North Capital Bets on Its New Tech Solution for Private Offerings

For advisors and broker-dealers the biggest benefit is providing access to these products. and “ultimately there will be benefits in reporting, and consolidation of information.”

The settlement and reporting benefits that North Capital will deliver will be felt by both intermediaries and end clients, such as in providing K1 documents in a more timely manner. Right now, Dowd says, “for individual investors it’s kind of a nightmare to be outside the standard system” of settlement and reporting that’s taken for granted by mutual fund and individual stock and bond investors.

The timing is right for this platform, Dowd suggests, since he sees industry and investor interest in alternative investments now reaching a third wave. In the first wave, end investors were introduced to the idea of alternatives and how they fit into portfolios. The second wave was marked by the introduction of liquid, transparent products meant to replace investing in direct alternative strategies, such as managed futures mutual funds. In the third wave, he believes end investors will want to invest in alternative products “in their native forms but with more modernized. standardized settlement systems.”

So why use North Capital to meet that third wave of interest from your clients? Why not wait until some larger, industry-wide organization such as DTCC steps in to provide clearing and settlement for alternatives as it did for stocks and mutual funds? Dowd admits that some other firms “are looking at this problem” but argues that North Capital “is further along than most because we’ve done a lot of transactions” in originating and distributing private offerings through its broker-dealer. Moreover, he believes that “to get innovation in this market you need an outsider with insider’s knowledge,” and further that “you need to know the demand is there before you can afford to build a single system to do it.”

About that third wave, Dowd believes there are “significant tailwinds for what we’re trying to do” that will be driven by end investor interest in alternatives. After the financial crisis, many observers thought investors would return to the basics of investing and away from private funds.

“That didn’t really happen,” Dowd says, because with interest rates so low, and with limited traditional risk investment opportunities outside of stocks, it wasn’t advisors pushing these investments to their clients, but rather clients asking for them. “’What can I do to boost my yield? How can I add risk to my portfolio that isn’t stocks?’” Dowd says flatly that there is serious end investor interest in alternatives, with those investors prudently looking “to add alternatives for maybe 10% of their portfolios.”