The $100,000 Hedge Fund Slice
Families with a $5 million portfolio can now diversify with hedge funds and alternative investments that were previously beyond reach, due to minimum investments of $1 million to $10 million dollars. Technology-driven start-ups are now chopping down those hefty commitments into $100,000 slices, and then efficiently making these more digestible bites available on a Web-based platform. It costs nothing to sign up to access the investments, but the platform aggregators charge 0.5% to 0.75% annually on top of the 2% and 20% charged by the underlying managers.That last line may be the most buzzword-y sentence of the week. Let us savor:
That means the new services will pay off for investors only if they are genuinely getting access to stellar-performing alternative investments, not the dogs. Who’s behind all this? The start-ups building these platforms are CAIS, iCapital Network, and Artivest, but they are backed by gorillas like Credit Suisse, Goldman Sachs, Park Hill Group, Fidelity, and KKR.
Here’s how the services actually work: A wealth manager with a $5 million portfolio client, say, pre-qualifies his client’s suitability before sign-up, then sifts through a menu of funds, using a filter for performance or strategy. Lengthy due-diligence reports are also available on each of the funds. The advisor then puts the funds he likes into a virtual “shopping cart,” before the final click becomes the client’s buy-in. The platform tracks the client’s fund performances, estimates the present value of either a specific fund investment or the overall portfolio, and even lists the dates of the fund’s scheduled capital calls. It’s a business targeting 11,473 registered independent advisory firms managing $66.7 trillion in assets. RIA firms, more than half of which have 10 or fewer employees, need product offerings that can help them compete against the big wire-houses, which generally have easier access to these funds.
It’s a win-win for investors and fund managers, claims Lawrence Calcano, managing partner at iCapital. Alternative-investment managers grouse that big institutional commitments haven’t kept pace with the industry’s fund-raising needs, and the managers need access to large pools of wealthy private investors to keep growing. For investors, meanwhile, the lower minimums let them build a diversified portfolio when they have $1 million, say, earmarked for alternatives. “Calsters can write a $500 million check, but, by using technology, that $500 million can [also] come in slices as low as $100,000 from thousands of investors,” says Calcano.
That’s nice, but it’s the quality of the funds that will ultimately determine the success of these new platforms. The start-ups insist they are offering a curated list of in-demand funds across an array of different investment strategies....MORE
"...offering a curated list of in-demand funds across an array of different investment strategies..."
