Helping RIAs Invest in Alternatives

By: Chadd Evans, CFA, CAIA in Macro Commentary September 1, 2020

Access to Alternative Investments is no longer a differentiator offered solely by brand name broker dealers and wirehouse advisors. For decades broker dealer reps have touted the fact that they can get their clients allocations to hard-to-access private market funds. While this may be partially true, many “advisors” have been pushing their clients into high margin in-house funds on a transactional basis. This is no doubt a lucrative endeavor, but the allocations are not always in the best interest of the client, and such activities would be hard to classify as true fiduciary behavior.

As an increasing number of advisors are seeking independence, several challenges have come to light. The biggest challenge is clear: How does a smaller independent RIA compete with trillion-dollar behemoths.

While public market expertise, top notch financial planning, tax assistance and family offices services can certainly help an RIA standout, it may not be enough to remain competitive. This paper is designed to examine these challenges and provide solutions for RIAs who desire to incorporate differentiated alternative investment solutions into their clients’ portfolios.

Challenge #1 – Investment Minimums

  • Problem – It is widely recognized that to efficiently allocate client dollars to a private market fund, there is a level of scale that needs to be achieved. Fund managers generally require minimum investments of several million dollars to secure an allocation. To meet the stated minimums, RIAs may need to structure their own “feeder vehicle”, with associated costs such as legal fees and fund administration fees.
  • Solution – Much greater scale that can be achieved by working with a firm like Altera. When our team identifies a compelling investment, not only do we commit our own dollars, but we also assemble capital from other RIAs, HNW individuals, family offices and small institutions. This scale allows us to offer alternative investments to our clients at significantly lower minimums (~$100K).

Challenge #2 – Due Diligence and Compliance

  • Problem – The SEC-required level of due diligence on private investments is significant. Yet most RIAs do not have the internal bandwidth to needed to conduct such analysis for each offering.
  • Solution – Investing is both an art and a science. Every investment is unique, and Altera not only audits each offering on an annual basis, but also considers: Demonstratable Investment Excellence, Durable Business Structures, Alignment of Interest and Repeatability of Processes. Our investment team devotes significant effort to considering these factors, and a passable investment must meet and exceed these criteria for us to bring it to market.

Challenge #3 – Transparency and Education

  • Problem – Without the support and “sign-off” from a parent firm, many independent advisors steer clear of alternative investments. This is especially the case when the manager’s process might be unclear and when they use high levels of financial engineering (making the investment seem like investing in a “black box” that is not easily explained to the client.)
  • Solution – Altera has a unique focus on under-the-radar mangers with simple and effective investment mandates. (hyperlink to piece #3) Many HNW clients have generated their wealth by owning businesses and buying and selling real estate. Our solutions appeal to such investors because they can clearly understand the investment process and how the manger is adding value.

Challenge #4 – Access to quality managers

  • Problem – There are simply too many alternative strategies across the globe for a single firm to proceed with confidence in any single investment. How do advisors distill hundreds of options into a select few that makes sense in the current economic environment and for their client’s objectives?
  • Solution – Altera takes a highly curated approach to its product offerings. We underwrite hundreds of investments on annual basis and only bring 3-5 core offerings to market each year. This is a time intensive exercise that smaller firms simply cannot undertake while still providing excellent service to their clients in other areas.

The aforementioned problems only scratch the surface of the complexities of investing in Alternative strategies. But they are not insurmountable challenges. For more information, we invite you to read, “Why you need a partner not a platform” to further understand how Altera can help RIAs overcome these changes while adding value to their business.

Sources: Private%20markets%20come%20of%20age/Private-markets-come-of-age-McKinsey-Global-Private-Markets-Review-2019-vF.ashx -investments

By: Chadd Evans, CFA, CAIA

Managing Director

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