Disrupting the Alternative Investments Marketplace
The “democratization of financial services” is a major war cry and strategic goal for many FinTech companies. This endeavor allows a much broader base of investors the access and ease of transacting across all investment opportunities. These opportunities now include alternative investments that were exclusively offered to hedge funds, institutions, and high-net-worth accredited investors. While alternative investments have seen extraordinary growth over the last decade, there now exists a massive opportunity for further growth of the asset class and marketplace and the next generation of alternative investments.
According to The Future of Alternatives 2025 research by Preqin, a leading provider of data, analytics and insights on the alternative assets community, alternative assets are expected to grow on average 9.8% per year and surge to $17 trillion by 2025. Feeding this growth is not just increasing investor demand for volatility dampers and new sources of return opportunities, but also the strategic deployment of new technologies and business model innovations to automate and streamline much of the industry’s processes. This will expand the marketplace to more alternative managers and provide them with global distribution.
To better understand the evolution and mechanics behind this positive disruption, we reached out to new Institute member Perrin Quarshie, founder and CEO of Realblocks, an end-to-end technology platform that connects financial advisors and investors to the best alternative investment managers globally. Their goal is to position alternatives to become a more varied and mainstream asset class.
Hortz: What was your thinking and motivation behind creating RealBlocks?
Quarshie: While at Barclays, I saw a massive opportunity for an online solution in the alternative investments space to provide more efficient subscription, scalable compliance and global market access.
After completing my graduate studies at MIT, during which time I conducted research on the implications of Blockchain Technology for capital markets, I connected with our Co-Founder Naman Srivastava. From there, we developed the concept for RealBlocks to provide the very best investing experience for alternative and traditional investment managers and distributors of product within retail and institutional channels.
Hortz: What did you see as the greatest changes needed in the alternatives marketplace?
Quarshie: The greatest changes needed in the alternatives marketplace stem from fund managers not having a scalable online solution for their clients. Much of the process has been paper-based, not scalable and limited by geography. We want to unlock the alternative investments market and deliver a truly global solution that can securely and efficiently allow fund managers to distribute their products across the world.
Additionally, much of the current sales processes we see are manual in nature and require printing and faxing in order to conduct transactions. Our system is designed with the modern investment community in mind. It’s entirely digital and utilizes automation and scalable practices so that we can seamlessly grow with the businesses of our clients.
Hortz: What were your first steps and development process in creating a tech platform to specifically address these industry problems and limitations?
Quarshie: It’s incredibly important to have a clear vision of what your firm is trying to achieve. We worked very closely with our first clients to ensure we were addressing the concerns of the market. Too often, companies build things without fully considering the problems they are solving for their clients. We quickly identified three problems in the marketplace:
- Many fund managers did not have access to an online solution
- Distribution was mainly limited by geography
- The market was largely illiquid
From there, we developed RealBlocks to solve these issues.
Hortz: What are the key components of your end-to-end platform and network offering that you created and what are the tangible benefits they provide for alternatives managers and financial advisors?
Quarshie: RealBlocks is a technology platform that connects advisors and investors to the best alternative investment managers. Today, many real estate and alternative investment managers are limited to raising capital locally. However, with our technology platform, these managers can now raise capital globally through our platform's connectivity with institutional and intermediary channels. Our online distribution platform cuts a setup cost of as much as $2 million down to about $50,000 and cuts the two year setup time down to just over one month. One of our largest clients was looking to distribute their U.S.-based fund globally but did not have the connectivity required. We were able to help them access new geographies and markets, while exceeding their capital raising goals by 5 times.
For financial advisors, RealBlocks delivers a better back-office experience so that you can give your clients greater access to alternatives. The main reason that retail investors struggle to access the alternative investments market is the high upfront minimums. We provide the technology needed to create feeder funds that help aggregate retail investors together so that collectively, we can allow them to make these minimums.
Another problem we see in the marketplace is most of these assets are illiquid, which is one of the biggest objections we find with investors in this space. Using our platform, we have built-in secondary market capability that can dramatically enhance the liquidity potential of those investments while also giving our clients the tools to navigate the complexities of the regulatory environment.
Hortz: How do you see that your innovation efforts will potentially impact alternatives in different areas of financial services like retirement plans?
Quarshie: Today, the defined contribution marketplace historically has had little to no access to alternative investments, which has dramatically reduced the results for defined contribution investors. However, the Department of Labor’s recent guidance on the issue of alternative investments in DC plans has only spurred additional momentum for mass market investors to access this asset class.
Using the RealBlocks platform, we've improved the connectivity between alternative investment managers and plan sponsors and their consultants to access these investments by providing the daily valuation, the daily liquidity critical to success in this marketplace. These improvements in technology and innovation have the potential to really help to grow the number of investors that are able to access these types of investments.
Hortz: Any recommendations or further thoughts for alternative managers and financial advisors you would like to share about how this new alternative marketplace?
Quarshie: We know that the expanded opportunities to connect with this expanded global alternatives market comes with questions on new ways of operating and engaging clients. To speed up the learning curve required to take full advantage of this opportunity, we welcome advisors and alternative managers to visit our website and reach out to us so we can walk you through this new landscape and bring you up to speed on how to take advantage of this expanding asset class.
Institute for Innovation Development is an educational and business development catalyst for growth-oriented financial advisors and financial services firms determined to lead their businesses in an operating environment of accelerating business and cultural change. We position our members with the necessary ongoing innovation resources and best practices to drive and facilitate their next-generation growth, differentiation, and unique client/community engagement strategies. The institute was launched with the support and foresight of our founding sponsors - Ultimus Fund Solutions, NASDAQ, Pershing, Fidelity, Voya Financial, and Charter Financial Publishing (publisher of Financial Advisor and Private Wealth magazines).
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.