We talk to the founder and CEO of a four-year-old fintech that works with RIAs, family offices and others manage private market portfolios. In particular, FWR asked about what a push to "democratize" access to these hitherto hard-to-enter markets will mean for fees.

As more money flows into the private markets sector – even to the point of prompting skeptical noises – this “democratization” trend raises questions over what this does to fees.

Just as hedge funds saw their old “two and 20” fee model (annual management fee and performance fee) squeezed when the sector evolved over the past quarter century with large inflows, and performance sometimes disappointed, the private markets sector could witness something similar. The spike to interest rates after the pandemic jammed up some investor exits and slowed the pace of fundraising, putting downward pressure on fees. Preqin, which researches and publishes data on the sector, noted this trend in October 2024. “GPs are finding it harder to raise funds and now must be more tactical during their fundraising process, offering incentives to entice investors including first-close discounts, carry-free co-investment opportunities, and management fee cuts. As a result, mean management fees in private equity, private debt, and real estate are now close to the low end of their 20-year ranges.”

The decision by the Trump administration to allow 401(k) retirement accounts to hold private market assets, and the partial loosening of the Accredited Investor rule, play into a narrative of widening access, and large investment houses increasingly focusing on private clients. Part of that story involves the rollout of “evergreen” funds – those that don’t have fixed exit dates, or capital calls and other traditional features. The trend is not confined to the US. Evergreen funds have amassed nearly $500 billion in net assets, according to Pitchbook this month.

Where is all this likely to lead on fees?
Samir Kaji, chief executive and co-founder of Allocate, a fintech based in California’s Palo Alto in the heart of Silicon Valley, has his own take on the fee story. His business helps RIAs and family offices source, build, and manage private market portfolios across private equity, private credit, venture capital and real estate.

“There's clear bifurcation happening: On one end, you have the semi-liquid, evergreen, and registered fund structures we discussed earlier, which are coming to market with more competitive fee structures because they're designed for broader distribution – think 40 Act funds with 1.25 per cent management fees and lower or no carry, versus traditional 2/20 structures,” he told Family Wealth Report. “Asset managers recognize that reaching the wealth channel requires pricing that fits the economics of smaller check sizes and advisor compensation models.

“On the other end, access to top-tier, capacity-constrained managers – those with consistent top-quartile performance and decades of track records – aren't compressing those fees. If anything, the demand for true alpha and differentiated access means performance-justified fees will hold for the best managers,” Kaji said. 

The widening access trend will add to the downward fee pressure on the first type of fund area, Kaji said. 

“The changes mentioned – 401(k) inclusion, potential Accredited Investor rule modifications – will accelerate the first trend. When you open up massive distribution channels, you need products that can scale economically. But that doesn't mean everything gets commoditized,” Kaji continued. “What we're seeing is that advisors are becoming more sophisticated about fee evaluation. They're willing to pay for genuine alpha and differentiated access, but they're getting very focused about cutting "index-like" private markets exposure that doesn't justify the fee load.

Transparency is the key, as advisors want to understand exactly what they're paying for and why.”

Kaji’s business is part of a trend of firms tapping into expected rising demand by RIAs and others for scalable, efficient ways of gaining access to private markets. Several fintechs say they connect RIAs with private markets. Organizations include iCapital, GeoWealth, Opto, and Proteus. GeoWealth, for example, partners with asset managers such as Apollo, BlackRock, Goldman Sachs, and JP Morgan Asset Management.

In Allocate’s case, it has 320-plus wealth advisory firms and $2.8 billion in assets on the platform.

The fear is that if wealth managers don’t put such alternative assets on menus, clients will go elsewhere. Given the multi-trillion-dollar wealth transfer under way, and the need for firms to retain/attract NextGen clients, stakes are high.

Kaji’s background is in private equity and venture capital. Before forming Allocate in 2021, Kaji spent nearly 22 years in commercial banking between Silicon Valley Bank and First Republic Bank and worked with and advised more than 700 venture capital and private equity firms. Allocate today has 75 employees, and Kaji makes sure to get his message across, writing and speaking on private markets. He hosts the Venture Unlocked podcast.

Three areas of focus
RIAs and other wealth management firms focus on three main areas, he said. 

“First, there's strong demand for venture and technology fund access – particularly to top-tier, capacity-constrained managers that advisors historically couldn't access for their clients.

“Second, there's been explosive growth in semi-liquid, evergreen, and registered fund structures. Advisors love these because they solve the liquidity mismatch problem – clients get private markets exposure without locking up capital for 10+ years. The 40 Act fund structures in particular have opened up distribution through traditional brokerage channels, which is massive for scalability.

“Third, we're seeing interest in co-investments and direct opportunities from advisors who cater to ultra-high net worth individuals and sophisticated family offices, who often want greater control and the ability to avoid high management fee layers.”

Advisors don’t want cookie-cutter options, Kaji said. 

“They're not just looking to check the `alternatives allocation’ box anymore – they want genuine portfolio construction value, whether that's through access to top-tier managers or through fund structures that actually fit their clients' liquidity needs,” he said. 

Allocate earns its revenue directly from clients through technology and administration fees – it does not monetize through product distribution. For Curations and Fund Solutions products – where Allocate provides access to vetted opportunities or create white-label feeder funds – it charges administration, servicing, and technology fees for the infrastructure it provides, such as investor onboarding, reporting, fund management and administration, and the underlying technology platform.

For Allocate’s Insights offering, which is an AI-powered portfolio intelligence tool, the firm charges platform fees to wealth advisors and families for the unified data aggregation and analytics capabilities.

Standing apart
Kaji said he tried to make the firm stand out after seeing the “pain points” that advisors had on first-generation platforms – siloed point solutions, manual data reconciliation, lack of actionable intelligence, etc.

“Everything we've built from the ground up is designed to serve as an intelligence system for wealth advisors – not just a data repository or workflow tool, but an intelligent operating system that serves the CIO evaluating fund opportunities, the advisor constructing personalized client portfolios, and the back office automating and managing operations,” he said. 

"We take pride in the fact that while Allocate is a relatively "young" company, we're backed by senior leaders who have been working across wealth management and private markets for 20+ years,” Kaji added.