Alternative Risk Strategies LLC
Institutional Services
Alternative Risk Strategies ("ARS") is our institutional brand.
ARS brings sophisticated solutions to complex situations. In particular, our expertise is starting investment funds. We work with both investors and investment firms. The services we provide include:
Outsourced CIO
What is a BDC?
A Business Development Company (BDC) is a specialized type of investment entity in the United States designed to aid the growth and development of small and mid-sized businesses. Established by Congress in 1980 under the Investment Company Act of 1940, BDCs provide vital capital to companies that might struggle to secure traditional financing channels such as bank loans or public equity markets. They invest in these businesses through various means, including equity stakes, debt financing, or a combination of both. BDCs are typically publicly traded and are required to invest at least 70% of their assets in private or financially challenged U.S. companies, offering individual investors an avenue to participate in the private equity market. Due to their structure, they must distribute a significant portion of their income to shareholders, which can provide attractive yield opportunities.
Why Start a BDC?
The regulatory structure of a BDC, combined with the potential for higher returns and regular income distributions, makes it an attractive vehicle for both entrepreneurs and investors. These benefits include:
-For banks, BDCs are exempt from the Volker Rule, so a bank can own a BDC and do private credit and private equity investing through this vehicle.
-Ability to enhance returns because BDCs can leverage their equity 2:1 with debt.
-Ability to take the BDC public, so investors can also get immediate liquidity by selling their equity on the public markets.
Why use ARS to Start (and help run) a BDC?
We have prior experience starting and running a BDC (X1 Capital Inc.), so we understand the SEC approval process and the operational and compliance requirements after launching. Big picture, we will save you time on your launch and dramatically save you money. In the case of X1 Capital, we saved well over 80% the quoted legal and accounting fees, and we did the entire project in under 6 months start to finish.
After the BDC launches, there are serious ongoing regulatory and compliance requirements. In the eyes of the SEC, a BDC is a registered investment company – just like an ETF or mutual fund. We can set up your compliance and serve as your outsourced CCO – so you can focus on investing.
Design & Development of ETFs
One unique capability we bring to our clients is designing and developing proprietary funds. Historically, our audience for this offering are RIAs and banks looking to develop internal funds as part of their expansion of offerings and tired of paying outrageous fees to third party managers. We have a deep history creating funds, and we have helped launch multiple ETFs. After the launch of the ETF, we can continue to support the ETF by serving as index provider, portfolio manager, and CCO.
Additionally, some clients want to structure their portfolio as an ETF for the tax benefit, and we bring a deep expertise in this capability. By putting the portfolio in an ETF wrapper, you do not have to incur tax obligations when selling out of position where you have a capital gain.
As part of our commitment to the community, we have a license from the US Treasury as a Community Development Entity (CDE) as Mariposa Impact Partners. CDE is a domestic corporation or partnership that is an intermediary vehicle for the provision of loans and investments in Low-Income Communities (LICs).
Benefits of being certified as a CDE include being able to apply to the CDFI Fund to receive a New Markets Tax Credit (NMTC) allocation to offer its investors in exchange for equity investments in the CDE. The tax credit is 39% of the investment spread over seven years.
If you have a development project in a LIC that serves the local community and are interested in a collaboration, please contact us.
If you are an investor interested in New Market Tax Credits, please contact us.
For more information about our offerings to Institutional Clients, please contact us.
Outsourced CIO
Our clients – including pensions, endowments, companies, and family offices – face many challenges amid an increasingly complex investment environment. With limited resources, many organizations look to Crimson Wealth to oversee investments and portfolio management.
Our high-touch investment approach starts with learning what your specific goals and constraints are to make sure that your portfolio’s risk level aligns with your long-term objectives. We are focused on your portfolio, transparent about decisions, and accountable for performance. You will know what is in your portfolio and why it is there. We are very comfortable including illiquid alternatives in your portfolio, if you want to expand your investment universe.
Beyond investment selection, Crimson we can bring unique, smart ideas to you because of our tax and insurance expertise– so you “Make More, Keep More.” For example, historically tax exempt investors used blocker corporations when investing private equity to avoid the risk of Unrelated Business Income Tax (UBIT). We use a Group Variable Annuity (GVA), which accomplishes the same thing – but there is no income tax assessed. This means you may keep up to 50% more of your investment after-tax.