In the quest to improve access and take out some of the chores and complexities involved in private market investing, new business models in wealth management continue to take shape. Here is an example.

A relentless theme in wealth management has been the need to diversify from listed equities and bonds. In fact, it has reached the point where the case for private market investing has become a cliché rather than an edgy talking point.

That doesn’t mean, however, that the sector is where it should be in providing comprehensive support, as well as access, for affluent and high net worth individuals. A business that claims it provides an end-to-end set of solutions is Templum One. It is a new offering from Templum, a New York-headquartered business, which says it unifies private market infrastructure, investment opportunities and investor capital. (Templum also has a broker-dealer called Templum Markets.)

Templum One’s launch was unveiled in October. In June 2021, Templum said it had closed a strategic financing round led by WestCap.

Back in October this year, Templum’s CEO and founder, Christopher Pallotta, said: “Templum One is the only central operating system of its kind and the answer private market participants have been waiting for. Our ecosystem simplifies and optimizes the access, distribution and sourcing of alternative assets for RIAs, broker dealers, wirehouses, family offices, endowments, institutional investors, investment platforms and wealth managers.”

The Templum One ecosystem covers area such as onboarding, primary and secondary trading and investment management on a single platform; API driven architecture; digitalization of paper-based workflows for issuers and investors; updated data sets on alternative assets, including investment focus, structure and regulatory filings, dynamic analytics and investor datasets, among other elements.

Still fragmented
A number of firms around the world, such as CAIS and iCapital in the US, and Moonfare in Europe, have been formed to widen access to otherwise hard-to-enter areas such as private equity, venture capital and private credit. They have to a certain extent disintermediated investment banks that used to dominate access. They also typically exploit modern financial technology.

While he did not mention other firms by name, Pallotta argues that while other firms have arisen to provide more access to private investments – cutting out investment banks as traditional intermediaries in certain respects – the sector isn’t fully integrated yet. Templum One aims to change that. “A key differentiator between [others] and Templum is that they operate on their own island, which lacks interoperability and digitization. To offer the assets, they have to launch a feeder fund for investors which increases the fees and cost for investors – with Templum there is direct investment access which lowers cost and the need for feeder funds,” he told Family Wealth Report in a call. 

The alternative investment space has “always been a fragmented and paper-based ecosystem,” Pallotta said. The sector requires interoperability, which is what Templum provides, he said.

“We [Templum] are not just a tech player but also have a regulatory layer,” Pallotta said, describing how Templum puts all matters for clients under one roof.

One parallel, he said, is that Templum does for the alternatives investment space what Shopify does for digital merchants.

Changes
Templum One’s arrival is a sign of how wealth managers continue to tap into the perceived problems for conventional asset allocation.

“The old `60/40’ portfolio [of equities and bonds] has been thrown out of the window,” Pallotta said. “RIAs are all asking for more alternative [investments] and asking for ways to source them.”

The demand for alternatives and access to private markets continues to grow. According to the 2023 Trends in Investing Survey conducted by the Financial Planning Association, advisors said they actively invested in or sought alternatives for their clients' portfolios. According to an article from Bain & Co in July this year, private assets under management are highly concentrated in pension funds and other institutions that invest through private equity partnerships. But while individuals account for just 16 per cent of such assets globally, they hold roughly 50 per cent of global wealth. About 38 per cent of high net worth individuals and 53 per cent of ultra HNW individuals would like to increase their allocation of private alternative assets, the report said.

But for years, to get a seat at the table meant deep pockets, such as an ability to put up at least $1 million for even the more humdrum of private equity funds. In the past investors had to put up a large amount of money to play in the space because such investment was labor-intensive, and paper-based, Pallotta said. 

The biggest asset allocators have started to hit capacity limits on how much more they can invest, Pallotta said. 

Templum is talking to large banks in the US and it has large private equity firms coming onto the platform.

As a tech-driven business, Templum might seem an ideal candidate for the new world of distributed ledger technology, aka blockchain, but Pallotta is a skeptic. 

Pallotta said that he does not see a great deal of benefit in tokenization and using blockchain tech. “You must go through a lot of steps…it can never be fully decentralized. There is no benefit to it.”