Financial Advisors

An Alternative Fund Solution for RIAs

Why RIAs are building proprietary interval and tender offer funds

Nicholas Darsch, SVP, Business Development

Today there are about 6,000 companies that trade publicly on the NYSE and Nasdaq. Public listings surged recently from a 2016 low of 3,600, benefitting from a wave of SPAC mergers. However, in total the number of equities are down approximately 25% from the peak in the 1990’s (approx. 8,000). The narrowing of the public markets has forced advisers to look elsewhere for new, diversified investment opportunities for their clients.

Two alternatives that have benefitted from the shrinking universe of the public equities which would commonly be available to RIAs directly or through mutual funds and ETFs are private equity and hedge fund strategies. Today, those investment options are largely for the benefit of institutions and family offices, as a result, retail investors only relying on the public markets are missing out on important yield and diversification opportunities.

Hedge and private equity funds are typically difficult for those retail investors including well-heeled accredited investors and qualified purchasers to access directly as they possess high investment minimums and other restrictions (capital calls, etc.). 

Solutions for Pooling Assets, Gaining Access to More

A fund is a solution that allows RIAs to access Private Equity and Hedge strategies by pooling assets. Many RIAs have created vehicles to aggregate capital from their internal (or external) clients to invest in these strategies (funds) that tend to have high minimum investment requirements and investor caps. This allows the RIAs with high-net-worth clients to access strategies and managers that they otherwise would have been shut out from.

An unlisted closed-end fund in either the form of a interval or tender offer fund (we explore the differences between the two here) may accomplish this for RIAs. Both vehicles allow the RIA to not only pool investor assets, but also can offer flexible investment minimums as determined by the adviser in the fund prospectus (could be as low as $5,000-$50,000), plus they have no requirement for ongoing capital calls and can allow for simple 1099 tax filings as opposed to the cumbersome K-1. Additionally, from a due diligence perspective, even if the interval/tender offer fund is structured as a private placement, it will still be registered under the 1940 Act and receives oversight from the SEC, a dedicated CCO and an independent Board of Trustees, creating additional layers of compliance oversight that are not inherent in traditional private funds.

Options for Fund Management

If the RIA has an internal investment management team capable of selecting underlying funds/managers of hedge and private equity strategies for their clients, they may achieve greater scale by combining the 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.

Alts Fund Case Study

Homrich Berg, a $7b RIA based in Atlanta created a 3(c)(1) hedge fund of funds in 1999 so that its own high-net-worth and intuitional 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 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 January 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 case study for the full Homrich Berg Case Study.


If you are seeking a way to provide diversity and potential additional yield 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, providing insights on accessing distribution channels and adding substantial legal, tax and accounting professionals to structuring. If you are interested in a discussion or would like to learn more, please contact us.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.