Investment

Family offices want to by-pass wealth advisers with new wave of trading platforms

Family offices and their advisers are flocking to platforms run by iCapital Network and its peers which give investors access to top private equity and hedge fund managers.

The trend is reducing the influence of wealth advisers and multi-family offices who used to win business by claiming direct access to top managers.

Funds of hedge funds used to charge fees of 1%, plus 10% of performance, but now they are in their death throes. Through platforms, family offices have a better chance to invest in quality managers. 

Families can also use platform providers to update their administration. Then it is up to advisers to show they use the new system to pick the right managers and handle the client relationship.

Michael Dell’s MSD Partners, Laurence Tosi’s WestCap and Temasek of Singapore invested in iCapital in December. Family-run debt firm Golub Partners has signed up, plus Noah Holdings which provides services to wealthy Chinese investors.

Private equity firm Apollo also invested, joining existing investors KKR, Blackstone and Carlyle. In a statement, Apollo said: “We’re pleased to make an investment in a market leader.”

December’s $50 million lifted iCapital’s fundraisings to $500 million over six months and its notional value to $6 billion. Its platform looks after $104 billion following tailored distribution deals with the likes of Bridgewater Associates, BlackRock and UBS. 

Providers also have the chance to use iCapital’s technology to streamline and scale their operations. Artivest, a smaller rival, was snapped up by iCapital in 2020. 

Other large alternatives platforms are run by Guggenheim Partners and CAIS, backed by Eldridge, whose founder Todd Boehly used to be Guggenheim president. 

Alternative platforms employ technology to aggregate investment opportunities on a platform, as opposed to old-fashioned marketing with access to big expense accounts and the Rolodex.

Passive portfolios and ETFs provide simple examples of funds that rank stocks in order of size, or other characteristics. It can be a lucrative business: shares in passive provider, MSCI, have sextupled in five years. Quant funds that comply with different investment styles also continue to grow, despite some indifferent performance numbers. Platforms operated by the likes of Fidelity are widely used by retail investors to pick simple funds. Fidelity became an iCapital client in 2016.

Technology continues to be applied to other complex markets including payment systems, back offices and loans. Addepar’s platforms use technology to improve family office administration. 

Blockchain has entered the picture as a way to keep a record of digital transactions without using third parties. 

Agora, backed by UK money broker Lord Michael Spencer, is proceeding with plans to digitize the entire bond market. Elsewhere, Aladdin has pioneered the electronic trading of bonds and managed a staggering $21 trillion last year. 

Thomas Fortin, who developed Aladdin when he worked at its owner BlackRock, is chief information officer at iCapital, reporting to its founder Lawrence Calcano, who used to work at Goldman Sachs. 

 

 

 

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