Michael Jordan didn’t expect to become an expert in investor-side representation for alternative investments. He stumbled into the niche 22 years ago.

In the late 1990s, when the Ohio General Assembly removed a restriction that the five state retirement systems could only make alternative investments if there was an Ohio connection, Ice Miller started working with three of those plans. These institutional investors wanted to catch up to the normal allocation of alternatives, which is typically less than 15 percent of an overall portfolio.

“None of us expected that we would be doing this kind of work,” says Jordan, a managing partner with the law firm. “Once you’ve done something for a couple of years and you’ve built up a good resume or portfolio of experience, you realize, ‘We’ve got to go try to grow it.’ So that’s when we started looking outside Ohio.”

Ice Miller today is one of the few law firms to specialize in alternative investments. It works with plans across the country, including state plans from Kentucky, Indiana, Tennessee, New Mexico, Kansas, Georgia and Massachusetts, as well as investors from universities, health systems or insurance companies.

Here’s what Jordan is seeing with the alternative asset class.

What’s considered an alternative investment?

Alternatives is supposed to be the catch-all that is everything other than stocks or bonds. Historically speaking, hedge funds, for example, would be an alternative asset class. Infrastructure investing, real assets like timber and timberlands, oil and gas funds, those would all be in a broad bucket of alternatives.

In our mind, here at Ice Miller, everything other than a stock, an equities-based relationship with a manager, or a fixed income-based relationship is an alternative. Venture capital, seed stage, growth equity, buy out, secondary funds, which are funds buying existing investor interests in investment partnerships — there’s a breadth of different strategies that fall within that broader alternatives bucket.

What trends are you seeing with alternatives?

The pace of new commitments to the asset class by our institutional investor clients continues to be high. Quarter-over-quarter, there’s more investment opportunities in the alternatives area.

Sometimes certain strategies will be more prevalent than others, depending on what the economy is doing at a macro level. For a little while infrastructure heated up.

Right now, I’ve seen more distressed debt investing opportunities. We’re seeing it more in Asia, than here in the states.

What areas are alternative investments moving away from?

We’re not seeing a lot of the traditional mega-buyout-type funds hitting the marketplace. There are few going on now, but back in the day it was always the big names with a buyout strategy and flagship fund. It was Bain (Capital). It was TPG. It was Apollo (Alternative Assets). It was KKR.

Over the years, not only have those large managers diversified and expanded quite a bit, but I also think that buyouts, as a larger bucket, is fairly saturated in terms of the dry powder that’s available for investment.

What do you wish more investors knew about alternatives?

There are a surprisingly large number of institutional investors who have a large enough pot of investable dollars that they are investing in alternatives, but they go into them without having advisers work with them.

It usually falls into one of two things. One, is that they think that the checks that they’re writing are so small that it doesn’t give them the negotiating leverage to affect the terms. So, they figure, ‘I’m a $1 million investor in a $2 billion fund. Nobody’s going to pay me any time or attention. I ought to just sign the documents and invest.’ That’s one theory.

The other is — and it’s related — ‘Well, I’m not a big investor here, but I know that there’s probably going to be some big CalPERS-, CalSTRS-type investors coming into this fund. So, they’re going to negotiate all the terms in a way that make it better for everybody else.’

Those are two false impressions in our mind because there are a lot of ways a smaller investor not only can help shape the terms of the overall fund, but also some protections that you can negotiate into the overall investment.

How should a smaller investor negotiate?

You’re not going to get them to change the management fee or the rate of carried interest, if you’re a $1 million investor in a multi-billion-dollar fund.

But there might be situations where you want a particular type of reporting provided to you. There may be situations where you want to be able to get notice if there are other investment opportunities that the fund is going to make where they need additional equity capital. Different things you can do around the edges to improve your overall investment, rather than just signing and submitting it without even looking at the documents.

Where do direct investments come into play?

A lot of our clients make direct investments alongside a fund. For example, a client will make a $200 million investment with, let’s say, TPG. Then, TPG says, ‘We need more capital for this particular acquisition. Do you want to invest alongside the fund directly into the operating company?’ That’s a different kind of investment, right? Because now you’re directly investing into an operating company, the issues and the things you think about, and even the documents, are different than it would be for a fund.

Do you see this becoming more common?

We are seeing an increase. If you had the choice of investing $10 million into a fund, where you were paying 2 percent to the manager as a management fee, and 20 percent of profit as the carried interest, if you made that investment yourself directly, you’re not paying the management fee or the carried interest. Economically, it’s a smarter investment to make.

The trade-off is, obviously, you, as an investor, have to have the underwriting ability to decide whether that investment was a good investment or not. That’s what you’re paying a private equity professional to do.