Private Markets 360° | Episode 43: Exploring the Nuances of Wealth vs Institutional Investing

View Full Transcript

Jocelyn Lewis [00:00:01]:

[00:00:01] Welcome to Private Markets 360, your insider's guide to the world of private investments. Today we're thrilled to have Kurt Nye, CIO and Managing Partner at MAI Capital Management on the show. Kurt helped grow MAI from a modest $2 billion boutique to roughly $70 billion in assets under management, expanding the team from about 50 to over 600 people along the way.

 

Kurt will walk us through how private market investing is shifting from an institution-only club to a core piece of wealth client portfolios. Expect candid stories about the challenges of education, transparency, and setting realistic expectations, especially around the infamous J-curve, and the role of secondaries in smoothing returns.

 

If you're a wealth advisor or an investor curious about what really drives performance and how to think about risk, cash flow, and taxes in private assets, this conversation is packed with practical, down-to-earth insights.

 

[00:01:05] Kurt, welcome to Private Markets 360. It's great to have you with us. How are you doing?

 

[00:01:09] I'm doing great, and thank you for having me here.

 

[00:01:12] Thank you for joining us, Kurt. We're thrilled to have you on. So to kick things off, let's talk a bit about your career journey. You started at MAI as an intern, went institutional to Capital One and Townsend, and then came back.

 

What did you learn on the institutional side that most changed how you invest for the private wealth clients you have today?

 

[00:01:35] When I was on the institutional side, both at Capital One and at Townsend, this was during the great financial crisis and its immediate aftermath.

 

That gave me a focus on how allocations work on the institutional side, how very sophisticated, very large investors think about different asset classes.

 

Most importantly, it gave me a lens into what worked well and what failed during periods of stress. I also saw how institutional investors negotiated economics and aligned incentives when making large allocations.

 

That directly applies to what I'm doing today at MAI in the private wealth world.

 

[00:02:20] As we think about MAI and its growth during your time there, from a few billion to tens of billions — that's a massive change — what was the biggest inflection point that enabled that scale without breaking the investment process?

 

[00:02:35] I'll speak to the investment side.

 

At MAI, we developed a structured asset allocation framework. We divide the investable universe into six asset superclasses:

- Cash

- Fixed income

- Equities

- Income alternatives

- Growth alternatives

- Real asset alternatives

 

Income alternatives include things like private credit and triple-net lease real estate.

 

Growth alternatives include private equity-style investments.

 

Real assets include things like infrastructure and commercial real estate.

 

[00:03:25] Having those six asset classes allows us to organize our team around sourcing the best ideas in each area.

 

From a portfolio construction standpoint, we use guidelines around position sizing, asset class exposure, and client objectives.

 

We also run a very rigorous underwriting process. We review a large number of opportunities annually, but our approval rate is under 1%.

 

We maintain a wide funnel but are highly selective.

 

[00:04:10] Let's talk about client education.

 

You hear a lot about the J-curve, but it's not always fully understood. How do you set expectations for clients early on?

 

[00:04:25] First, we explain how the investment generates returns.

 

Is it rent? Is it business growth? Where is the return coming from?

 

Then we explain how it fits into the portfolio.

 

Why are we making this allocation?

 

We also set expectations around the client experience:

- J-curve dynamics

- Illiquidity

- Timing of cash flows

- K-1s and tax complexity

 

We also emphasize risk — specifically downside risk.

 

[00:05:20] We want clients to understand:

In what scenarios does this investment underperform?

 

Risk isn't bad, but misunderstanding risk is.

 

[00:05:45] One misconception is using standard deviation from quarterly marks to measure risk.

 

That understates real economic risk.

 

If you don't adjust for that, you'll overstate Sharpe ratios and create unrealistic expectations.

 

[00:06:20] You also mentioned hidden risks. Can you give an example?

 

[00:06:25] A big one is semi-liquid structures.

 

They offer quarterly liquidity, but:

- It may not be guaranteed

- It can be gated

 

If many investors request liquidity at once, redemptions can be limited.

 

This introduces game theory dynamics — even if you trust the investment, you may redeem because others will.

 

[00:07:20] That’s a key misconception:

Liquidity is not always there when you need it most.

 

[00:07:35] Let's shift to deal selection.

 

Your acceptance rate is under 1%. Why do you say no?

 

[00:07:45] One major reason:

Strong mark-to-market performance without realized returns.

 

We heavily discount unrealized gains.

 

Second:

We prefer teams that have gone through a full market cycle.

 

[00:08:15] Staying disciplined is critical, especially when markets become thematic.

 

We see waves of similar deals — venture, real estate, consumer — and we avoid chasing trends.

 

[00:08:40] You mentioned some great ideas come from clients. Can you share an example?

 

[00:08:45] Yes.

 

We had a client bring us a co-investment in a power infrastructure asset.

 

It had:

- Strong credit quality

- Attractive valuation

- Contractual revenue escalators

 

We underwrote it to a 12–14% return with low risk.

 

We vetted it thoroughly and ultimately expanded the opportunity across clients.

 

That relationship led to future investments.

 

[00:09:40] Let's talk taxes.

 

How do you incorporate after-tax thinking?

 

[00:09:45] Taxes are critical.

 

A 10% return as ordinary income is very different from 10% long-term capital gains.

 

We consider:

- Asset location

- UBTI

- Tax structures

- Private placement life insurance

- Opportunity zones

- Loss harvesting strategies

 

Taxes aren't the primary driver, but they can make or break an investment.

 

[00:10:50] Looking ahead, what defines best-in-class private market programs?

 

[00:10:55] Key factors:

- Strategic allocation targets

- Vintage diversification

- Clear reporting

- Portfolio construction discipline

 

[00:11:20] Also:

Planning for uncalled capital

Finding alpha in less crowded areas

Strong advisor communication

 

Advisors must clearly explain:

Why private markets?

Why illiquidity?

How does this benefit the client?

 

[00:12:00] Thank you for joining us for this episode of Private Markets 360 with Kurt _______, CIO and Managing Partner at MAI Capital Management.

 

Kurt explained how private market investing is becoming a core part of wealth portfolios, highlighting the importance of disciplined processes, education, and transparency.

 

He covered the J-curve, risk, liquidity, and the importance of a rigorous top-down and bottom-up underwriting framework.

 

We also discussed MAI’s sub-1% acceptance rate and how after-tax considerations shape investment decisions.

 

If you found this conversation valuable, please subscribe and share.

 

Until next time.