A smarter way to access the private markets

Registered Investment Advisor (RIA) firms are increasingly seeking out investments in the private markets to drive stronger portfolio returns, deepen client relationships, and grow their practices. Despite these potential benefits, investing in private markets often carries more complexity than other more traditional markets like stocks and bonds, presenting operational challenges for RIA firms seeking to expand their platforms.

In our experience, the benefits of allocating capital and resources to the private markets significantly outweigh the costs. Fortunately, as the financial services industry continues to evolve, private markets are becoming more accessible for RIAs seeking to offer them. For firms that don’t yet have the infrastructure to offer these investments in-house, innovative outsourced solutions—like the Century Park platform—are emerging to help firms mitigate many of the most common obstacles and meet client demand efficiently and at scale.

Private Alternatives – A Primer

When building client portfolios, wealth managers have traditionally relied on investments bought and sold on public exchanges, like stocks and bonds. “Private alternatives” refer to private market investments that are not readily accessible in these exchanges. Common examples include private credit, real estate debt and equity, and private equity.

Investing in private alternatives can prove challenging for all but the largest institutional investors, given their higher minimums, expanded sourcing and diligence requirements, and reporting peculiarities. RIAs and advisors will also need to navigate the liquidity restraints of these markets, as investors are often required to stay in their positions for relatively longer periods compared to traditional investments.

Still, allocations to private alternatives have seen remarkable growth in recent years amongst wealth management firms, as shown in the chart below. RIAs that ignore or delay participating in the private markets risk missing out on of the most compelling growth opportunities in the industry.

The Growth in Popularity and Adoption of Private Markets

Private alternatives also represent a significantly wider universe of investment opportunities than public markets. “Given how large and broad they are, and considering the integral role they play in our economy and ecosystem, we believe private markets should be represented in investors’ portfolios just like stocks and bonds,” says Dimitri Krikelas, Chief Investment Officer for Century Park. “If you follow a passive-only investment approach and ignore direct investments in private companies, mission-critical commercial infrastructure assets, or loans that fund small businesses, then you’re no longer investing in ‘the market’.”

Exploring the Benefits and Challenges of Private Alternatives

As an asset class, private alternatives are appealing for several reasons. Historically, private asset classes have provided higher returns with less volatility compared to traditional public market investments. Because private assets are not traded on public exchanges, they are not as sensitive to the ups and downs of the broader stock and bond markets. By adding these noncorrelated private investments to portfolios, investors can improve their chances of achieving better returns when public markets underperform, as illustrated in the chart below:

Large institutional investors have known about the advantages of private markets for years, leveraging their size, scale, and infrastructure to find the best deals for their clients. Adoption among RIAs, on the other hand, has been much slower. In 2022, private alternatives only accounted for about 6% of RIA AUM¹ , and nearly two-thirds (62%) of advisors say they only allocate between 6%-25% of client portfolios to alternatives.²

For RIAs, common barriers to entry include high investment minimums, long lockup periods, lack of education, compliance, and a vast universe of opportunities to sift through. Given the overall size of the market, RIAs will need to expand their research capabilities and diligence frameworks to identify appropriate opportunities before attempting to add private alternatives to their platforms. Firms will also need adequate staff to fill out subscription documents, process capital calls, manage paperwork, and collect data for reporting purposes. Building out a team and hiring additional staff to fulfill this mandate can be very expensive.

Because of their high minimums and long-term nature (many private, closed-end funds run for eight to 10 or more years without any optionality for liquidity), private assets are especially challenging to allocate individually. Many institutional-grade fund managers require minimum commitments in the range of $1 million to $5 million, rendering them unattainable for many RIA firm clients as well.

Designing an Efficient, Scalable Solution For RIAs

In our view, a successful, long-term private investment program should be able to do more than just “provide access.” Rather, it should be thoughtfully constructed through multiple lenses and feature built-in efficiencies to ensure infrastructure and hiring costs don’t grow at the same pace as firms build scale.

“For RIAs looking to outsource and deliver an alternatives offering to their clients, the best solution should solve for these challenges and reduce the administrative burdens on the advisors,” says Krikelas. “Ideally, the program should serve as a turnkey solution that simplifies the subscription process, minimizes wires and transactions, addresses compliance and diligence concerns, improves transparency and liquidity, and provides consolidated reporting. This is the key to building out an efficient, scalable program for RIAs.”

The Century Park platform was designed with these requirements in mind, providing efficiency, enhanced diligence, and access to seasoned managers in niche categories. Through Century Park, RIAs and their clients can invest in a diversified mix of institutional-quality private funds across a variety of markets and strategies with lower minimums, actively managed exposures, and a shareholder-friendly structure that allows for enhanced transparency and liquidity.

The platform also provides all the research, client education, reporting, and advisor support needed to assist RIA firms in building an efficient and scalable solution for the long haul, as highlighted in the table below:

For RIA firms, accessing private markets through Century Park offers another compelling value-add when it comes to attracting new clients or gaining existing wallet share. Many clients appreciate the added sophistication that private strategy integration brings to their portfolios, and an institutional investment approach can create opportunities for RIAs to deepen their relationships with existing clients.

Offering high-caliber alternative investment opportunities can also help RIAs increase the size of their accounts and assets in a more sustainable way, resulting in improved margins and EBITDA growth, and potentially higher valuation.