The way to make alternatives more accessible to advisers and retail clients is by offering them through digital platforms, according to Nuveen's head of alternative strategies.
It's a new solution to the longstanding problem of high costs associated with alternative distribution, says Mike Perry, who's spent the last two decades in the wealth management space.
Perry says his time at Merrill Lynch and UBS Wealth Management made him recognize the need to deliver the "offerings in a more efficient way."
"I have become familiar with the cost dimensions of the business, and the general pressure on wealth management," Perry explained in an interview with Money Management Executive. "Half the battle was making it easier for the adviser, because the easier it is for the adviser to do the business, the more of it they are going to do."
Following Nuveen's online offering spawned from its recent partnership with Artivest, a technology-based alternatives investment platform, Perry says he is confident his clients will now have the advantage.
"What it does is eliminates all of the extra work that a RIA may have to go through to access a best-in-class alternative strategy, and instead allows them to go online and review a digital pitch book," Perry explains. "They'll see all of the data room elements electronically, and then they can go to execute electronically."
What is the significance, from firm standpoint, of Nuveen's recent deal with Artivest?
What's important to us at Nuveen is that we have over $140 billion of alternative investments. And through our acquisitions at Nuveen, one of our challenges has been how to get all of those capabilities to our wealth channel.
An important aspect of this is that it is quick to market and an inexpensive way to allow us to connect all of those capabilities to the wealth manager channel and all the individuals that are on the other side of the financial intermediaries that are our priority clients.
How long had you been working to finalize this deal?
Well I joined Nuveen in the fall of 2015, and we immediately embarked on an effort to bring these investment capabilities to market. The first step was really about how to do that. We then engaged in different options across the business with other vendors that do this, and we concluded that Artivest was the best for us.
I led the effort from conception, to building out the capabilities, to where we are now. It was clear to me, even before I joined (Nuveen), that there was no real access to what were largely intuitionally distributed funds and capabilities. I also had experience running and managing large alternative investment platforms, so pretty quickly I recognized that we could either increase the infrastructure in the middle and back office to do the things necessary to service this market, or we could find an alternative solution. Technology has advanced to such a degree that we could outsource; do it pretty quickly and a lot less extensively than if we decided to do this on our own.
How important was cutting costs in regards to partnering with Artivest?
Well we were basucally leveraging a third party provider variable that lowered the cost versus having to spend potentially millions of dollars, and a lot of time, to have internal technology professionals do it who may not be an expert in this type of service.
So, having worked in large organizations in the past, I know how long it takes, I know how expensive it can get and you're not really dealing with experts in how to deliver alternative funds. Having looked across the landscape here, I think we have seen the technology advance enough where we could outsource the solution.
What have been some of the immediate benefits?
One huge advantage in the lens that we really look for is how this going to help our clients - the RIAs and the smaller financial intermediaries - that can't build their own alternative private fund platforms. This allows them to easily access the investment strategy that they might have not been able to access in the past. It would take a lot of administrative expense to manage that.
What it does is eliminates all of the extra work that an RIA may have to go through to access a best-in-class alternative strategy, and instead allows them to go online, review a digital pitch book. They'll see all of the data room elements electronically, and then they can go to execute electronically via DocuSign.
It's essentially all online and it allows them to organize their clients. It also allows them to give clients rich information about what the status may be, versus often times today there's a lot of manual administration of subscribing to a particular fund. This makes it much easier and frees them up to do what they want to do, which is provide more advice to their clients. They don't want to spend the time administering the business when they want to spend their time advising clients.
Is there a learning curve involved here?
If you are familiar with a lot of the easy-to-use technology that is already out there, this feels a lot like that. So, you need to look through and use it, but we've found that it's very intuitive and easy to pick up. It doesn't require a lot of training, so advisers can actually go in and find that the navigation, and that it's pretty intuitive.
Though most of the time spent is actually not going to be navigating and using the platform, but it's going to be spent helping educate the advisers on the strategy itself and then helping those advisers provide the right kind of information for clients to make informed decisions on the underlying asset classes.
When considering an overall industry trend towards passive investing, would you say a program like this might open a clearer route for those interested in active and alternative options?
I think that demand for traditional illiquid alternatives is actually growing today. Therefore wealthier clients are looking to allocate more to their portfolios, and we're actually seeing growth there. We are not seeing the demand go down, and eventually we will see it increase.
From the advisers that we talk to, they are looking for more products and more solutions. We're not seeing the same thing as you might be seeing in traditional long-only active solutions.
Clients are trying to find investments and solutions that can help them increase income and not lose their wealth. They're concerned about losing money, they're concerned about income, and they're trying to find ways to do that. They don't necessarily find all of the ways in the market, and there are asset classes that just aren't available in the public markets, so clients need to access it now with this sort of technology. It becomes an easer task now that they can access asset classes like real estate, or agriculture, or credit, in ways that they couldn't before when they had to just pick from the public markets.
Does this partnership provide an avenue for educating clients on your offerings?
I think the online site makes it easier to deliver information. For example, you can now use a video portfolio manager. What we found is - and I think some data that I've looked at has indicated this - that video may be an easier medium and a more effective medium to transfer information. Now we can put up a video to explain the strategy. That's all complimented by specialists that we have in the field in relationship with the adviser.
These are online capabilities and not replacing what is a very important dimension, which is the important relationship Nuveen has with advisers.
I would say that the coverage and relationships we have with advisers, and a lot of the financial intermediaries combined with an easy way to access and execute, really allowed us to get the right information to the adviser; enough to make an informed decision on behalf of the underlying clients.
Have your more traditional clients shown any reluctance to picking up this new tool?
If you remember Nuveen really never provided, or was able to provide, access to all of these capabilities. So, from a client perspective, they actually appreciate and feel good about now having access that they didn't have access to before, combined with the fact that there's generally demand for alternative strategies.
So far we are getting only good feedback with respect to access and getting exposed to things that we didn't have exposure to before.
How has the partnership affected the Nuveen's distribution model?
The providers in this space, like Artivest, are new businesses, and I would say that the collaboration we had with them really is anchored around the fact that we are able to white label our technology solution with a partner that really knows how to help deliver these types of strategies and partnerships. I would say that not every firm out there has that model.
What we found was that most of the models out there were still oriented around distribution. In other words it was less about the technology and its use, and more about just helping our single strategy of smaller hedge funds and private equity firms with access to that channel. But there is still a distribution cost for access to that channel and that was the model for a lot of these firms.
What we're doing is actually allowing us to take out more cost because it's really not about distribution. We have our own in-house people and we can actually deliver this solution as if you were coming in like our other institutional clients.
So it makes the conversation there and the model that we have with Artivest, that has been able to neutralize costs down, and provide really great capabilities to these advisers.
How do you expect this partnership unfolding in the years ahead?
Well, it has been about a year since I joined and what I see happening is that - whether it's across the larger wealth management business or even a larger alternative investment business - the area doesn't provide value to the middle and back office. It's the administrative functions that add cost, in large part by the investor. As solutions emerge to drive those costs down, or outsource those functions, you'll see more and more firms move their alternative investment feeder platform and other capabilities to these new technology solutions. I think over time as those costs go down the larger platforms will all migrate to third party solutions.
So, we'll see how long that takes but that I think is inevitable.