Sponsored: Navigating the Future of Investment With Alternative Asset Classes

Registered investment advisers are increasingly turning to alternative asset classes, such as private credit, real estate, and private equity to offer differentiated solutions to their clients. By making alternatives available, these RIAs are aiming to enhance returns, diversify portfolios, preserve capital, and deliver consistent income streams. In offering alternatives expertise, RIAs can also differentiate their practice and deliver positive client outcomes.

RIAs have benefited from asset managers who have developed comprehensive educational materials to support RIA client conversations and fintech platforms which have created technology solutions to assist in the onboarding and ongoing care and maintenance of each client investment. Regardless, implementing a comprehensive alternatives allocation across an RIA’s entire client base can still be a complex endeavor.

Historically, RIAs have achieved access to alternatives for clients through individual investments into private or registered vehicles or feeder vehicles. Subscribing to individual investment vehicle for each client is cumbersome due to large volumes of paperwork that need to be completed either digitally or manually, making it difficult to scale.

Some RIAs are creatively structuring their own funds, often registered products to streamline the portfolio management experience and provide a holistic alternatives solution for their clients. These vehicles aggregate capital from their internal or external clients to purchase assets that tend to have high minimum investment requirements or investor caps.

Innovative Solutions for RIAs

There are many benefits to providing alternatives access via a proprietary registered fund, primarily an interval or tender offer fund (we explore the differences between the two fund structures here):

• The fund may have broader access to potential investments than investors would have individually, even through feeder funds;
• It often eliminates subscription complexity and technology costs;
• There are flexible investment minimums (could be as low as $2,500 to $50,000), which are typically well below the minimums of the underlying investments;
• There is no requirement for ongoing capital calls;
• It allows for simple 1099 tax filings, as opposed to the cumbersome K-1s; and
• There is standardized regulatory reporting, transparency, and compliance testing.

Additionally, from a due diligence perspective, even if the interval or tender offer fund is structured as a private placement, it will still be registered under the ’40 Act, which provides enhanced investor protection. A registered fund receives oversight from the U.S. Securities and Exchange Commission, more frequent transparency into the fund’s holdings, a dedicated chief compliance officer, and an independent board of trustees. This provides additional layers of compliance oversight that are not inherent in traditional private funds.

Options for Fund Governance and Setup

To assist RIAs and alternative managers in supporting the governance aspects of registered funds, Ultimus has developed our proprietary Ultimus Registered Alternatives Gateway, a scalable platform to launch registered alternative funds. Ultimus Gateway provides a full-service operating and oversight model with vetted industry-leading partners offering clients flexible, valuable, and cost-effective solutions. It offers:

• Streamlined and comprehensive fund support infrastructure;
• Consultation in product development including subject matter expertise in legal, valuation, tax and compliance considerations;
• Operational expertise in retail alternative products and private fund-type investment strategies;
• Real-time investor reporting with advanced technology to provide key insights into inflows and outflows;
• Distribution insights to strategize on growth opportunities; and
• Uniquely skilled and experienced board members and legal counsel experienced in ’40 Act alternative funds and investments.

With its open architecture approach to integrating with custodians, legal counsel and auditors, the platform allows prospective sponsors to build-for-purpose with their interval and tender offer fund offerings. Ultimus Gateway’s administration platform utilizes best in class technology and full-service support in areas such as administration, accounting, transfer agency, and distribution. In addition, our investor portal provides advisers and their clients with comprehensive access to fund reporting, investor statements, tax forms, etc.

Options for Fund Management

For RIAs who have an internal investment management team capable of selecting underlying fund managers or underlying investment vehicles including alternative strategies for their clients, they may achieve greater scale by combining these assets and utilizing a fund administrator like Ultimus to handle accounting, administration, and recordkeeping functions.

Other RIAs who may not have the expertise in-house can partner with an investment consultant to tailor an investment solution for their clients that becomes an important diversifier. Offering access to these non-correlated strategies can be an important differentiator for RIAs and may provide yield and diversification benefits to their clients.

Case Study Spotlight: Homrich Berg

Homrich Berg, an $18 billion RIA based in Atlanta created a 3(c)(1) hedge fund of funds in 1999 so that its own high-net-worth and institutional advisory clients could access a diversified portfolio of hedge funds. The product became extremely popular among the firm’s clients and approached the 100-investor limit of the structure, so the firm decided to convert the private fund into a tender offer Fund.

This registered fund solution allowed Homrich Berg to offer it to an unlimited number of accredited investors and also tap into broader distribution opportunities outside of the firm. Upon completion of the conversion on Jan. 3, 2017, the fund was also able to retain its 17-year performance history and allowed the firm to continue its use of historic performance data in marketing materials. If you are interested in additional details on the Homrich Berg fund offering, please inquire here for the full case study.

Conclusion

If you are seeking a way to provide diversification and potential additional yield and/or enhanced returns with alternative funds, Ultimus has strong experience supporting RIAs in developing new pooled investments solutions. We have been assisting advisers for numerous years in optimizing operations and navigating product development. Ultimately, we empower managers by providing insights on accessing distribution channels and adding substantial legal, tax, and accounting expertise into your product structuring.

If you are interested in a discussion or would like to learn more, please contact us.

Ultimus Fund Solutions is a sponsor of The DI Wire, and the article was published as part of their standard directory sponsorship package.

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