Until recently, the financial services industry was relatively untouched by Silicon Valley-led disruption. Over the last few years, that's started to change with robo-advisor companies like Betterment and Wealthfront. While these startups have put a better interface on managing your investment, none of these startups has fundamentally changed how the financial services industry works.
iCapital Network is trying to change that.
Rather than shoehorning its customers into ETFs as most robo-advisors do, the New York-based startup aims to open up and democratize the world of alternative investments.
What qualifies as an alternative investment? It's an asset that isn't one of the conventional investments like stocks and bonds. Some of the most common alternative investment types are hedge funds, private equity, commodities and derivatives.
The problem with these investment vehicles is that they have high minimum investment amounts - typically in the millions to tens of millions - which exclude most individuals. Even many wealthy individuals can't afford these types of investments, as doing so would mean putting most of their eggs in one basket.
In other words, these investments are typically reserved for the top tenth of a percent of potential investors and the largest institutional investors, such as pension funds and endowments. But that's no longer the case thanks to iCapital.
"In the past, this asset class has been completely targeted at institutions," said Lawrence Calcano, CEO of iCapital. "These types of investments aren't for everyone, but for those who are qualified to invest, alternatives can make a meaningful contribution to a portfolio."
That's why platform that enables high-net-worth (HNW) individuals to invest in alternative investments at much smaller amounts, often with a minimum in the hundred thousand dollar range rather than in the millions.iCapital focused on creating a
It does so by aggregating its investor network's capital to gain access to top hedge funds and private equity funds. The firm also plans to offer access to direct deals later this year.
"The focus is on providing access to funds with proven brands and track records," Calcano said.
One Less Barrier
Not only does iCapital provide access to these investments, it also provides information that investors need to make educated decisions. Calcano said he saw this information as a key part of the value that iCapital provides.
A large part of the company's challenge is educating investors and their advisors on how alternative investments as an asset class fit into their portfolios. This includes nuances like helping them understand the characteristics of hedge funds and private equity and their relationship to traditional investments.
This approach drastically lowers the barriers to entry, opening up alternative investments to an entirely new market. It also allows these HNW individuals, and the investment advisors that work with them, to put money into alternative investments, including top funds, while maintaining a properly diversified portfolio.
According to the company, its users, which include qualified investors, registered investment advisors, and independent broker dealers, oversee some $1.7 trillion in investable assets.
On the supply side, iCapital also provides all the tools for the fund managers it works with to easily manage an influx of capital from smaller investors. Typically this would involve a lot of manual paperwork, but iCapital has managed to automate much of this administrative work through its platform and customized technology offerings.
Ultimately, the goal is to continue to open up access to alternative investments to a much wider audience that includes accredited investors. Calcano also envisions iCapital expanding to provide access to emerging managers with good track records.
As the platform grows, he said he could even see the traditional fee structures in the industry experience some disruption.
Yet for now, iCapital has a big enough challenge on its plate. Building a platform to democratize access to investments that were once available only to the megarich is no easy task.