For the past few years, “democratization” has been a popular buzzword to describe the growing allocations to private markets in the wealth channel. Hundreds of billions of dollars have been allocated to an ever-growing roster of funds. Technology has rapidly evolved to ease the pre-trade, trade and post-trade processes. And investors are grappling with their first major hiccup amid the issues facing private credit.
Amid that landscape, advisors and alternative asset managers at the Wealth Management EDGE conference held at The Boca Raton resort in Boca Raton, Fla., last week talked about how allocations are shifting toward hard assets and infrastructure while credit markets reset, how success requires going beyond getting exposure to private markets to making strategic selections, how the tech infrastructure continues to evolve and how client education remains essential, particularly in understanding the liquidity mechanisms inherent to the sector.
“How we approach it and how we look at clients is that liquidity is solved for first,” Alexis Miller, director of investment research and alternative investments with RIA OnePoint BFG Wealth Partners, said during a session during the Private Markets Summit portion of the conference. With private markets, it’s important to make clear, “this is not your liquid bucket. You should be liquid elsewhere in the portfolio. It’s all education and coaching.”
Other themes speakers underscored included matching product structures to client qualification levels, understanding redemption mechanisms and potential proration scenarios for evergreen funds, and scrutinizing valuation processes, particularly for funds offering two-way liquidity.
In addition, Miller and Jason Ray, president & chief investment officer at Zenith Wealth Partners, discussed how offering private markets remains key to attracting and retaining clients.
“They are a great way to differentiate,” Ray said. “If you can incorporate private markets, it’s a way to distinguish from managing investments yourself with a Vanguard or from other wealth managers.”
Another prevalent theme was the move by asset managers to build multi-manager, multi-asset products so wealth investors can access a variety of different private market investments in a single allocation.
“The key to generating more consistent outcomes is building diversified portfolios,” said Fran Golden, managing director, private wealth solutions, head of product specialist group with Blackstone. “To give individual investors that diversification. That’s the next wave.”
As one example, Blackstone, Vanguard Group and Wellington Management Co are launching a fund that will invest in public equities, bonds and private markets. But there are many other asset managers (either alone or in similar joint ventures) also working on similar funds, model portfolios with multiple allocations or making private market options available on popular unified management account platforms.
Amid the private credit concerns, many of the discussions focused on the importance of due diligence, manager selection and client suitability.
“The key here is talking about the many different ways to get into the private markets world, but understanding the product at a micro level is important if you want to be in the space,” said Monish Verma, founding partner and CEO of Vardhan Wealth Management.
Will Sterling, partner and chief investment officer with TritonPoint Wealth, echoed that sentiment. He talked about the importance of curating a list of investments for advisors to choose from, providing flexibility to align with client goals while also reducing the sea of hundreds of opportunities that have flooded the space.
“The first principle we think about is access to unique information,” Sterling said. “How you think about allocation matters. If it’s truly going to deliver alpha, it’s not going to be the off-the-shelf option. Beta products can still be valuable for private markets, but we’re looking for differentiated access, understanding what their sourcing is and how they are thinking about due diligence.”
Nick Gerace, senior director with Opto Investments, also underscored the importance of surfacing unique opportunities.
“The network effect in private markets is real,” Gerace said. “The best deals come from a tight network and are capacity-constrained ideas. … We spend a lot of time with financial advisors and ask, ‘What are the best two or three things you invested in this quarter?’ A lot of times, the highest alpha generation is not from the deals that come knocking down your door.”
On the tech side, Benjamin Sayer, managing director and head of alternative investments for MAI Capital Management, Jody Cullinan, vice president, APL product development with InvestCloud, Ryan Eisenman, co-founder and CEO of Arch and Logan Henderson, co-founder and CEO of Gridline, discussed how platforms have streamlined subscription document processing and remediation, helped manage capital calls and cash reserve planning, improved ongoing monitoring of investments across multiple systems and helped ease communication with clients.
They also discussed how end-to-end platforms are leveraging AI to automate due diligence and advisor education, integrate subscription and treasury management systems, and enable firms to choose between straight-through processing at custodians or keeping investments solely in reporting systems to avoid DTCC complications.