3 min read January 2024 — In an interview with Invest:, Doug John, managing partner at Requisite Capital Management, discussed the firm’s recent growth and the evolving financial advisory sector in North Texas. He highlighted the firm’s focus on private investments, navigating economic challenges, and the importance of alternative investments in client portfolios.
How did the past year unfold for Requisite Capital Management?
The past year has been excellent for our firm. We’ve seen significant growth, with a record recent quarter. Our assets under management, a key indicator of growth and success in our industry, have increased by about 20% year over year.
What is the state of the financial advisory sector in the Greater North Texas region?
There are two main trends in our industry. First, there’s a shift from working at large firms like Morgan Stanley or Merrill Lynch to going independent. I founded my own firm with my partner in June 2017, and since then, we’ve noticed a growing trend of financial advisers choosing independence. This shift benefits clients who seek full fiduciary advice. Second, there continues to be cutting edge technology available to firms like ours that significantly benefit our clients. This technological advantage has been well received by clients, as evidenced by our firm’s growth since its inception.
What technologies are you using to enhance your client experience?
In the independent space, unlike at larger firms we have the flexibility to select different custodians, investments, as well as our technology platform, which is a significant advantage. Regarding technology, we use software called Addepar, which allows for comprehensive balance sheet reporting. It can integrate with over 300 custodians, enabling us to provide aggregate reporting. Addepar allows clients to have a full view of their wealth. Investors make better decisions when they possess a comprehensive understanding of their financial picture.
What sectors or investment opportunities are you finding most attractive for growth?
Our firm focuses on private investments and seeking opportunities beyond the public stock and bond markets. While stocks and bonds are integral to client portfolios, many clients prefer private market experiences. Many of our clients, especially those who have had a liquidity event, seek to generate income streams through their investments, which can be challenging if their investment toolbox deals exclusively with public market investments. We continue to find attractive opportunities in the private credit space where investors can earn equity-like returns taking debt-like risk.
Considering current economic factors like interest rates and inflation, how are you advising your staff and clients to navigate this period?
Our investment process begins with the Treasury yield curve, which by definition is the risk-free rate of return. All investments, public or private, should be compared to the U.S. government bond market. As the Fed embarked on one of the most aggressive rate hike cycles in history, what was attractive when yields were at 1%, may not be when rates are over 5%. Currently, the Fed funds rate is around 5.25%, and a six-month T-bill offers a 5.5% yield, levels not seen since the early 2000s. The 10-year Treasury rate is approximately 4.5%, indicating a slightly inverted yield curve.
Our investment strategy avoids long-duration fixed income in public markets and takes advantage of short-duration bonds, given the attractive risk-free rate. We find sectors like energy very compelling and consider investments such as mineral rights, which offer yields that are substantially higher than the risk-free rate. It is worth noting, the S&P 500’s dividend yield is about 1.5%, which is significantly lower than the returns from money market investments. We use the Treasury yield curve for risk-adjusted comparisons. Currently, the bond market suggests an impending economic slowdown, which we factor into our investment decisions.
How do you incorporate alternative investments in a client’s portfolio?
The term “alternative investments” covers a broad range, including hedge funds, commodities, private equity, and venture capital. We prefer to refer to them as “illiquid investments,” emphasizing the commitment of capital for an extended period. Unlike stocks, these investments aren’t readily liquidated. We avoid illiquid investment vehicles that invest in public markets. It’s crucial to be selective with private equity or venture capital strategies. We favor targeted, or “rifle shot,” strategies that have a capital call structure, which is like dollar cost averaging. Clarifying what constitutes an alternative investment, particularly for new clients, is vital. In essence, it’s about investing in options outside the typical stock and bond markets, though some, like hedge funds, might still have ties to these markets.
What makes North Texas an attractive market for living, working, and playing?
North Texas, particularly the DFW area, is a prime location for business due to the influx of people and its pro-growth environment. The presence of Love Field and Dallas Fort Worth Airport, along with its central location, makes it ideal for corporate headquarters. The absence of state income tax, combined with a pro-business atmosphere, enhances its attractiveness. While real estate is challenging at the moment, the demographics are undeniable. Dallas is one of the fastest-growing cities or metroplexes in the country, offering significant opportunities outside of real estate.
What is your outlook for your firm and the industry in the next two to three years, and what are your top priorities during this time?
I’m highly optimistic about our firm and the industry. The migration of advisors leaving large firms and going independent will not slow down. There is also a gigantic transition of wealth transfer from baby boomers to their children. A substantial focus of ours is estate planning and preparing for this significant wealth shift.
Another key trend aligning with our strengths is the growing acceptance and interest in illiquid, private, alternative investments. We plan to continue focusing on these areas.
The demand for financial advisers remains strong, despite the rise of robo advisers and technology-driven solutions the human element and investor behavior are crucial aspects of investing. These are areas we emphasize as much as the investments themselves. We cater to wealthier clients, whose growing financial complexity matches our expertise. Our experience over the past six and a half years as a registered investment adviser confirms our capacity to thrive in this market.
Regarding Dallas, where we operate, the demographics and influx of businesses make it an ideal location. The city’s growth and attractiveness to businesses affirm its potential, especially for the financial advisory sector.
For more information, visit:
