. And what do you see? Like if you pulled out of the big shops, right? A G Edwards, Morgan, is that still continue? You see.Jeff Malec  10:00More and more, it seems to me like how can there be any big branch guys left? Because all you read about every article is like this group pulled out and formed their own RA. This group pulled out. Yeah,John McArthur  10:11interestingly, there's still so much wealth. I mean, the predominance of wealth is still in the the big you know traditional investment bank firms. I mean, they they have a lot of firepower. I think you know, having reflected on being there prior to being in the independent space, you you don't know what you don't know, really. You know, you you're just used to this is how things are, and you just don't know any different. I you know, it's it's again positives on both sides of the equation, but being in the independent space, you know, for as long as I've been now, and you know, having the type of culture, it seems really cliche, but we are super intentional here around our people and teammates and collaboration, and you know, everybody's got a different experience at bigger firms, and mine certainly wasn't a bad one. I experienced a lot of growth and got a lot of lot of great value from it, but you know the culture feel on the independent side is at our firm is is different.Jeff Malec  11:06Yeah, yeah, you feel still felt compelled to leave.John McArthur  11:10Yeah, andJeff Malec  11:11then you mentioned what happened to AG Edwards. They gotJohn McArthur  11:14yeah, they got acquired by Cobia and ultimately Wells Fargo. Oh yeah, yeah, yeah, yeah. So that was in the you know oh 708 period yeah Waco I forgot about that name right was that one of those oh nine bank buyouts yeah that's right and then talk about you so you've got founded in oh nine or you came on in oh nine Kent Scornia our founder yeah started the firm with like $20,000,000.03 people and you know, kind of going back to the the football conversation around timing and opportunity. Kent and I remained friends, you know, post our college days and stayed in touch. And the timing just wasn't right right out of the chute for me. I had literally just moved to Morgan Stanley and had kind of informally partnered with a branch manager, with the idea of setting up a formal team within Morgan, and again, timing was tough with with GFC and management change and all those types of things. And so it was too it was too recent for me to have just you know leaped from AG Edwards to Morgan Stanley, and then right after moving independent. So took a couple years for that to happen, and you know we were we were probably managing 100 million or or so in assets when I came over, and we're a little under 6 billion today, five 6Jeff Malec  12:31billion. And then what did that look like in '09? Right? Was he purposely at that timing, or just was dumb? No, I think that's just howJohn McArthur  12:40it just how it happened, not a bad time to start a firm, I guess. Right when you're at the levels the market was at, and I have this 09.Jeff Malec  12:49I have this conversation with my wife. Of my son was born in '09 and my daughter an '11, and we put basically the same amount of money into their college accounts. And his is like way better, right? She's like, so what are you doing? What do you favor him? He's like no, yeah. Like the market was at. We literally he was born in February. Wow! And we started plowing it in right there in March at the lowest. So it's like, all right,John McArthur  13:14he'll have to spread the wealth with sister at some point. Exactly.Jeff Malec  13:18That's a fun. I want to talk about that later. Of get your wealth advisor take on college savings and whatnot, but right, like I've heard a lot of advisors before, like oh, I was at the big bracket and I didn't like how they were handling the risk in '08, so I peeled out to start my own firm or whatnot. So you did see a bit of that around that time.John McArthur  13:39Yeah, yeah, it's interesting. I you know, we're thinking about we're having those conversations on on our investment team now. Like, how do you how do you solve for left tail risk type of considerations? I mean, markets at all time highs by all account. Things are clicking on all cylinders. Earnings growth is going gangbusters. Like, everything seems to just be hitting right. Of course, there's plenty of of of noise in the background and things to be worried about, but as we know, I mean, it it doesn't last forever, and so just thinking about you know crisis alpha, you know left tail risk, uncorrelated strategies, those types of things. So.Jeff Malec  14:25Let's dig into all that. So, where that's a newer look into that, or you guys have had some alternatives. I know you did some stuff with us for quite a while, but yeah, yeah. So you've had some alternatives, but you're saying, hey, this is looking more and more needed.John McArthur  14:38Yeah, it's you know, if you think about the wealth creation is just so a so above trend for so long now for most people. I mean, our work is always financial planning based and focused first to help kind of guide and dictate the appropriate strategy and portfolio construction. And you know, everybody's had. You know, generally speaking, assumingly you're taking some meaningful level of market risk outside outsized returns relative to expectations. It's it's now a lot of conversations about um not only preserving but but turning into you know cash flow during the distribution phase of that of that process as they transition close to or into retirement. So you know when you kind of factor all those things in together and just recognize where markets are, historical valuations, all the things you see floating around in the you know financial media and so forth. It's yeah, it's it's it's it's more front and center for us, and to to make sure our advisors have the tools in the toolbox. It's ultimately at the end of the day, we're not gonna our investment team and committee isn't gonna dictate how an advisor should run their practice. But we sure sure as heck better equip them with all the tools and resources they need to. Yeah.Jeff Malec  15:55So what what does that look like? How many advisors? And then yeah, theyJohn McArthur  15:59each get to pick their portfolio. You have an approved list, or what does that look like? Yeah, we we have model portfolios that we run. We hired a technical analyst about four years ago who's added tremendous value to our process to really complement our the more traditional fundamental work. We've got a quant analyst, so we've got a lot of tools in the toolkit. Some, of course, more tactical in nature with the technical analysis piece. Some more strategic, strategically based. You know, we'll we'll use individual equities. We'll we'll use ETFs. We'll use mutual funds. All the above on the public markets side of of things, individual bonds, munis, etc. And then private markets, you know, it's it's been a it's been an effort for us really out of the chute. I mean, the last 1213, years plus. I mean, private markets themselves have evolved so much just in terms of how to solve for and the different structures and asset classes that one can now get access to that they couldn't in the past, which is really exciting. And so we've we've approved one-off solutions pretty slow and methodically over time. Really, just again trying to cover all the bases or as many as we can from a resource perspective. And ultimately, it's up to the advisor to you know to to continue to kind of lean in and learn to incorporate with clients or or not. You know, there's definitely some. You know, it's not always needed, right? You you definitely don't always need to solve with private markets or alts, but I think it's an increasing. NotJeff Malec  17:31on this podcast. You you always need to solve with alts on this podcast. That'sJohn McArthur  17:35right. That's right. Well, especially now, right? I mean, you haven't needed to be diversified in markets for a long time. If you're a large cap tech, you're fine. And yeah,Jeff Malec  17:47and what's your personal and firm view on that? Of like, but I could argue this it looked just as scary five years ago, 10 years ago, 20 years, right? Like it's almost always the case that we're kind of burring along, and it seems irrational, and it just-it's like the whole world is set up to keep this thing propped up.John McArthur  18:05Yeah,Jeff Malec  18:05and the smart ones know it can't always last. But in the meantime, the dumb people are the-or I won't say smart and dumb, but the wrist blinders, blinders onto the wrist-are just like what? Just buy it. Just 3x Nvidia. What could go wrong?John McArthur  18:20Yeah, yeah. I mean, it's always appropriate, right, to have some level of just market beta and just be in the game. But you know, concentration-wise, I heard the stat the other day. I mean, when not if OpenAI and Anthropic end up going public, it's like the top 13 names are 50% of the 50% of the the S and P. I mean, so from a market cap perspective, you know, so like give or take, there, right? Like really close. So gosh, how how diversified can you be? I mean, you know, that's definitely right to be to have some again level of beta, and inevitably you're getting the AI exposure. But you know, if you look at the private markets, some of the either hedge strategies or or you know trend strategies, which are less than non-correlated, or or even you know, venture and private equity tend tend to be again in the right situation. Really nice complements, and and really benefiting from the the U.S. economy in a much more meaningful way. Again, it's become so funneled and narrowed on the public market side. There's so much of the economy that that folks just are participating in when they're just in public markets alone.Jeff Malec  19:23What what would you say? I'm a client. I'm arguing. Hey, I think it is a winner take all economy of the future, and there's going to only be a handful of these big tech firms that own everything, right? That drive all this AI, that have the content, that do all this. So why why do I need that long tail? Those other equities, like, why do I need an index at all? An index on the public side, yeah. Of like, right? If if 50% is those names, like, yeah, maybe I'm cool with it because, right, that's a winner take all scenario, and I believe that's what's going to happen. Yeah, you know the the challenge.John McArthur  20:00Would be that's the belief, and that belief existed in '99. That belief existed at 2007, right? So, you know, if if to have some level of exposure there is prudent, right? But you know, the the math certainly shows if you weather the downturns in a much more meaningful way, that the compounding wealth effect and kind of smoothing out the ride, if you will, is going to help you win in the end. Particularly too when you when you consider one's time frame, right? Like you may say, look, I'm looking to I'm looking to shut things down or or become fully fully dependent on my portfolio for cash flows in retirement. I mean, the market doesn't care about your time frame, right? I mean,Jeff Malec  20:41yeah,John McArthur  20:41it's gonna it's gonna be. WeJeff Malec  20:43can't announce bad earnings because Jeff's Jeff's about to retire.John McArthur  20:47Right, right. Yeah. So it's. I think in periods like this, and again, I'm not suggesting that the the top is even nearer. I just think the prudence around diversifying into other markets, both public and private. I mean, we have a call this afternoon with our team in in regard to fixed income in the bond market. I mean, this is of course the moment you know when the 10 year is at 475, and you know clients are wondering why any bonds are owned in the portfolio. Exactly, they're once again flat to negative year to date. Like, why are we doing this? It's it's you know that's a panic on the bond side, akin to bottoming in equities. That doesn't mean that the 10-year can't press higher to five, five and a half percent or beyond, even. But we would suggest a lot of the damage is done there, given where cash flows are on on fixed income, even. So I think it remains an important piece.Jeff Malec  21:40Would you say your model portfolios are mainly 6040, like right? Like it's weird in our space. Everyone's always comparing to 6040, and I'm almost like, who's really doing 6040 anymore? Yeah,John McArthur  21:52yeah, no, and for sureJeff Malec  21:54it's not just spy and ag, right? It's like,John McArthur  21:56of course, maybe itJeff Malec  21:57approximates that, but it'sJohn McArthur  21:59significantly more dynamic than at well, I you know I think the other thing well so the short answer is there are you know essentially five different risk buckets buckets in each of the kind of the model philosophies if you will and our approach again is to we want to give advisors and and ultimately clients a large degree of choice to kind of align with their belief system, so that may be, you know, everything from purely passive. I want as low cost as I can get, you know, kind of per our conversation earlier. Or I believe the benefits of both active and passive combined, and so some of our solutions are truly a roughly a 50-50 mix of both of those. So what we deem kind of our less efficient asset classes will have some some active management, and then it's the the daily liquid alternative solutions. And you know, I've long felt that the academic theory has been terrific in that space, but really hard to implement in a consistent and and compelling way. And we've you know again some of it's maybe better to be lucky than good. I would attribute it to to our talented team, but you know we've we've had a lot of success in the daily liquid alternative solution side. So so to your question, it might look more like a 6020 20 for many as opposed to you know a 6040. And then do you feel like some people get to that 6040 by well the 20 active whatever kind of looks like a equity or it looks like a bond from a risk standpoint so maybe we jam it into that bucket. Well, that's that's really critical, right? Is is understanding the risk that you're actually taking. So that 20% let's call it an alt sleeve. I don't love the alt stigma, by the way. It has yeah negative connotation, but but but for you know it's yeah it's important. They're not certainly all created equal. I mean, commodities, you know, long commodities would be a high vol solution where you know merger arbitrage, market neutral. I mean, there's a whole bunch of different ways to play that sleeve, but it's got to you know it doesn't have to be non-correlated, but it sure should be quite a bit less, and it should help help hold up the portfolio when equities falter. Yeah,Jeff Malec  24:08that I get wonky for a minute, right? Like you could even have something positively correlated, but it's negatively correlated at the right time.John McArthur  24:16Yeah, you bet. Yeah,Jeff Malec  24:18yeah, which is basically managed futures can act like that, right? I mean, well stated. I'd say they're non. Yeah, but for a lot, a lot of time they're long stocks. They're long bonds. They're in the same positions. YouJohn McArthur  24:27bet. Yeah,Jeff Malec  24:28just can switch.John McArthur  24:30Absolutely,Jeff Malec  24:31which a lot of people miss. Of like, it's it's the path of the correlation, not just the raw number over X exact.John McArthur  24:39Yeah, well said.Jeff Malec  24:50So you mentioned you don't like alts. What what would you call it? Is that more for the clients? Yeah, private market.John McArthur  24:56I think, but that's that's what the solutions that are anything other. Than less than daily liquid,Jeff Malec  25:02right? That I can't buy on the exchange, basically. But do you feel like clients having a version of that term to the alts term, or it just starts a whole conversation of like, what? What? It'sJohn McArthur  25:11probably my own thing. Alts feel like it's it's I shouldn't shouldn't be doing this kind of thing, right?Jeff Malec  25:16Yeah, right. LikeJohn McArthur  25:18this is like way way out, you know, bleeding edge of sensibility, maybe.Jeff Malec  25:22I don't know. All right, I'll work on that. Private distribution. No, you know, I don't want to.John McArthur  25:30I don't want to make that any bigger than that.Jeff Malec  25:33And then, so what is that suite of privates that you guys look at? You mentioned a couple there, so it's basically all hedge fund categories.John McArthur  25:40You know, it could it could be hedge funds, it could be tax favorable hedge funds, it could be infrastructure. You know, private credit or private lending in general. It could be private real estate secondaries. It's been a really hot space for the last few years, both on the venture side and especially like late stage growth equity.Jeff Malec  26:01That's like getting a piece of anthropicJohn McArthur  26:03exactlyJeff Malec  26:04last year or something like that, right?John McArthur  26:05Yeah, exactly right. Could be you know private equities, you know small mid-market buyout. I mean, that's the sample set is just so large. I mean, to the comment earlier around truly participating in the U.S. economy, and Blackstone has great educational pieces on you know companies that have a certain threshold of revenue higher than 100 million in revenue in the U.S. I mean most of them are private by a significant margin. It's like 87% or something like that. So I think that that resonates with folks. It's like gosh, you know if I'm in the Mag Seven or I'm in the top 10 to 15 publicly traded S and P names, and I I truly do really have a narrow focus here. There's so much more to the U.S. economy that I could be participating. It doesn't come without risk, of course, right? But liquidity being, you know, one of the highlights. But from a long-term perspective, yeah, can certainly be additive. Yeah,Jeff Malec  26:58isn't it? Is that a little surprising to you, right? There's been so much private equity money for so long, and so many deals. Like you'd feel like every good private company's been snapped up, like 510, 20 years over of that going on massively. Yeah,John McArthur  27:11it's it's interesting though. Like if you think about you think about like the the cloud computing, you think about the internet, you think about the mobile transition. If we think about all these, let's call them, you know, innovation cycles, technology cycles over time, and now, of course, we're amidst AI at whatever stage it is. I mean, there's so much incredible innovation that's happening, and in these new companies that are being born and just growing faster than ever, doing more with less. I think that's it's super exciting for the U.S. economy on a on a go forward. So, irrespective of whether we're close to the top or or not close to the top, I mean, they're still you know the future winners, the future Mag Sevens are being born in in this moment, and I think that's really exciting for investors. AndJeff Malec  28:00I've just seen friends and in private equity and firms that have gotten bought. Yeah, they they don't just sail off into the sunset. They're going to start another company, or they're right. Those are the next level of executives, or the team is like got just got paid out. Maybe they go sail for a couple months or something, and then they're like, "All right, what's next? So I think that's where that next layer of private equity investments, isn't that so true?John McArthur  28:22Yeah, those those people are performers, right? They they're they're born to build and create, and are inspired by that. It's yes, they've they've done well financially, I assume over time, but it's in so many cases, it's it's way more than that, right? They're they've got I think a little bitJeff Malec  28:36of is the entrepreneurial folly too of like, oh, that worked, that's easy, I bet I could do that in X.John McArthur  28:43Right. I can tryJeff Malec  28:44that now over here. And a lot of times that doesn't work. ButJohn McArthur  28:46sure. Yep.Jeff Malec  28:47That's what keeps the world moving.John McArthur  28:49That's exactlyJeff Malec  28:49right. Yep. And interested on your thoughts. You thought you kind of sounded like AI is going to be this productivity push and fuel the economy even more. My my theory is we have a big risk that it causes a big recession, right? That there's yeah.John McArthur  29:06Oh, I think that's right. AJeff Malec  29:07lot of labor costs are removed, which means people's salaries. Speaking of anthropic, and I've said this on the pod a few times. I saw a deck that said they're trying to take 15 trillion of labor costs out of the market, which is basically 15 trillion of spending. So I'm like, that can't be good for anybody,John McArthur  29:26right?Jeff Malec  29:27Right for the economy. So yeah, what what are your overallJohn McArthur  29:30thoughts there? Of maybe the market goes higher. I think it. I think you're right. I I think it's. I think I think our fixation has been on like the the the the infrastructure and the large language models as it relates to AI, it's really about I think the the next phase of it, which plays out in my opinion over the next few years of of the businesses that are born on a lot of that heavy lifting and spend that's taking place. I mean, I think you're right that it ultimately ends in a downturn, and and it's probably not too different from those big those big majors that we've we've discussed already. Obviously, don't know the timing of that. I don't think it's an imminent thing, though. I think that's you know probably a a slower moving phenomenon. I mean, there's plenty of factors to go along with that, the you know, the 40 trillion and and and debt and significant deficits and the pressure on rates. I mean, right, there's a culmination of of factors. I think that that come into play. I just think it. My my sense is that because it's such a topical concern right now, tells me that we're probably way early.Jeff Malec  30:41Yeah, right. If we're all talking about it, it's not going to happen yet. Yeah, but it to me, a lot of people, I'm like, are you crazy? Like they're building to take away jobs, yeah, and then and maybe it's a weird. I don't think stagflation maybe is the right term, but like the markets at all time highs, yeah. But this underlying consumer economy is hollowed out, and maybe for your clients and a lot of people that listen this podcast, that's just fine. They've got investments that are doing well, but it seems like it that would be unsustainable for you know you don't have any more revenues coming in for a lot of those.John McArthur  31:13Yeah, I guess it does make me wonder though around you know there that's there's been disruptive technology forces in the past that you know changed kind of the job market and the and the a lot of the professions that once existed that now don't. It just it does make me wonder like what what exists in the next 510 15 years from a profession perspective that doesn't exist now that we're not even thinking about right some somebody running somebody responsible for managing instead of people they're managing the agents in the in the firm, the AI agents. I don't know. I mean,Jeff Malec  31:44my my was all the past of like recruit, replace labor, where this is like replacing the actual brain.John McArthur  31:52Yeah.Jeff Malec  31:52So it's like you don't have to hit these buttons anymore. Now you can go over here and hit these buttons.John McArthur  31:57Yeah.Jeff Malec  31:58This is like no, we don't need your brains at all? Yeah, we got itJohn McArthur  32:01figured out. Think about the value, though, and you know, in day-to-day interactions on pick pick your business of of the people skills, though, right? It's it's what I tell my my older two that are out of college now. You know, the the value of of being good with people, a good communicator. Like that's. I don't think that's going away. I think that the value of that in the future is even more critical.Jeff Malec  32:25And that's I'm surprised there hasn't been a right. Remember the whole robo advisor move?John McArthur  32:30Yeah. Oh yeah.Jeff Malec  32:32Whatever that was five years ago. I'm surprised there hasn't been like AI advisor moves here. Yeah. Like hey, you don't have to call your you know. And a lot of young people don't like talking people anyway. So if they've just been on their phone and can interact with their agent, well,John McArthur  32:46I think that's coming. I feel like Robin Hood and and maybe some of the others are are working through that. I don't know to the extent that it's live or actually happening, but yeah, definitely heard conversation of it. Yeah,Jeff Malec  32:58hopefully we'll be out of the way By then, you mentioned private equity and private credit. Like over the last two years, were you, you know, the liquidity is the big risk there? Private credit, especially with like Blue Owl and all those groups putting up gates and all that was that surprising or dismaying or what? What was your take on that? In fairness,John McArthur  33:27you know, we we've been much more lukewarm for the past couple years. I mean, ever since you you see the historic rise in rates, yeah. I mean, it's there's an inevitability aspect there that you can't go from zero to five in short order without having some consequence. So we have certainly some solutions on the platform. We've been much more lukewarm on it for the past couple years. But you know, outside of a few specific examples, by and large, the the space is holding up just fine. I mean, even even some that are in the news, it's like you know-you get this negative headline risk, and I don't want to name names, but like, yep, the strategies are positive year to date. And by the way, the bond market's negative, so yeah, yeah, you know, there's a lot of, there is a lot of noise. You know, I don't want to be totally dismissive of it. I mean, dismissive of it, and you know, a lot of accruals are happening and increasing. But again, I think that's just a a function of the historic rise in rates and kind of the persistency around it as well. And then, you know, interestingly, in real estate, like I would argue that you know, private credit's probably going through a similar type cycle where you know there's this troughing phase, and then you know you come out on the other side. There's opportunities amidst it. Takes a couple years to work through. I mean, that really happened on the real estate side for the you know better part of three or four years, and I feel like that pendulum is swinging in the in the better direction. You know, even even despite the rate pressure we've seen in private equity, we've seen less distributions there. A little bit of a different experience. Yeah, that. That's a pressure for yeah for private equity and venture alike, which does make the secondary space interesting. That's been of interest to us for a while. I mean, if you can kind of shorten that J curve effect and and get involved with businesses in their fourth, fifth, sixth year of existence under kind of a normal 10-year cycle, then that shortens that theoretical time frame of of seeing some DPI and the distributions. And but you know, I think you know for segments of private equity, you know, small mid-market buyout. I mean, it's it's such a massive universe. And then if you look at the public small cap side of things, and look at the lack of profitability. I mean, there's an interesting conversation there of having some attractive valuations and opportunities. Obviously, it's not all created equal, but again, to the point earlier, for certain clients, that can be a nice complement to the public markets piece. I mean, inevitably, distributions will will increase and happen again, and so hopefully we're starting to see that a little bit. Do you ever have toJeff Malec  36:05convince clients to the efficacy of private equity? Like I'm thinking of yeah, I I can't remember the stats, but it's like more and more companies aren't going public at all, right? Right. Like they're just remaining private until they're a trillion dollar value or whatever. So, like, how do you access that? You got to get through one of these channels.John McArthur  36:25Yeah, I think the system is changing. My sense is that if we look forward in the next five to 10 years, the mechanisms for liquidity will continue to to increase in a significant way. Um, which I think is is a really good thing. You know, I think it's for us that it's really just about education for clients. I mean, we don't want to. Obviously, we want to have a strong position and conviction around beliefs and the why, and taking the long view and the benefits of incorporating certain asset classes. But it's really an education thing. At the end of the day, there's some that will just say, and it's not right or wrong. We just say, look, I, I can't get comfortable with anything less than daily liquidity. I feel convicted. There's a give up in that for sure, and I think there's a lot of data that proves that. But that that if the person feels that way and and sleeps best at night by not having anything that's less than daily liquid, then that's where they should be. IJeff Malec  37:20see. I can't have your job because I'd be like, "Why? What is it doing for you? What are you going to do with that daily liquid? Are you going to pull it all out and that's andJohn McArthur  37:27yeahJeff Malec  37:27travel to Africa with cash on your in bags? Like you're right. Yeah,John McArthur  37:32yeah, you're right. I mean, there's a careful boundary there of pushing them outside their comfort zone. Right? It's more education. Here's the why, and look for like consensus and buy-in as opposed to you know them pinching their nose and say, okay, I'll do it.Jeff Malec  37:52Yeah,John McArthur  37:53yeah.Jeff Malec  37:53And then talk to that for a second of like the move. Everyone came out of the big brackets and into independent advisors, mainly doing ETFs. Is that the case here? Like, what would your ETF mutual fund mix look like?John McArthur  38:09No, we're pretty we're pretty split. I mean, it's it's everything again from individual equity to ETFs to mutual funds. Yeah, I think it's definitely more passive and mutual fund. I think nowadays too, though, you you can get active management within the ETF wrapper, yeah, and we have a fair amount of that both you know really on the equity side and the fixed income side, and I you know the the alternative side has gotten a lot better in in the ETF wrappers as well. Of course, it's not as pure and ideal in my opinion, as you're going to get with a less liquid solution, there's of course limitations by being able to offer daily liquidity, but but that that's involved, I think, in an effective way.Jeff Malec  38:50And what about interval funds, right? Because kind of a little bit of both, like hey, you can access some of this cool private stuff. It's exchange traded, but it's yeah not as liquid as you maybe wanted it to be.John McArthur  39:02Yeah, I think those are those are interesting. I think to your point, you know, I think for people to just have the peace of mind around there being a liquidity mechanism is enough. I mean, we remind people too, like if everybody's running for the exit at the same time, you know, it's that's not a good time that you want to get out anyway. So the fact that a manager is going to create some liquidity restrictions there is is for your benefit, as long as that's kind of message on the front end. I think that's critical. But you know, good point.Jeff Malec  39:31That's probably missed by most people. And like the blue owl we mentioned, stuff like, hey, they're not doing anything criminal. They're trying to protect a run on these assets. Yeah,John McArthur  39:39and it's protecting everybody. the the entire investor base, and I think yeah, it's easy to miss that one for folks. But the interval fund structure, I think, is is interesting. Certainly applicable in scenarios. I mean, we have a couple fixed income solutions that we really like. I mean, we've talked a little bit about well, topically, the the discussions are like senior direct. For the most part, with private credit, but there's such a a much more dynamic private lending, private credit space beyond that, and I think it's a really interval funds can be an interesting way to kind of marry the benefits of public and private. For example, in one vehicle, and entrust in the manager and their skill set and team and resources to have decision making around where the best opportunities are given the market environment. So I think you know that's that's an example. I think that that's interesting. I agree,Jeff Malec  40:30right? And like some insurance related stuff in there, lending and like that middle market that you needs a term to do that deal, and you can't do the term without right putting it in that interval,John McArthur  40:42yeah, and thenJeff Malec  40:42yeah, use that income to fund some beta to fund some other alternatives, and like that's a good looking portfolio.John McArthur  40:49You bet, you bet.Jeff Malec  40:51Three 351 exchanges.Speaker 1  40:54Are youJeff Malec  40:54guys seeing a lot of that? Like, is a lot of your clients' wealth in these mag seven names, and they want to kind of get out of it, or you're not seeing that as much. We'reJohn McArthur  41:01not seeing a lot of it. It's definitely a topic of conversation, but we're not seeing a lot of it. We're seeing more of the the long short tax solutions. That's been a much more topical conversation. I mean, that's been you know in our experience a really effective solution. But yeah, the 350 ones. We're again conversations are happening, but we're not seeing a lot of it.Jeff Malec  41:24Yeah, that's crazy. I was reading that article a month or so ago of that AQR hedge fund that gets the money from the tech is now the largest hedge fund in the world, which to me is a little bit weird. Like it, cool. You're taking it out of this concentrated position. You're doing some tax loss harvesting, but then it's going into their hedge fund. Now it's locked up over there, essentially, right? Like you have to pay your tax when you get out of there. So you've changed the character and timing of it, but you still you still have the tax over there.John McArthur  41:52Well, I think there's a couple different, you know. So the one of the AQR solutions is the is the hedge fund that has a tax piece to it. I mean, to to their credit, they've had a phenomenal track record with long, short, and trend kind of married together. The second piece, which is more like the 351, I would suppose, given that it's capital gain focused, is a is a separately managed account. So, like they're able to you know manage the money to provide pre-tax alpha, but also defer, you know, tax tax liability. There's no, there's never, there's never a magic bullet, right?Jeff Malec  42:28Yeah, completely awayJohn McArthur  42:29towards a deferral mechanism. Yeah, yeah. AndJeff Malec  42:34then I should have mentioned this back. We're talking a little more privates and notes, but buffer notes, all that jazz. Are you guys doing a lot of that or not? Yeah, we'veJohn McArthur  42:42done some of it. Yeah, it's it's really interesting. That space is that space has gottenJeff Malec  42:48yeah massive,John McArthur  42:49really really interesting. Yeah, but there's some there's some interesting solutions there. So yeah, we've we've done some of that.Jeff Malec  42:55It my my hesitation is always like from the bank selling it to me. I'm like, why are you trying to sell me this? Right. Yeah. I instantly put up a thing of like if you are trying to get it off your books. Something feels weird. I'll circle back. So my son's a senior. Like, what do you tell these people? I've saved up all this money for college. I'm about to spend it down, and the market's at all time highs. I can't do a lot of the alternative stuff I know how to do in the in the different college savings accounts I have. So, what do you tell clients of how to manage that final year of that? Go to cash. He's a senior. Yeah, he's a senior in highJohn McArthur  43:40school, about to have a four-year college run. Exactly. Yeah, yeah. I think with education planning, and I felt this very early in my career, early 2000s. Like retirement is one thing for folks. Like there's there's various levers you can pull. You know, you can work longer, you can live on less. Like you know, you canJeff Malec  44:01yeah,John McArthur  44:02you can be a little bit more flexible there.Jeff Malec  44:04That Serengeti hot air balloon trip, yeah,John McArthur  44:07yeah, exactly. Like to to not have the the college funds there is like from a behavioral perspective, just a different animal. Like so, the the the short answer to the question would then be get get more defensive, and particularly because it's it's imminent. And I would expect that if it's an age based or equity or oriented allocation, that the the growth has been outsized probably relative to expectations for a good long run here. And so, given that tuition is going to be due here every six months, let's call it, for the next four years to dial back that risk. I don't think you need to go to you don't need to go to the stable value fund per se, in my opinion. Yeah, you know, definitely dialing back that risk allocation makes a great deal of sense. I mean, maybe it's 2030, 40% equity type of thing would be my my thought process there, given that. You still do have kind of four years to fund, but exactly like you kind of if you miss this,Jeff Malec  45:04and especially what we're talking about, if it's like a blow off top,John McArthur  45:08right? Yeah, exactly. You don't want to be sitting accelerates another, yeah, yeah, right.Jeff Malec  45:14And then I've got a a free tip for you when you talk to really young clients, because nobody talk right here. I'm not sure in St. Louis, but here in Chicago, like a grade school, private grade schools, 3040, 50 grand. So I'm like, when you meet a girl in a bar, start saving, right? Like,John McArthur  45:32yeah, that's right.Jeff Malec  45:33It's it's known wealth management to like start saving for college when you have a baby, but no one tells you like to pay for elementary school. Yeah. So you meet her in the bar, start saving for a little bit right away.John McArthur  45:43Couple less drinks, yeah,Jeff Malec  45:46yeah. But yeah, these costs have been getting out of hand.John McArthur  45:50There's no doubt about it.Jeff Malec  45:52Awesome. So what? Two questions. Like, what's we talked a little bit about the? Is that your fear or the client's fear? I kind of want to hear like what your clients and obviously they 1000s of them that have 1000s of different opinions. But if you polled them, what do you think their biggest couple fears of the next year or two would be?John McArthur  46:09I think this goes back to another reason why I don't think, generally speaking, like this is the top of of the market, the top of the cycle, because there. I think for the most part, there is a lot of concern and fear. I don't see anything close to euphoria from clients, broadly speaking. They're concerned about Iran and geopolitical conflict. They're concerned about interest rates. You know, those. You know, inflation. Those are the kind of the main topical things. You know, administration. Whether you like the administration, whether you don't, like there's a whole litany of I think topical financial media type concerns, which which is interesting because the market is at all time highs and like just based on price and based on the last handful of years of performance, you'd say, gosh, I sure feels like euphoria. But like sentiment wise, I don't, I don't get vibe at all. You're notJeff Malec  47:03getting calls of like, hey, I want to up my AI exposure because Jim down the block just bought a new car, right? Yeah,John McArthur  47:10that's more characteristic of tops in my opinion, but we're not seeing that at all, and I'm involved in a lot of those conversations.Jeff Malec  47:18Yeah, and then how do you? Is that a firm mantra? Each advisor of like, how do you handle the behavioral aspects? Like you mentioned, the administration mentioned Iran.John McArthur  47:28Yeah.Jeff Malec  47:29Like if you're invested in some of these energy stocks and the Straits open, Straits closed, Straits open, and they're up and down 15, 20% a day. Yeah. Yeah. Right. What are those conversations like? Of like, hey, just stay the course. We've got a plan. Stick with the plan.John McArthur  47:42Yeah, I mean that that that's generally that's it. I mean we get way more nuance than that, of course. But yeah, to be to be trading based on headlines, of course, is you have to continually be right, which is darn near impossible. So our our focus as an investment team is just really frequent communication and styles of communication with advisors. That may be weekly technical analysis videos. It may be monthly investment meetings at a firm level. It might be an impromptu call like we have this afternoon on the bond market and how how to think about it, how to frame it, how to talk to clients about it, maybe our our weekly written you know memos that we do every weekend. I mean, so for us, it's just continually conversing about what we're seeing and and what's important to think about, both with markets and headlines, but but mainly with portfolios and changes we're making in that regard. So communication, you know, you see the old cliche, you know, good communication solves a lot of things, and that's kind of our thought process.Jeff Malec  48:51So preempt them, right? Like get them the education, get them the answers before they before they ask the question.John McArthur  48:56That's right. Yeah.Jeff Malec  48:58And you started in '09, so you didn't need you didn't have to have the big conversation there. Of do we get?John McArthur  49:02I started in '01. The firm started in '09.Jeff Malec  49:06Yeah, yeah, yeah. So you had two times where you were yeah looking at the bottom.John McArthur  49:10That's right, that's right.Jeff Malec  49:14My neighbor down the street here's wealth advisor. He was, I guess that was 2020. I caught up. He's like, I'm just a psychiatrist. Yeah, he's like, I'm not a wealth advisor. I'm a psychiatrist. I have 30 minute slots.John McArthur  49:26Yep,Jeff Malec  49:27where I talk through everybody's problems. Yeah, and then on to the next day.John McArthur  49:30Yeah,Jeff Malec  49:33which is that you like that part of the job, or that like gets gets tiring?John McArthur  49:37No, I like it. I like I like the the human side of it. I like I like I got into this business because I like working with people, and I like. I guess similar to the quarterbacking, I I like the responsibility and and being accountable. That part's fun.Jeff Malec  49:50I never thought that. Like the CIO is is kind of the quarterback, or maybe the offensive coordinator, right? And defensive coordinator, the head coach.John McArthur  49:57Yeah. LikeJeff Malec  49:58okay, we need this on the field. Yeah, the the fun part is you can have offense and defense on the field at the same time. Yeah,John McArthur  50:04that's true. You're right, and shouldJeff Malec  50:06and should right. A lot of people forget that. They're like, no, it's right. Is that the old advisor model of like, oh, we're now we've seen the macro and we're now tilting defensive, and it's like, it's more of a like put this unit on and off, shift the shift the allocations instead of like, this isn't always on allocation to protect things.John McArthur  50:24That's right. Yeah, because as we've seen, risk happens fast, and every day that goes by, it seems like that you know with algorithmic trading and you know I think there's just it's gonna markets just move faster and faster as time goes. You know we'll be 24/7 at some point.Jeff Malec  50:40So for sure, it's coming. Perpetual CME is doing a bunch of stuff on that of like, yeah, all the prediction market screwed up. Yeah. Speaking of like, you have clients asking you if they should get involved in that stuff.John McArthur  50:53Fortunately, no. At least that's not coming to me. I'm sure it's being asked, butJeff Malec  50:58and they just say easyJohn McArthur  50:59no. I mean that's like you know if you want to throw yeah, but like the itJeff Malec  51:04seems there could be some use case. Sure, right? If you knew your portfolio is going to get screwed if if the whatever whoever wins the midterms or something, which in and of itself that statement is silly, right? Right. You never really know. But assuming something like that, and you could hedge a little, um, yeah. Who knows? It'sJohn McArthur  51:22yeah. For certain things, there could be definite benefits of it,