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Access, analysis and administration have been problems for advisors investing in private markets
Key Takeaways
- David Barnard, former Head of Private Wealth at AllianceBernstein, gives his view on the biggest challenges for advisors in private markets investing.
- Advisors are just now starting to adopt private markets investments, whereas institutional investors have long had allocations in part due to their advantages in size.
- Technology can help solve some of the biggest problems for advisors: access, analysis and administration.
- Access, particularly to top funds, has historically been limited for advisors. Analysis of managers and portfolio impacts and administration of the investment process is time consuming.
Transcript
My name is David Barnard. I recently retired from Alliance Bernstein, where I was for nearly 25 years, the last eight of which were running the private wealth group there. Now I'm focused on spending my time between philanthropic work and advising new businesses at the intersection of technology and capital markets.
I think you're seeing the embrace of private market investments happen in the advisor community. It's been slow and inconsistent so far, but I think that's about to change. Institutional investors have a number of things going for them in terms of their access, their ability to analyze and ultimately administer private market investments. Those are complexities that are much greater for advisors who, in many cases, are working with hundreds of families. And so, there's a real need for software and technology solutions to assist them with all three of those challenges along the lines of access analysis and administration.
In terms of access, the range of outcomes and private market investments is much greater than it is in public markets. If you think about the way investors and public markets mutual funds, for example, are evaluated, the difference between a good manager and a great manager is usually a percent or two. The difference between good and great in the private markets is usually ten times that. And so it's really, really important to have access to the folks that themselves are looking at the most unique, idiosyncratic investment opportunities and being able to invest alongside them.
In terms of analysis, there's then the additional level of analysis of thinking about what the introduction of a private markets investment or an array of private markets investments means to the overall portfolio, which will be more diversified, obviously across other asset classes themselves in terms of risk-return and importantly, liquidity and, certainly, fees.
And that's a segue into what I think is probably the biggest pain point for advisors is the administration of all of that. To be able to take their analysis to visualize it and ultimately communicate to their clients in a way that that's confidence-inspiring and to ultimately be able to manage the complexity associated with cash flows, capital calls, distributions and anticipate all of that in a way that considers the entirety of a client's asset allocation, not just the private market portion and how all that aligns with their goals, objectives, and tolerances.
Then, of course, when you're introducing private markets, there are some challenges associated with the asset class, at least things that are unfamiliar to folks that have not invested there before, and not the least of which would be, I think, liquidity and fees. And those, in some cases, are new concepts for clients to get their minds around as well. But when you consider what, generally speaking, will be a private markets allocation that still has quite a bit in the way of assets in public markets, the overall impact to the portfolio in terms of access to liquidity and overall fee impact will be manageable.
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