In the arcane world of private market investing, a new generation of platform technology is making it easier for wealth investors to organize, illustrate and understand any portfolio—regardless of the type of investment and where it is traded.

Through machine learning and modern design, platforms like Copia Wealth Studios (see disclosure below) are making wealth management more intuitive and accessible—especially for portfolios incorporating private investments such as real estate, venture capital, credit, cash, and other liquid assets.

Now investors can remain agnostic to an investment vehicle’s structure and prioritize asset allocation and insight over product packaging.

Turning Closed End Funds (CEFs) inside out

Historically, CEFs have proven to be an excellent investment structure for those looking to access private markets. This is because liquidity is accessed through an active market of buyers and sellers, rather than being provided and supported by the CEF itself. As a result, a substantial amount of the underlying portfolio can be invested in illiquid securities, potentially resulting in better terms, lower volatility and/or substantial upside.  However, exposure to private illiquid securities in the portfolio can create a challenge for public investors in terms of understanding value outside of a publicly-traded setting. For this reason, and some others, CEFs typically trade publicly at a discount to the value of its underlying portfolio (its “Net Asset Value” or “NAV”).

Within existing reporting requirements, CEF portfolios can now be “unpacked” in a way that’s agnostic to structure. Through modern platform technology, a CEF can be transformed from an opaque investment to a transparent portfolio of private and public investments in a way that is easy to understand and simple to consume.

The symbiotic relationship between platforms like Copia and vehicles like CEFs is a great example of how three decades of convergence between technology and investing has transformed the way portfolios are experienced. The underlying asset allocation and investment methodologies of CEFs will soon be available to hundreds of wealth advisors, family offices and institutions– providing a road map for other co-mingled vehicles as well.

Portfolio models are the cornerstone

In a nutshell, model portfolios are pre-set investment templates for financial advisers to execute on their platform of choice. For financial advisers, portfolio models have been an easy and efficient way to access professionally managed investment strategies and deliver asset allocation portfolios to meet each client’s individual needs.

According to Broadridge Financial Solutions, the market for model portfolios was approaching $3 trillion in 2019 (1), reaching approximately $5.1 trillion at the end of 2023, and is expected to grow to 11.3 trillion by 2028 (2).

Broadridge exclusively tracks approximately 40,000 models typically containing upwards of 20 mutual funds and ETFs from multiple providers, and it does not currently track models of individual stocks and other assets. However, there are many platforms that feature portfolio models of individual securities and liquid alternatives.

As for private markets, financial advisers know they should be offering access, but there’s a mountain of documents and complicated structural hoops that are hard to understand and explain. And private market portfolio models delivered through modern technology are coming to the rescue.

New access to private markets

Miriam Gottfried, Jack Pitcher at the Wall Street Journal(3), recently reported that “It might be getting easier for individual investors to tap in to the opaque world of private markets”.

This is because BlackRock is joining with private-equity firm, Partners Group, to create a model portfolio that wealth advisers can use to help clients invest in a variety of private-market offerings in one fell swoop. These private-markets model portfolios are expected to be available early next year.

But BlackRock is not the first by far. Cathie Wood’s ARK Investment Management officially launched the ARK Venture Fund on September 27, 2022. This fund focuses on investing in private innovation companies. And the WSJ(3) article adds that “many others are following suit, including private-equity firms such as Blackstone, Apollo Global Management and KKR have launched many products targeting wealthy individuals, who tend to have little to no exposure to private markets”.

The power of the pie chart

Whether its transforming traditional investment structures like CEFs or delivering portfolio models, advisers can trade on their platform of choice, at some point there’s a pie chart. Each click takes you deeper and deeper to reveal the source of truth that lies within. Because truth is knowledge and knowing is always better than not knowing.

Andrew Galette, VP of Global Insights at Broadridge, explains that, in their most basic form, portfolio models are asset allocated pie charts with the underlying ingredients being ETFs and mutual funds.(4)

The limiting factor has always been technology, but not anymore. Soon it will be “as easy as pie” to invest in private markets–regardless of strategy, structure or market type.

Sources:

  1. Broadridge Financial Solutions, 10/14/19, Press Release “Model Portfoliio Market Reaches $2.7 Trillion..”
  2. Nasdaq: News & Insights, 4/3/24, “Model Portfolio Assets to Exceed $11 Trillion by 2029: Broadridge”
  3. Wall Street Journal, 9/12/24 “Private Markets Seem Out of Reach for Individual Investors”.
  4. YouTube: 4/30/24,(Talk ETFs) “Model Portfolios: Everything you need to know”.

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IMPORTANT DISCLOSURES: 

Validus is the sub-adviser of the Destra Multi-Alternative Fund (“DMA”) that owns an economic interest in Copia Wealth Studios. Securities highlighted or discussed in this blog have been selected to illustrate Validus’s investment approach and/or market outlook and are not intended to represent any strategy or portfolio performance or be an indicator for how strategy or portfolio have performed or may perform in the future. Each security discussed in this blog has been selected solely for this purpose and has not been selected on the basis of performance or any performance-related criteria. The securities discussed herein do not represent an entire portfolio and, in aggregate, may only represent a small percentage of a strategy or portfolio holdings. The strategies and portfolios are actively managed, and securities discussed in this blog may or may not be held in such strategies or portfolios at any given time. These individual securities do not represent all the securities purchased, sold, or recommended and the reader should not assume that investments in the securities identified and discussed were or will be profitable. Nothing in this blog shall constitute a recommendation or endorsement to buy or sell any security or other financial instrument referenced in this letter.

Validus Growth Investors, LLC seeks to invest in companies at every stage of their growth. From startups to publicly traded companies, our research identifies inflection points that have the potential to produce meaningful growth and income for the clients we serve.

Investment Advisory Services are offered through Validus Growth Investors, LLC (“Validus”), an SEC Registered Investment Adviser. No offer is made to buy or sell any security or investment product. This is not a solicitation to invest in any security or any investment product of Validus. Validus does not provide tax or legal advice. Consult with your tax advisor or attorney regarding specific situations. Intended for educational purposes only and not intended as individualized advice or a guarantee that you will achieve a desired result. Opinions expressed are subject to change without notice. Investing involves risk, including the potential loss of principal. No investment can guarantee a profit or protect against loss in periods of declining value. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Opinions and projections are as of the date of their first inclusion herein and are subject to change without notice to the reader. As with any analysis of economic and market data, it is important to remember that past performance is no guarantee of future results.

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