INTELLIGENCE FOR GROWTH: How AI Can Make Private Markets Investing Easy

520

The time is right to add private markets to client allocations—but investing in alternatives is a time- and labor-intensive process for financial advisors and their clients. In fact, if there was ever a set of asset classes ripe for a technological upgrade, it would be private market alternatives.

Interest and demand for alternatives seems to be on the rise as traditional asset classes have become more volatile, said Anshuman Mehta, Chief Product Officer, Alts, at TIFIN Wealth, which offers an AI-infused suite of wealthtech tools for wealth management firms, including TIFIN Private Markets, a marketplace for private market investments.

“This year made clear to advisors that in times of market volatility, the traditional 60/40 portfolio hasn’t proven to be as effective as they might have assumed, especially as stock markets have fallen 15% to 20% from their highs and bonds lost basis points at the same time,” said Mehta. “The traditional portfolio has been less effective than was hoped.”

A Place For Alts

There are also broader visibility issues, said Mehta, as investors have recognized that companies are staying private for longer and that more wealth creation is happening in the private market economy. New asset classes, like private credit, are emerging. Private investors like Elon Musk, Bill Ackman and Howard Marks make headlines in the financial press.

Access has changed too, for advisors and investors. For the latter, apps and new regulations are offering access to some types of alternatives for the first time. For advisors, too, there are technology-oriented platforms simplifying and accelerating the process to invest in private market opportunities, and also more information on alternatives for everyone.

“These trends are coming together to drive more interest from advisors,” said Mehta. “There has been a drive to start adding alternative investments to more client portfolios than before.”

But despite all of this, alternatives are still seen as, well, alternative, and it’s because there are still barriers to entry. Not only is the investment process time consuming and resource intensive, an issue technology is already being applied to, but it’s also hard for advisors to figure out just where and how to invest in alternatives within the greater context of their clients’ portfolios, and then to source those investments.

Not only are alternatives illiquid to varying extents and often restricted to certain classes of investors, they also generally restrict investments on the basis of time and amount—so while an advisor can always put a client into the same funds their clients have been using successfully for years upon years, the private market opportunity they got one client into six months ago could very likely be unavailable today.

“Advisors also continue to struggle with access,” said Mehta. “Traditionally, access to these investments have come through feeder fund structures which have come with additional charges on top of the regular fees charged by these investments. We think there’s going to be a big move toward direct access to eliminate, to lose or to limit some of these feeder fund charges and simplify the workflow that advisors have to go through.”

Paying an extraneous and largely unnecessary layer of expenses is inexcusable in the fiduciary era.

Sourcing

TIFIN’s platform helps advisors along several common pain points in private market investing. The first would be connecting general partners and issuers with advisors and their clients.

“Product sourcing has always been a problem, even though there’s thousands of hedge funds, private equity, and venture capital funds,” said Mehta. “One problem is that there are agency rules against marketing unregistered securities. We do a lot of the research and sourcing for the advisor using our in-house research team. They scour the marketplace for interesting, maybe also underserved asset managers who may offer some smaller niche strategies or some interesting ideas, or we also look for emerging managers who have some tenure and show promising results.”

TIFIN Private Markets conducts investment, partners with a third-party provider for operational due diligence, and then onboards asset managers to its platform, curating a diverse list of private equity, private credit, venture capital, private real estate and various pure-play private investment strategies and opportunities.

From there, TIFIN Private Markets onboards advisors and gives them the opportunity to find fund managers and search a library of marketing pitch decks and other information and documentation to help in decision-making.

Subscription

Consumers have become accustomed to the ease of accessing public markets, where they can click to buy nearly anything from stocks in an electric vehicle maker to an ETF. In private markets, back-and-forth communication with signatures, long legal documents and rigorous compliance procedures may all be necessary before an investment can be made.

“To effect these subscriptions, we’re addressing this head-on in a variety of ways,” said Mehta. “We have built a very robust client module which captures essential client information such as account holder details, wire transfer banks, authorized signatures, incorporation, partnership and trust formation documents etc.”

The client module is then used to automatically populate fund documents, whether it be a subscription document or any of the additional documentation required by a fund provider. TIFIN’s platform is intuitive, in that it knows which paperwork is needed for which fund or opportunity, and makes sure the right documents are pre-filled and compiled for the advisor—basically bringing “one-click” functionality to some of the most onerous parts of the private market investment process.

Then, when the advisor gives final approval, the platform can transmit the entire subscription package to the fund manager and administrator, said Mehta.

Research

The platform also includes a robust set of research and analysis tools for financial advisors that can analyze client portfolios to identify the private market asset classes and potential products that best suit their needs.

“We’re building an interesting set of tools to run traditional client portfolios through these conventions to get suggestions on how much a client should invest into alternatives, what products, what styles and so on,” said Mehta. “We are able to listen carefully where the market is going and be responsive to what the advisors need in terms of products, tools and economics.”

TIFIN Private Markets is free to use for advisors who just want to engage with the platform’s intelligence layer and workflows, as the company has a revenue agreement with asset managers on its platform. White label versions of the platform are being offered via a subscription agreement.

“We think the institutional limited partner space is well-served with in-house quantitative research teams, but the advisor community is not, and that explains some of the lack of data on private market investments,” said Mehta. “TIFIN has built a very powerful intelligence platform to solve these questions for their book of business at scale.”


To learn more about TIFIN Wealth’s fintech solutions, visit https://campaign.tifinwealth.com/demo