Two former Morgan Stanley investment advisors recently announced the formation of Hartford-based All Source Investment Management, which focuses on alternative investments for an affluent client base.
Justin Bernier and Patrick Kennedy, who both previously worked at Morgan Stanley as alternative investment directors, established All Source to help wealthy individuals invest in traditional portfolios and alternatives like private equity and hedge funds, they said.
Such alternative-investment strategies are typically left to institutional investors or the mega-wealthy, but they see opportunities for other high-net-worth clients to get in on the action.
The duo has chosen downtown Hartford as their home, occupying 2,100 square feet in CityPlace I, where their former employer is located. Bernier notes that their office faces the Goodwin Hotel, where J.P. Morgan would stay on extended trips to the Capital City.
Bernier, a married former naval intelligence officer with four children, has some name recognition, having formerly run twice for the state’s Fifth Congressional District seat. The Republican candidate was unsuccessful in both races.
Kennedy is a married father of one son.
The newly-established business owners participated in a Q&A with Hartford Business Journal. Here’s what they had to say.
We are living in uncertain economic times with the pandemic still raging on. Why did you decide to start your own investment firm now?
Justin: Some believe the best time to start a new business is when people are rethinking their needs. You could say that All Source is a disruptor because we invest differently than firms that put most of their eggs in the stock market.
We believe the extreme market volatility of 2020 as well as the uncertainty of 2021 makes this the perfect time to offer alternatives to investors with an open mind.
Patrick: With the high levels of volatility the pandemic brought on throughout the year, a lot of investors are now questioning and rethinking long-only portfolios. The huge move to passive strategies has come with a certain level of complacency within markets.
We look to truly diversify portfolios by investing in asset classes that are outside of the stock market or uncorrelated to it. With volatility fresh in people’s minds, we feel this is a great time to launch the firm and solve for this need.
Are you bringing some of your old clients to your new firm? What’s your strategy to find new clients, especially at a time when in-person gatherings — where networking is often done — remain restricted?
Justin: Old-style ‘wining and dining’ isn’t what All Source is about, and we’re not into the golf thing, either. Showing investors the mathematics and risk management behind our portfolios is how we win business, so we plan on making that case online going forward.
One of your selling points is that you want to provide opportunities for high-net-worth investors to invest more like institutions. Specifically you said you want to help ‘millionaires invest like billionaires.’ What does that mean? What does that strategy entail?
Justin: There’s a longstanding academic debate over whether individuals can and should invest like institutions. In the past, it was assumed that alternative investments — like private equity and hedge funds — should be reserved for the mega-wealthy who have long investment horizons, but today we see sensible options for smaller investors. Our mission is to help democratize the investing world for clients who want to compete on an even playing field.
We’re able to provide a larger toolset for our high-net-worth clients than we could previously. Many of the private offerings we have access to are at lower minimums thanks to the multiple alternative investment platforms we use.
Patrick: Top quartile managers in the alternative investment space usually do not have a lot of capacity to offer new investors, which makes it difficult for large wire-house firms to distribute. At All Source, when a small amount of capacity becomes available, we can take advantage of the opening.
How rare is it for investment managers to invest individual funds in things like private equity and hedge funds? What are the risks with that? What are the rewards?
Justin: Many people with defined benefits plans, like state pensions, are invested in hedge funds and private equity without knowing it. Like other asset classes, alternative investments can be used to help improve the risk-return profile of a portfolio through diversification.
Justin, you are a former naval intelligence officer. How does that experience help you in investment management?
Justin: Our name is partly inspired by “all-source intelligence,” the art of pulling together different types of information to produce finished intelligence, a responsibility I had at the Defense Intelligence Agency and at the Joint Intelligence Operations Center-Afghanistan.
The discipline of using all available information to make decisions also fits with our strategy of keeping all options on the table.
What’s the greatest opportunity in the market right now?
Patrick: We’re excited about opportunities in the private equity space. We have access to boutique managers that specialize in certain niches.
Typically, such managers aren’t widely available because of capacity restraints. Today, there are many dislocations in the economy and private markets due to the pandemic. Seasoned private equity firms can find attractive opportunities in such an environment.
What’s the greatest risk?
Patrick: Complacency. With interest rates at all-time lows, conservative investors are being pushed up the risk scale. Now that volatility has returned, investors who have taken advantage of strategies that simply ‘ride’ the market will have to ask themselves if they’re comfortable with this new level of risk.
What’s your economic outlook for Connecticut?
Justin: Connecticut has the building blocks to be one of the best-performing economies in the country, but it has taken some wrong turns over the years. If Connecticut could reduce or phase out the income tax over time, we believe it would quickly become the most attractive business location in the Northeast.
Justin, you’ve dabbled in politics, including running for the Fifth Congressional seat in 2012. You’ve also been involved in Farmington town politics. Do you have any future plans in politics? Why have you gotten involved in the political arena?
Justin: I’ve been involved in politics for the same reason I joined the military and support charities: because some things are more important than money. I currently serve on the state commission on compensation for elected officials, so I plan to remain engaged in public policy, but politics doesn’t play any role in All Source’s investment process.
We are much more focused on market correlations and growth rates than anything coming out of the political world.
Where do you want your firm to be in three years?
Justin: Three years from now, we want All Source to be known as the best place to go for portfolios that don’t live or die by the stock market alone. In the meantime, we want to earn that reputation by showing more investors a better way to seek returns.