We recently caught up with Alliance 160’s Amanda Teeple to discover ways that institutional alternatives offerings can be packaged for RIA firms, broker-dealers and family offices.
Alliance 160, a strategic consultancy that provides critical support for institutional alts managers seeking to develop products that adhere to compliance guidelines for the independent broker-dealer (IBD) and Registered Investment Advisor (RIA) channels, sees intensifying growth opportunities.
With an extensive understanding of the unique business models of each channel, Alliance 160 has been able to create innovative investment structures that meet the needs of a broad spectrum of financial advisors. The firm also facilitates relationships between institutional managers on the one side, and gatekeepers and financial advisors affiliated with retail wealth management platforms on the other.
Aligning disconnected stakeholders
Alliance 160’s ability to bring together previously disconnected stakeholders in the industry has not only resulted in increased amounts of capital raised but has also fostered a deeper understanding of evolving investment products. The firm continues to demonstrate its capacity to navigate market volatility and support alts managers and product sponsors in an uncertain economic environment.
By focusing on industry growth, education, and strategic collaborations, Alliance 160 has become a transformative force in the financial advisory landscape, empowering advisors to deliver diversified and impactful portfolios to their clients.
To spotlight details of the growth opportunities in the retail wealth management space, we asked Teeple to discuss what’s ahead when it comes to aligning institutional product companies with retail financial advisors and their firms.
Alternatives Watch: Why are institutional alts managers increasingly interested in adapting their solutions for the retail wealth management space?
Teeple: First, diversification. Institutional capital raise can be bulky on both the investment side and the liquidity side. The retail channel allows managers to raise money on a continuous basis, rather than all at once. It also allows for perpetual life products that do not have to meet certain time frame liquidity requirements. These provisions can allow for better returns, as a manager can be much nimbler when placing funds into alternatives.
Second, there’s a real growth opportunity here. Many institutional managers see the success firms like Blackstone, Apollo and others have had in the retail channel. And they see the market as an opportunity to expand and grow their firms.
Third, managers want to diversify business lines. The retail channel is more open to managers that may not have a long history or track record. Some institutional managers have used this opportunity to diversify their investment lines.
Alternatives Watch: What are the top mistakes that institutional alts managers and product sponsors make when they attempt to enter the retail wealth management space for the first time?
Teeple: Having unrealistic expectations for capital raise. Even BREIT (Blackstone Real Estate Income Trust) began slowly. Sponsors with pedigree and ample seed capital won’t see billions raised in their first years, because retail wealth management is as much about relationships as it is about investment quality.
From the end investor to the financial advisor to the home office broker-dealer, wirehouse or RIA, and ultimately to the product sponsor, there is a deep relationship between each of the parties. Add that to the fact that the average ticket size in the space is only around $50,000, and you have many potential relationships to develop — but developing these relationships takes time.
Additionally, not providing appropriate solutions is also a common mistake. Many alternative investment managers believe that what worked for them in the institutional channel will work in the retail market. Capital calls and lengthy, illiquid holding periods are not typically something that retail investors desire.
Alternatives Watch: How can institutional alts managers and product sponsors ensure that any new solution they rollout for the wealth management space succeed?
Teeple: It is essential for institutional alternative sponsors to do their due diligence on the channel and the current needs of the market. The retail channel is very different from the institutional space in terms of size of investments, loyalty of investments, liquidity, costs to distribute and the ultimate structure and design of a product.
An asset manager who understands these dynamics, has realistic expectations of capital raise in their early years, and is determined to stay the course will do well in this channel.
In addition, listening to and getting support from the channel is imperative. Focus groups with retail financial advisors or broker-dealers before a launch ensures that a sponsor has read the market correctly and can lead to buy in from the market.
Be prepared to spend time and capital developing the brand in the retail channel. As previously stated, this market is about relationships, and a harried road show that may work in the institutional does not work as well in the retail channel. It takes many meetings, calls and one-on-one time with analysts and selling units.
AlternativesWatch: What do you typically recommend institutional players do in terms of product distribution or wholesaling strategy for solutions they launch for the retail wealth management space?
Teeple: There are three main distribution options. First, there’s internal distribution. Under this option, the asset manager builds out an in-house broker-dealer and employs wholesalers to distribute only the asset manager’s products.
The second option is external distribution: Dedicated firms in the space focus solely on alternative product distribution to the retail channel. The firms have their broker dealer and wholesale staff, but they are distributing for multiple asset managers.
Finally, there’s the hybrid option. Under this scenario, the asset manager outsources the broker-dealer functionality, but still employs wholesalers internally, who distribute only the asset manager’s products.
At Alliance160, we’re agnostic on distribution options, and we recommend the strategy that is right for each manager depending on the amount of capital the firm wants to spend, the projected equity raise and reach for the product, and firm culture.
