Steven Brod is the CEO of tech-enabled alternative investments platform Crystal Capital Partners and has a few ideas on what institutional managers should do to engage with high-net-worth RIAs and other wealth management firms.
As institutional alternative asset managers continue to play an outsized role in driving value with private market investment solutions for highly sophisticated limited partners, high net worth-focused wealth management firms are taking note.
To address rising demand for institutional-quality alternative investments among their clients, RIA firms, family offices and broker-dealers that serve more sophisticated financial advisors and their clients are turning to tech-enabled alternative asset platforms such as Crystal Capital Partners.
With Crystal’s expertise and technology-driven solutions, financial advisors can navigate the complexities of alternative assets and provide their clients with a seamless experience in identifying, accessing and supporting these investment solutions, including beyond the point of sale.
By partnering with Crystal, financial advisors serving high net worth individuals and families gain access to a curated roster of leading institutional managers in the industry. The platform also streamlines operational workflows, enabling advisors to efficiently manage subscription documents, rebalancing, liquidity, capital calls, distributions and account statement reporting.
Under CEO and Chief Investment Officer Brod, Crystal Capital Partners experienced a 20% annualized growth in assets under management (AUM) in 2022, along with a 32% year-on-year increase in new advisory relationships, expanding the network to 200 firms.
Alternatives Watch recently connected with Brod to discuss the latest trends that are defining the future of alternative asset platforms for the wealth management space, and how Crystal Capital has been staying ahead of the curve.
Q: Are you seeing an increase in interest among institutional alts managers in designing their solutions for the high-net-worth wealth management space, including RIAs and family offices?
Brod: Yes, over the last 15 years, alternative investments have become a staple asset class allocation in institutional portfolios. In parallel, large alternative investment managers have attempted to diversify their client base by penetrating the high-net-worth space.
Q: What is driving this rising interest among institutional alts players in the retail wealth management industry?
Brod: As uncertainty abounds in markets, there has been a reemerging emphasis on active over passive investment management. According to a 2023 UBS Global Family Office Report, ultra-high-net-worth investors have nearly 45% of their assets in alternatives. In recognition of this, large alternative investment managers appreciate this opportunity to broaden their clientele base and penetrate the high-net-worth space.
To diversify their client base, institutional managers have created allegiances with distribution powerhouses, such as banks and alts platforms, to penetrate the retail wealth channel. While once incredibly difficult to deal with due to the fragmented nature of the retail wealth channel, innovation in solutions by the wealth management industry are allowing institutional alts players to tap into this asset base.
Q: How would you summarize the pros and cons for institutional alts managers who want to expand into retail wealth management by engaging with retail alts platforms that align their investment solutions with financial advisors serving high net worth individuals and families?
Brod: In terms of the pros, by engaging with retail alts platforms, institutional managers are now able to gain exposure to an underpenetrated and fragmented client base which many players don’t have the infrastructure, such as manpower and technology, to service and maintain. By partnering with a wirehouse or platform, funds can reach an entirely new client type and deal with the operational load in a more efficient manner.
In terms of cons, the needs of a retail investor vary compared to an institutional client, and therefore, the large institutional manager needs to understand the end client they’re targeting.
In general, institutional investors have a different type of investment time horizon and liquidity needs, which fosters a long-term relationship across multiple market cycles. On the other hand, retail clients typically have an entirely different investment profile and underlying investment objectives.
Q: Why do institutional alts managers fail to succeed when they repurpose their solutions for retail wealth management firms and professionals – And how can they better position themselves for success with this segment of the marketplace?
Brod: In order to position themselves better with this segment, it is very important for institutional alts managers to understand the investment objectives of the target audience and craft a product that meets those conditions. High-net-worth needs vary from those of institutions.
High-net-worth clients have different liquidity, multi-generational transfer, and estate requirements, to which most institutional investors are not subject. In contrast, institutions may have a longer-term investment horizon, less corporate governance interference, and less emotional attachment.
So, as a whole, institutional alts managers need to build products that adhere to the differing client make-ups.
