Publications

- December 1, 2018: Vol. 5, Number 11

The trifecta of investments: Amit Dogra, CEO of Third Seven Advisors, insists on providing interesting alternative investments that excite his advisers and clients with curb appeal

by Mike Consol

Amit Dogra wants to put investments back into everyday conversations. He is convinced people do not talk about stocks anymore because most are invested in funds containing thousands of stocks or other assets, and do not even know what the fund contains, killing any excitement or conversation on the topic.

Too many portfolios are devoid of the direct private-equity investments in companies and alternative assets that excite investors and make the financial commitments they have worthy of cocktail party or golf course chatter. What’s more, investments in alternative and hard assets are a portfolio’s opportunity to generate alpha.

That is what brought Dogra — a BNY Mellon Wealth Management and HighTower Advisors alumnus — to the CEO post at Third Seven Advisors, where the firm’s ethos argues the real value is found in the private market through direct ownership in companies that advisers and clients like to talk about with one another and with colleagues.

Dogra calls it the “trifecta of unique alternative investments,” its three components consisting of direct investing in early-stage companies, direct investing in late-stage startup companies moving toward IPOs (such as Spotify Ltd. and Airbnb Inc.), and access to an alternatives platform consisting of dozens of private equity and hedge funds.

Investments in early-stage companies are the purview of Third Seven Advisors’ sister organization, investment bank Third Seven Capital. Late-stage private-equity investments are accessed through Third Seven Ventures, a private label offering. Private equity and hedge funds are accessed through Third Seven AMP, whose acronym stands for “alternative managers platform.”

Third Seven Capital lists its current early-stage projects on its website, and those companies, with minimum investments ranging from $25,000 to $100,000, include:

  • NuCalm, the flagship product of Solace Lifesciences, seeks to solve the problem of acute stress and anxiety with a natural deep relaxation system. “Meditation and self-help is a huge interest right now,” Dogra told ThinkAdvisor recently, pointing out that Calm — not to be confused with NuCalm — was named the 2017 iPhone app of the year.
  • Four Springs Capital Trust, an internally managed real estate investment trust focused on acquiring, owning and actively managing a portfolio of single-tenant, income-producing industrial, medical, retail and office properties.
  • Hunton, a manufacturer of powerboats for connoisseurs — those looking for a blend of performance and luxury.
  • OVEND, which aims to bring convenient, hot and tasty pizza to the North American market through a network of pizza vending machines.

One of the investment bank’s past projects is HFactor, a maker of hydrogen-infused water, a so-called super element that proponents claim offers anti-inflammatory and anti-oxidant benefits. HFactor got a major boost when it was reported the Golden State Warriors were drinking the product during their championship run, and pop star Katy Perry was sipping on HFactor’s hydrogen-infused water during her stint as a judge on the most recent season of American Idol.

NuCalm received a boost of its own when it was disclosed the Philadelphia Eagles and Washington Capitals were both using NuCalm’s technology during their championship runs in winning the 2018 Super Bowl and Stanley Cup, respectively. Motivational speaker Tony Robbins also uses the product.

The straightforwardness of what these companies do is part of the key to making them suitable for the Third Seven family of organizations, which operate under holding company Third Seven Group. Dogra says if he and his advisers cannot explain in three sentences or less what a company does, they are probably not very interested. Why? Because the firm’s advisers and, by extension, their clients want to invest in easy-to-understand companies that make for engaging conversation.

“I don’t need to go into returns, I don’t need to go into the science of it. It’s got that curb appeal,” he explains.

When clients directly invest in these early-stage companies, they receive nonlisted stock shares that Dogra calls “an opportunity for clients to get some liquidity in an illiquid market.”

These early-stage companies do not want to take money from venture-capital or private-equity firms because they would have to give up too big an ownership stake, according to Dogra. By way of contrast, Third Seven aims to support the companies’ entrepreneurial cultures and to help them grow; Third Seven does take equity stakes in the companies, though a trivial portion by comparison.

“We want to be aligned with their growth and not hamstring the entrepreneur,” he says. “Everything that we are doing on the investment side we believe is innovative.”

Third Seven Advisors focuses on stocking client portfolios with a 5 percent to 20 percent sleeve of innovative alternatives, and real assets is a stark departure from most investment products in today’s advisory business, which Dogra says are either passive or marginalized. To underscore his contention that investments for retail clients are becoming marginalized, he points to new offerings in the industry: zero-cost index funds.

“What they are saying indirectly to the adviser is, ‘Hey, Mr. Adviser, we don’t think the traditional investment world is actually adding any value, so you can’t charge your 1 percent fee because we are not even charging the client.’ What they are saying to the adviser is you have to find another way to earn a living, and that is why advisers are getting into planning and insurance and other ancillary services,” he observes. “We still believe in the investment industry, and we believe that the opportunity lies in the private markets and unique alternatives.”

To buttress his argument, Dogra comes back to one of his central points, that nobody talks about individual stocks anymore because everyone is invested in funds, a public-market environment where people do not actually know what companies they own. The real value is found in the private market, he argues, through direct ownership in companies that advisers and clients like to talk about with one another and with colleagues.

GOING EGALITARIAN

Taking minimum investments in alternatives such as hedge and private-equity funds — and even stock shares in startup and pre-IPO companies — down to the $25,000 to $100,000 range brings the signature investments at Third Seven within striking distance of clients considered members of the mass affluent.

Dogra cites an article published several weeks ago in The Wall Street Journal that covered bringing the private markets closer to the mass affluent via widely affordable direct investments with minimums similar to those at Third Seven. Many investors in the mass-
affluent space have accumulated several times that amount of money, putting their participation well within reach, according to Dogra, who defines “mass affluent” as anyone who can afford to invest in the alternatives offered by the firm, meaning the risk/reward paradigm does not consume more than 15 percent to 20 percent of their portfolio.

Though a fervent advocate of alternatives and direct investing, Dogra says many actively and passively managed traditional assets on the market serve as the core of his firm’s client portfolios, but Third Seven does not want to hang client fortunes on that alone. Rather, its advisers look to have 5 percent to 20 percent of a client’s portfolio composed of alternatives, real assets and direct investments.

“That is where the opportunity lies for alpha,” he says. “That is what we are focused on. Said another way, if you think about it, it is the top 20 percent that really controls the other 80 percent of a portfolio. We want to focus on the top 20 percent because it is the differentiating factor.”

With regard to real assets, at this stage Dogra especially likes real estate and energy plays, such as oil and gas, in addition to direct investments in startup and late-stage startup companies.

MAGIC NUMBERS

Third Seven is a name that echoes. As mentioned earlier, the Third Seven Group is the holding company underneath which two entities — Third Seven Capital, an investment bank, and Third Seven Advisors, the national investment advisory firm — operate. Some of the services the organizations offer also operate under the Third Seven label, such as Third Seven Ventures and Third Seven AMP.

The name Third Seven was derived from the thinking of 20th century Austrian philosopher Rudolf Steiner, who advanced the concept of human development based on seven-year cycles, which he reasoned was the amount of time it took the human body to replace its trillions of cells (a common belief disputed by scientists). But let’s go with Steiner’s theory, as extrapolated by Third Seven executives, for a moment. If the body fully rejuvenates its cellular makeup on seven-year cycles, it is a good time to benchmark what is going on personally and professionally. When the founders of Third Seven launched their firm, they were entering the third seven-year cycle of their adult lives, hence the name.

Nine partners, including Dogra, comprise Third Seven Group, the holding company created this year; Third Seven Capital, founded in 2013; and Third Seven Advisors, founded in 2016, which has already accumulated $940 million in assets under management.

What the founders saw was an opportunity to build their own community of advisers and give them proprietary access to an exclusive set of investment opportunities. In that way, the firm’s advisers have a “captive audience,” explains Dogra.

“These are projects their clients can’t get access to anywhere else,” he says. “It empowers the adviser to have that unique conversation.”

Similarly, the firm’s alternatives platform gives clients access to opportunities not available through traditional wirehouses and broker/
dealers.

“These are hedge funds that are on the growth side, so they might have $100 million of AUM, which are too small to reach the due-diligence process at a large wirehouse or broker/dealer because their capital requirements are much greater. So, we are looking at these as another opportunity to give our advisers and their clients access to something on the ascent,” he says.

A FAMILY AFFAIR

Interestingly, much of the firm’s investment model has been borrowed from family offices, which tend to have unique needs. One example is the hedge-fund and private-equity platform used by Third Seven Advisors, which was the brainchild of a family office. A second example is the performance-reporting system and client portal used by the firm, which also came through a family office that was unhappy with traditional providers in that space and created its own reporting package capable of handling and valuing direct investments, in addition to generating performance reports on stocks, funds and other traditional assets.

“We are leveraging technology and services found in family offices, and delivering that through to our advisers and, by extension, the advisers’ clients,” he says. “We are constantly focused on innovation and execution. We don’t want to be known necessarily as a financial services firm; we want to be known as a firm of innovation. I always say you are running two companies: the company that you have today and the company that you want to be a year from now.”

“We are definitely thinking about the next level because we don’t believe the next level may be even five years away; the next level could be one to three years away for us,” he says.

IN 30 SECONDS OR LESS

Asked to articulate his elevator pitch, Dogra says Third Seven focuses on three things that differentiate the firm:

  • We are entrepreneurs serving entrepreneurs, he says. Breakaway teams of advisers and RIAs unaffiliated with a broker/dealer and in need of greater resources have come into the Third Seven fold for its entrepreneurial culture, compliance capabilities, technology and infrastructure.
  • We are focused on putting the investments back in investing. Third Seven is bringing to the individual investor interesting alternative investments, in both the direct and fund spaces, where the firm’s advisers can talk with their clients in an exciting way about how they are adding value to portfolios.
  • Regardless of where you are in your business life cycle — whether at a wirehouse or looking to break away from an RIA or independent broker/dealer — Dogra says Third Seven believes it can help fuel its new partners’ growth through its consulting services, called The Growth Center.

Whether an adviser or a client is looking at Third Seven, the characteristics are the same, says Dogra — people who are interested in entrepreneurial opportunities, people who have a degree of sophistication for these alternative investments, and people who want to challenge the status quo, even in these days of national aggregators and consolidators.

“That portion of the industry was forged 15 years ago, and it is already getting stale because there are so many pop-up competitors,” he says. “Fifteen years ago there might have been a handful. Now there is about 10 times that number, and everyone is saying the same thing: How do you stand out in a sea of grey? We have been attracting advisers and clients who understand the value of unique alternatives.”

STEPPING STONES

The career turning point came for Dogra about eight years ago, after he made the jump out of financial services into financial services consulting with North Highland. He had been enamored with consulting and the opportunity to work with large clients, helping them develop strategy and working on interesting projects. He found, though, the ultimate decisions did not reside with him but with the client.

“It was in those moments I realized I missed rolling up my sleeves, being in the trenches, getting stuff done, and being closer to the adviser and the client,” he recalls. “I didn’t feel like I was able to move the needle as much. It was after that I had my aha moment and got back into the industry.”

Dogra then joined the executive suite at HighTower Advisors, where he spent four years as managing director and head of adviser growth and development, working with Elliot Weissbluth, the firm’s outgoing CEO, and David Pottruck, chairman of the organization and former CEO at Charles Schwab.

“It was a great time, and I learned plenty and was thrilled to have worked there for what I would consider the biggest growth phase they ever experienced,” he says. “I have nothing but respect for everyone I worked with at HighTower. It was actually one of the most professionally satisfying periods of my life because we accomplished so much together.”

But HighTower Advisors’ growth plan, which had been initially driven by a roll-up strategy that brought many smaller RIAs under its totem, shifted to a strategy that pinned growth on the acquisition of advisers from around the country. That marginalized the role Dogra was playing at the firm, convincing him it was time to find more suitable pastures. There was a mutual understanding that, under the circumstances, he would depart, leaving HighTower on good terms.

Dogra had no difficulty attracting attention, as many organizations wanted to discuss how HighTower Advisors achieved such rapid growth. The problem for Dogra was he was looking for something different, an original model that fired a sense of passion and conviction. Instead, the conversations repeatedly revolved around technology, corporate structure and fiduciary responsibility — organizational components that Dogra considered a given. Then came his meeting with the leadership team at Third Seven in December 2017, and Dogra says he understood within five minutes what differentiated the firm vis-à-vis the other organizations with whom he had spoken.

“There was a story that was compelling and one that would resonate both with advisers and clients alike, and that is what drew me,” he says. “I would be able to talk about the unique investment approach that we were going to bring — the pairing of a national advisory firm with an investment bank. I haven’t found another firm out there that is doing what we do.”

PLAYING LEAD

When asked about his management style, Dogra quotes Steve Jobs: “It doesn’t make sense to hire smart people and tell them what to do; we hire smart people so they can tell us what to do.”

“There is no such thing as arriving in a leadership role,” Dogra says. “Titles aside, the minute you start thinking that you are arrived or accomplished something is the minute you start becoming somewhat less of a leader, in my perspective, because we constantly have to grow. I have constantly, in my career, sought out mentors and coaches who can help me.”

New advisers are hired with great care at Third Seven, so as to protect the organization’s culture. A full day is spent with prospects as part of the hiring process, before adjourning to the company lounge where the prospect is introduced to several partners and advisory team members for a social gathering.

“Life is too short not to enjoy the people you work with,” he says. “We are looking for advisers that are still looking to grow. They don’t have to understand everything we do, but they need to know that they want to do it.”

One would assume Dogra also considers life too short not to have a portfolio bustling with exciting assets that his advisers and clients are champing at the bit to talk about.

Mike Consol (m.consol@irei.com) is editor of Real Assets Adviser. Follow him on Twitter @mikeconsol to read his latest postings.

 

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