Advisors know that their clients increasingly want the sort of returns that can be obtained in private markets, but getting a blend of high-quality options in place is not easy. A new UK firm speaks to this publication about how it aims to change the narrative.

UK wealth advisors know that clients may be increasingly aware that private market investments such as venture capital, private equity and credit must be in a nourishing investments menu. But as is so often the case, the hard part is finding an opening for clients and helping their advisors to make a start.

In all the talk of “access” to private markets over the past few years, much of the focus has been on reducing the entry ticket price investors need to pay. Traditionally, for example, to enter into private equity investors needed at least £1 million ($1.2 million). 

Advisors know that their savvier clients may want a blend of private market opportunities where the hard work of spreading risks and avoiding duds has been taken care of by a professional. However, where should they go for help? PM Alpha, a newly-minted UK-based private markets platform, argues that it can help advisors create solutions.

PM Alpha, which was established a year ago, caters to the intermediary sector, such as wealth managers and private banks. This news service recently spoke to Tom Douie, its chief executive. Before founding the business, he served as MD, global head of distribution at Muzinich & Co Limited in London. Other career stints have included spells at Neuberger Berman (Europe), Morgan Stanley and Alliance Capital Management.

“We are about creating an end-to-end toolkit that enables wealth managers and distributors to offer private markets,” Douie said. Enablement involves several factors: costs, digitalisation, regulations, training, and product construction.

“I want to serve wealth managers who themselves serve the end-client,” he said. 

The firm opened its platform to its first wealth management community members in late September after officially launching at the IPEM private markets conference in Cannes.

PM Alpha offers a full suite of private markets blended funds, co-investment programmes and individual transactions, curated using a thematic overlay of identified macro drivers and secular themes. The core offering in the investment proposition is the firm’s blended fund series which typically blends strategies from two to four managers. 

“It is in that blend, typically utilising mid-market specialists in their field, where the alpha really sits. We believe the optimal way to get exposure to private markets is to allocate tactically to the funds that best represent your thematic views at that time and have other attractive attributes, such as having high levels of deployment in the markets already,” Douie said. 

“Expressing those investment views using a small number of funds means you can really target the specific exposures you want to deliver on the overall desired investor outcome, like ‘income’ or ‘growth’ for instance, but avoid the pitfalls of being over-diversified by holding too many funds,” he continued. 

“We create funds regularly throughout the year to express our views and raise capital for them over a relatively short period of time. Having completed one, we move on to the next implementation of an investment theme,” he said. “Over time, we will return to a particular theme that has been launched before, like `specialised Income’ for example, but the managers used at that time may be very different to the ones utilised in the prior fund. That’s the beauty of our investment model – we have the ability to target a specific investor outcome and deploy it using the best managers we believe can bring the specific exposures that best fit the prevailing public market environment.”

With listed equities and bonds falling in 2022, the allure of holding private market forms of equity, credit and other assets has become more attractive, even if this tends to come with lower liquidity. The world’s wealth industry is waking up to this. In the US, for example, a poll by CAIS – an alternative investments platform – of more than 300 US wealth industry figures found that access to alternative assets such as private equity and venture capital has become a more important goal. Many advisors think the old stocks/bonds recipe in portfolios is outdated.

Until recently, however, getting a piece of the action, and in a risk-controlled way, had been beyond what affluent individuals could afford.

“Outside of the purely institutional buyers of private markets' funds, individual investors would only have found genuine private markets at the very largest global wealth managers a few years ago. They were the only ones who had the scale and the means to create funds dedicated to their underlying clients. More recently, you have seen the rise of the direct-to-consumer platforms that aggregate the investments of the HNW individuals who have enough investment capital to meet the investment minimums dictated by the local regulator. Whilst the platforms have increased access to private markets to some extent, they are still really targeting investors that would qualify for an account at the largest global wealth managers,” Douie said. 

Missing puzzle piece
“The missing piece of the puzzle here is the rest of the wealth management industry; those firms that have likely never, or very rarely, offered private markets to their end investors. In our view, if you want to increase access to private markets to the individual, you need to focus on enabling the wealth managers who serve them to include private markets in their product offering,” Douie continued. 

“That was the main ambition behind the launch of PM Alpha more than a year ago: to our mind, no one was offering a solution that focused exclusively on the wealth manager/financial advisor. Three-quarters of PMA’s founding team come from a private banking/private markets background, so we think like the wealth managers we serve – we have been in their shoes,” he said.

Going beyond feeder funds
“In our experience, it’s not enough to offer feeder funds and a slick digital end-client system. You have to consider the selection of the managers and the design of the product to address real-world investor needs,” Douie said. “You must provide all the background information and educational resources to support the product, in bite size. You must make the wealth managers’ sales process simple and support them from beginning to end. You have to ensure that the enhanced regulatory requirements are met in full and [that there is] no burden to the wealth managers.”

“Finally, the client marketing, onboarding, ongoing reporting and secondary marketplace liquidity needs to be provided. That is why our product needs to be a one-stop, all-in-one solution, not just a fund or a software,” he said. 

The firm’s revenue model varies by scale in investor commitment and the complexity of the PM Alpha strategy being sold. Generally, it asks managers of the underlying funds to contribute to the setup costs of the investment vehicles. PM Alpha charges an ongoing advisory fee in the range of 20 to 40 bps for an income strategy and 35 to 55 bps for a growth strategy. 

“Feedback has been very positive with our first thematic launching onto the platform this month [December 2022], which will result in a live investment by the end of January. Separately, we have started work on a solution for a unit-linked distributor, a distribution project for LatAm wealth managers as well as for a large asset manager in Asia,” Douie said.

How unusual is the PM Alpha offering and what overseas parallels are there?

“I like to say that elements of what we offer are available on other platforms and from other companies. However, we don’t think anybody offers a similar all-in-one solution exclusively designed for the wealth manager,” Douie said. “Our core target markets are really the UK, Switzerland, Spain, Italy, LatAm and Australia, but as we are inviting wealth managers from all over the world to join the community on our platform (it's free); we have less of a geographical bias than you might think. The one market we don’t have explicit plans for at this stage is the US.”