“Investing in alternatives does not have to be as complicated and opaque as you might think,” is James Waldinger’s message to advisors.
The CEO of Artivest said in an interview that building his firm’s digital alternative investment platform wasn’t “rocket science” but it does remove “much of the headache” for advisors of investing in alternatives—including private equity, hedge fund, real assets and managed futures strategies.
The offering by Artivest, which merged with alts provider Altegris in June (Altegris—and now Altivest-CIO Matt Osborne has written for Investment Advisor magazine) is timely. A Cerulli survey released in September found that nearly 40% of advisors are using alternatives for clients, with 37% saying they’re using liquid alternative mutual funds. While the use of alternatives is particularly strong within wirehouses (57%), hybrid RIAs (43%) and retail bank broker-dealers (64%), Cerulli reports that RIAs continue to be the leading distribution channel for alternative asset managers.
Artivest’s “fully-encrypted online marketplace” is meant to make it easier for advisors and accredited and qualified high-net-worth individuals to invest in alternatives, but it also makes it easier for alt providers to find investors for their funds.
While Waldinger is quick to admit that alts are “not for everyone,” he points out that for high-net-worth individuals, “25% of their portfolios” tend to be allocated to alternatives, compared to the 50% in alts held by endowments.
The platform is not only a marketplace but provides a range of offerings to educate advisors and individuals on everything from private equity capital calls to the role of venture capital in a portfolio.
Offering paper-free qualification and subscription, the platform automates compliance issues like know your customer (KYC) and anti-money laundering (AML). Because of its scale and automation, the platform also allows for lower minimum investments than is typical for alternatives while providing robust online reporting to individual advisors and enterprises.
Until Artivest launched its platform, says Waldinger, every private fund’s operations were paper based. Advisors would need to “read through hundreds of pages” of information on private funds, while “every fund subscription took dozens of pages.” By putting those documents online and making the education and subscription process digital, “suddenly you’re able to reach a much wider range of investors and do so more scalably,” he said.
One example of how Artivest’s platform eases alts investment headaches comes from the company’s partnership with RBC Wealth Management. In May 2018 RBC launched a white-labeled cloud-based alternatives platform developed with Artivest for its 1,900 advisors.
Since then, RBC has stated publicly that it has “processed four times the number of investments compared to before the platform’s launch, with no increases in operations staff or expenses.”
Waldinger believes the market is in the “second inning” of advisors and HNW individuals investing in alternative strategies. In the first inning, Waldinger says, “they invested in big brand names” in the alt space, but now they’re taking more of a barbell approach to alternatives. Similar to a core-satellite approach, by using Artivest’s platform advisors and individuals can use both those brand-name alt providers but also find more niche products that reflect an advisor’s expertise or a client’s investing needs.
“Advisors came to us before we went to them,” says Waldinger in building its platform. “It’s become more and more critical for the wealth management industry to offer a diverse set of vetted and approved alternatives; so we responded in kind to that desire.”
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