Bob Miller, CEO 

August 2019

Is the so-called “Democratization of Alternative Investing” a feeding frenzy out of sync with an underlying infrastructure to support a systematic and informed trading by the masses in these asset classes?


Non-Structured Documents Remain The Primary Vehicle for Reporting

The reporting of investments to LP’s in these vehicles is still being done the same as it has been for decades.  Yes, decades.  An LP’s Subscription agreement defines what reporting a client will receive which is invariably different from manager to manager as to frequency and detail.  Most of this information arrives by email in the form of unstructured content – a PDF or Spreadsheet.   Some even comes by mail-carrier.   In all cases the process of extracting, normalizing and reconciling the information is difficult.

Managers or their Fund Admin are the Authoritative Source of Information


While there are electronic feed options for a some of these vehicles, these transmissions bear little resemblance to their marketable security equivalents (custodial feeds) as to reliability and completeness.   The concept of “custodial alternatives” was derived to get these assets on a firm's books.    We receive thousands of these ‘custody reported accounts’ and literally discard the data as it is little value for performance reporting.  In these cases, many advisors/investors choose to rely only on the authoritative communications from managers or their administrators.


Effective Risk Management Occurs Only with  Knowledge of Underlying Holdings

An LP’s valuation statements, capital calls and distribution notices are the source to understanding valuation and investment activity.  But when it comes to risk management, it is knowledge of the exposures created by underlying investments that are critical.   In this area transparency it is even more murky.  Individual managers will decide what will be disclosed based on their assessment of their proprietary nature of the trading strategy.   Even when exposures are provided in the aggregate (some type, sector or geography classification) it is possible that investors may found themselves in positions they would alter if they knew the details.  


New Business Models are the Correct Response

There are important companies like CAIS, iCapital and others that are creating institutionalized eco-systems of scale and accountability where broader populations of advisors and their clients gain access to alternative investments.  These firms are committed to education and creating access to managers under terms compatible with the broader market.  They use scale to deliver efficiency and technology to delivery systematic transparency.

So, maybe we are ready.   But there is still major re-tooling required to get to the maturity enjoyed in the public markets as to transparency and scale.