The Alts Platform Ecosystem: Crystal vs Transactional Platforms

Alternative investment platforms are a relatively new type of investment platform that has emerged in recent years. While there have been investment platforms focused on non-traditional assets for some time, the efficiencies built around alternative investment technology have made this type of investment more accessible to a wider range of investors. Alternative investment platforms first gained prominence in the early 2000s, driven by increased demand from institutional investors for alternative investments. Today, alternative investment platforms are becoming increasingly popular among retail investors, both accredited investors and qualified purchasers, due to their potential for higher risk-adjusted returns and lower correlation to traditional investments.

Given the multitude of alternative investment platforms that exist, it is imperative that advisors understand which platforms have structures available for their client types, while also understanding key differentiators such as the platform’s alternative investment offerings, service offerings, and finally the platform’s ownership structure.

Categorization of Alternatives:
Product Offering and Investor Type

The Alts Platform Ecosystem: Crystal vs Transactional Platforms: Product Offering and Investor Type

Note: For illustrative purposes only. Information gathered from platform websites.

As a threshold matter, it is important to understand the various types of investments offered in the alternative investment platform ecosystem, and which investments might be best suited for an advisor’s clientele base. While certain platforms seek to provide a well-balanced platform comprising multiple alternative investment strategies, others may follow a specific mandate, or selection criteria leading to differing product scope and profiles.

Structures Available: Accredited Investors vs Qualified Purchasers (QP)

Given the varying wealth status of investors, platforms are capable of providing access to a broad scope of investment funds and structures for the differing SEC-designated client types. As a base layer of due diligence, it is imperative for advisors and investors to understand the types of clients a platform is specifically built for. For instance, platforms built for QPs will offer access to underlying funds and investment structures that can legally only accept QP investors.

While all platforms seek to democratize the space by reducing investment minimums for end clients, the fund minimums that a platform must meet for QP-facing funds are oftentimes higher than accredited investor-facing funds. Inherently, this makes QP funds more exclusively designed for ultra-high-net-worth and institutional investors. The intent behind this distinction is to ensure that investors who participate in QP investment structures meet the criteria set forth by the SEC and have the financial sophistication to make informed investment decisions.

Degrees of Service:
Full Suite Service vs. Access

The Alts Platform Ecosystem: Crystal vs Transactional Platforms: Full Suite Vs Limited Service

Note: For illustrative purposes only. Information gathered from platform websites.

Access to Alternative Investment Opportunities:

The base level of service all alternate investment platforms seek to provide is access to this asset class. Platforms inherently democratize access to a variety of alternative investment opportunities that may not have been otherwise accessible. Access may include private credit, private equity, venture capital, real estate, hedge funds, and more.

Beyond Access:

Unlike traditional investment portfolios comprised of stocks and bonds, alternative investment portfolios require ample service beyond the point of investment. While institutions such as endowments have robust operational infrastructure capable of managing the burdensome paperwork process and varying liquidity schedules of multiple alternative investments, most advisors struggle to deal with this operational burden. Though the era of digitization has gone a long way in modernizing many processes, certain platforms cater to specific niches across the services spectrum, while others seek to provide end-to-end coverage. Some of these services directly relate to consolidation and liquidity management, all the way to client education and business development services.

Ownership Interests of Alternative Investment Platforms:
Privately Owned Vs Private Equity/Venture Capital-Backed

The Alts Platform Ecosystem: Crystal vs Transactional Platforms: Ownership interests

Note: For illustrative purposes only. Information gathered from platform websites.

Finally, it is imperative that advisors and ultimately underlying clients understand the ownership interests in the alternative investment platforms with which they are associating. The boom of the alternative investment platform ecosystem has raised interest from asset managers around the globe looking to capitalize on this growing segment.

Conflicts of Interest

To avoid potentially damaging traps that can harm advisors and their underlying investors, firms should seek to affiliate with a platform that guarantees advisors a conflict-free manager selection process. Given the significant private capital funding that has entered the arena, transparency in fund selection is critical. A fully vetted platform that prioritizes product distribution based on the merit of the fund’s investment strategy instead of distribution for payment ensures conflicts are eliminated.

Alignment of Interest

Finally, to foster a direct alignment of interest among the fund manager, platform, and end investor, advisors should seek platforms investing in the product they distribute, similar to how platforms should seek to distribute products where the internal capital commitments from the manager are significant. Advisors should seek platforms where platform capital is contributed to the funds on the roster as well.

Key Considerations

The alternative investments industry, has, is, and will continue to evolve to service growing client appetites and needs. While there are a multitude of solutions to choose from, advisors should understand the nuances associated with each platform to make sure their clients’ needs are adequately serviced. Advisors participating in alternative investments must be made aware that these nontraditional investments are a long-term journey, and infrastructure is needed beyond the point of sale to ensure efficient outcomes. Ultimately, alignment of interests and platform transparency is quintessential.

To learn more about the platforms listed in this analysis:

For registered investment advisors only.