DWN Roundtable: How Digitally Enabled Alt Platforms Opened Doors in this Bear Market

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Lou Camacho, Stratos | Mike Nessim, Kingswood U. S. | Scott Yi, Perigon Wealth Management

As is tradition, the arrival of a Bear market gives rise to alternative investment (alts) platforms. The decade’s long stock market run enabled a range of fintech and wealthtech providers to establish and enhance digitally enabled alt platforms that provide an alternative to the alts experience of old. 

Stalwarts like iCapital and newly arrived players like AltsAxis and Gridline simplify regulatory and reporting requirements, open the door to a larger pool of investors and expand the kinds of products offered to the market. This would have been impossible without these digital enhancements. 

However, Mark Salameh, Founder and CEO, AltsAxis, a digital alternative investments data platform for family offices, RIA firms and strategic allocators at institutional investment firms, recently told Digital Wealth News that even with improved access and simplicity, alts remain a complicated investment.

“Despite the significant value that alternative investments can deliver to investor portfolios, it is an asset class that contains significant complexities for family offices and wealth managers attempting to engage with this space on a direct basis,” explained Salameh. “Meeting high investment minimums is usually just the tip of the iceberg, with asset manager selection, product due diligence and financial reporting consuming an enormous volume of time, energy and attention.”

Salameh noted that money and wealth managers have three main options when considering alts, direct investment into a comingled fund, an alternative investment platform or structuring a multi-manager fund for their practice. But he notes that regardless of how a manager chooses to engage, “success will be driven by having access to truly objective data on alts that enable wealth managers to make informed decisions so they can best serve their clients with an asset class that is continuing to rise in importance.”

Digital Wealth News brought together three senior executives with wealth management firms, each with a different approach to alts, to discuss how they are addressing this explosion in demand for these platforms.

DWN: Are you seeing an uptick in interest among financial advisors in digitally-enabled alternative investment platforms? Why?

Camacho: There’s certainly been more interest among financial advisors in the past 18-24 months in alternative investments in general, and it’s not difficult to see why.

In this most recently concluded 10-year bull market for equities, it was relatively easy to drive returns with plain vanilla, passive vehicles like ETFs and mutual funds.

But when market volatility and economic uncertainty spikes for a prolonged period of time, financial advisors need additional investment solutions.  In this environment, clients may want their advisors to help them achieve more yield, further diversify risk or meet other key portfolio objectives – And adding more alts to portfolios can help accomplish that.

With this context in mind, we’re definitely seeing more interest among advisors in digital alt platforms specifically.

Partly, this is due to the fact that there are just so many more digital alt platforms around today than there were even just a few years ago.

But in large measure, this is because certain digital alt platforms have made great advances in the diversity and quality of managers they provide access to, combined with solutions they deliver to help streamline much of the administrative complexities associated with alts.

It’s definitely a trend we see continuing.

DWN: What are the pros and cons of aligning financial advisors with digitally enabled third-party alt platforms providers verse building an alts platform in-house?

Nessim: It’s easy to get lulled into a false choice between outsourcing everything to third party platforms or doing everything in-house when addressing the increasing demand for alt investments. But it doesn’t need to be an either-or situation regarding digital alt platforms.

Instead, the focus should be on carefully curating third-party digital alt platforms, with a very hands-on approach to support advisors in helping them select and engage with such solutions, together with in-house expertise and resources. 

The best wealthtech tools paired with guidance from home office professionals who thoroughly understand an advisor’s business and client needs lead to the best possible outcomes.

Digitally enabled alts platforms ideally fit within this approach. We see the value of engaging with third-party providers and working with those that provide the offerings that fit the advisors’ needs, while also ensuring we have the right people in-house to empower the advisors to deliver value to their clients.

DWN: Looking forward, what role do you see digitally-enabled alts platforms playing in the broader value proposition for firms growing through recruitment and acquisition?

Yi: There is no question that alts are rising in importance to attract the best, growth-minded advisors and practices to affiliate with a firm. As with any other investment solution, firms must ensure they have the right compliance, due diligence, and support staff to vet relationships and remain compliant. And if you want to use these tools as part of your recruitment and acquisition value proposition, the solutions must check certain boxes: 

Most importantly, does the digital alts platform you’re considering give access to vehicles that would be difficult to find somewhere else? You need to find solutions that can add value and are complementary to your ecosystem – will this platform provide that for you?

A secondary consideration is understanding how the platform is paid? Does it charge a platform fee or is it paid by the issuer as a distribution partner? It’s helpful to understand their deal flow and conduct effective due diligence on all funds being sourced and in turn, offered at the firm level. In this increasingly competitive space, you need to find high-quality offerings at a fair cost in order to provide robust Alt offerings. 

Another point to consider is administrative simplicity. How much does the platform take care of for the advisor and the client? Alts typically have many frictions and are notoriously complicated when it comes to regulatory requirements, and how the platform simplifies and eases these processes is a key differentiator. 

Whatever alt platform a firm uses must fit and work well together within the larger investment solutions platform because alts can’t stand alone. A truly integrated investment platform will enable firms to attract new like-minded advisors and acquisition targets by enhancing their overall value proposition.