Alternative Investments

iCapital Network’s International Advance – What’s The Strategy?

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We talk to iCapital Network, the US-based group that has played a part in shaping how private investors, via wealth management firms and other routes, tap into the private capital market that has grown so rapidly in recent years.


iCapital
Network
is going places. The New York-based platform for
alternative investments such as private equity, hedge funds and
private credit has grown rapidly, hiring a number of senior
figures. And it is part of a wider development changing how
investors can tap into these asset classes. The firm, which has
inked deals with a raft of banks and wealth managers, has
expanded its reach outside North America to Europe and Asia,
among other places. (See
here for a recent story about Israel
, for example.) Demand
for “alternatives” shows few signs of abating. Wealth advisors
realise that they increasingly need to put such assets on the
menu. It is no longer enough to offer only listed stocks,
government bonds and cash. 


iCapital employs over 680 people globally, of which more than 100
are located in its international locations (Zurich, Hong Kong,
Lisbon, London, Singapore, and Toronto). It has a global
technology and operations hub in Portugal, with more than 70
staff.


Marco Bizzozero, who is head of the international business at the
firm, joined iCapital in December 2020, having previously worked
at UniCredit, where he was chief executive of group wealth
management. He also spent 14 years in various senior roles at
Deutsche Bank, as well as career stints at LGT Capital Partners
and UBS. 


This news service recently sat down with Bizzozero to ask about
iCapital’s international strategy, the outlook for the private
markets space, and what the rise of his firm says about the way
investors are tapping into the alternative investments
space. 


You say there there is, overall in Europe and other
markets, a relatively low allocation of assets to “alternatives,”
and that there are various barriers to this. In what ways would
you say iCapital is reducing those barriers? 


In the past, high net worth investors and their advisors faced
significant barriers such as high investment minimums; difficulty
identifying and accessing top-tier asset managers; a cumbersome,
paper-based investment and subscription process; manual client
servicing, reporting and administrative complexities; lack of
transparency; lack of investment research and education; and a
disconnected ecosystem.


With our technology and solutions we have addressed these
barriers in a number of important ways. 


The first is access. HNW investors need access to the best
managers and funds, and they need it in the right investment
amounts that make sense in their portfolios: not $5 to $20
million “institutional” minimums, they need it at a much lower
level ($150,000 minimum or lower) so the investment makes sense
in the context of an individual’s portfolio. 


Many wealth managers and clients also need comprehensive
investment due diligence. With our research team we are able to
provide thoughtful information on the fund manager to help them
make an appropriate investment decision. Related to that,
they need education, which is a never-ending process. The best
results occur when people make thoughtful, informed and educated
decisions and we do a lot of work on this front.  


Most importantly, the historical barriers mentioned above are
eliminated by our technology, which makes the entire process
throughout the investment lifecycle fully digital. Given the fact
that these funds now have thousands of smaller tickets, wealth
managers need a robust tech platform to eliminate the highly
manual and error-prone nature of the business.


They [managers] also need an operational infrastructure to
outsource that complex and manual part of the business, namely
managing capital calls, distributions and redemptions. We offer
an intuitive, end-to-end digital experience that addresses all of
those burdens. Our technology has been a game changer for the
entire asset and wealth management ecosystem.


One issue we discussed is how advisors and end-clients
struggle to know who to call or approach on the subject of
alternative investments. The subject can be intimidating. What is
the iCapital way of helping solve this
problem? 


Historically, knowledge, resources and research specifically
focused on the private markets have been elusive for wealth
managers and their HNW clients. To address this, we have
developed comprehensive research, education, and portfolio
analytics tools to support the wealth management community’s
understanding of how alternative investment strategies can be
incorporated into client portfolios. Over the past six months,
iCapital has dramatically increased the scope and scale of its
education efforts by the concentrated development of AltsEdge, an
online program designed to help advisors understand alternative
investments better and how they can leverage these products to
optimise the use of alternatives in their practices and improve
client outcomes.


Beyond AltsEdge, we offer a robust library of educational
 resources including insights on market trends, various
asset classes within alternatives, the mechanics of private
investing, emerging product strategies and practice management
topics. 


Furthermore, in January, iCapital acquired AI Insight, an
alternative investment education and compliance platform offering
financial advisors investment research, training, qualification,
and compliance support for a broad range of alternative
investments. 


In June, we appointed Anastasia Amoroso, previously from JP
Morgan, as our chief investment strategist, to provide a leading
educational voice on the evolving dynamics of the global
investing marketplace. She regularly shares perspectives with the
wealth management community on public and private market
investing opportunities, and issues near- and longer-term
outlooks particularly for private equity and hedge funds.


Private markets investing is getting bigger, both in
absolute and relative terms (relative to listed equities, that
is). What is your impression of how far the private markets
segment can expand before capacity issues
arise? 


My view is that we are a long way from capacity issues arising.
The private market investing opportunity is getting bigger while
the public market investing opportunity is shrinking as the
relative number of listed companies continues to decline. Private
markets’ total AuM reached $7 trillion in 2020 and is expected to
increase to $13 trillion by 2025. At the same time the global
private market fundraising of approximately $1 trillion per annum
is stable at circa 2 per cent of MSCI World market cap. 


Private markets have become more prominent as a result of the
increased allocation from institutional investors (endowments,
pensions funds, SWFs) to this asset class in recent  years.
However, the allocation among private clients to private markets
(on average 2 to 5 per cent) is still significantly below the
allocation of institutional investors which has reached 20 to 30
per cent. Wealth managers are therefore increasingly  paying
attention to this and, for many, it has led to the urgent need to
act responsibility now. Because, if they are not allocated to it,
it is like making a bet against the private markets. Without
private markets, individual investors can only access a fraction
of the overall market, as companies stay private longer with most
of the value creation taking place outside the public
markets. 


We are living in a time of resurgent inflation and
central banks may be tempted to push up rates in coming months.
How resilient are private equity, credit and other sectors to a
rising rate environment? What should clients expect, and how can
advisors help guide them around this?


We believe that in the current environment private capital market
allocations continue to offer an opportunity to significantly
improve risk-adjusted returns, diversify away from public markets
and access a range of long-term growth themes, including
promising technology and healthcare opportunities which may fall
outside the scope of public markets.

 

Yes, private equity valuations have increased in the same way as
public markets valuations, but high prices in private equity do
not  necessarily mean expected lower returns, as we have
observed in the past. Private equity managers have various levers
to drive value – which has created overperformance in comparison
with public markets – such as hands-on value-added ownership,
asymmetric information advantage vs. public markets and a
strategic long-term perspective. However, the current pricing
environment reduces the scope for errors. Therefore, the careful
selection of managers who have a proven track record of value
creation over various investment cycles is more crucial than
ever.


In addition, it is important that investors build their private
markets portfolio over time (what we call diversification by
vintage year) and with a proper diversification by manager,
strategy, sector, and region. It is also important that investors
review their financial goals, liquidity needs and investment
horizon before investing.


Can we talk a bit more about how iCapital works with
banks, wealth advisors and others – is iCapital primarily a
platform for “feeder” investments? 


iCapital’s technology platform and solutions help banks, wealth
managers and their advisors to scale and diversify their private
markets investments cost effectively, while enhancing the
advisors and client experience. Our value proposition is based on
three pillars:


First, access: We provide access to institutional- quality
alternative investment offerings, structured with low investment
minimums for individual investors. We also have the ability and
track record to support origination, facilitate access and
support due diligence leveraging on our experienced research
team. In addition, our clients rely on our expertise to set up,
manage and provide oversight of bespoke feeder funds to pool a
large number of private investors across a full range of
strategies and legal structures tailored for various
jurisdictions.


Second, technology: Our end-to-end technology solutions ensure a
simplified and fully-digital experience throughout the investment
lifecycle, including a digital subscription process, automated
transaction processing (eg capital calls, distributions),
transparent performance reporting and investment dashboard, a
centralised and secured document repository with protection and
full encryption of client data. 


Third, education: We provide industry-leading insightful
analysis, research, and investment-related as well as
investment-specific education for advisors and their clients to
ensure that all the required tools are available for building a
diversified sustainable private markets portfolio over time.


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