As more advisors explore the market for alternatives, an entire cottage industry of investment platforms has emerged to serve their needs.
One of the older players in the space is Cleveland-based GLASfunds, established in 2008 to provide advisors with access to hedge funds and other private capital investment opportunities. What sets the firm apart is that it doesn’t aspire to be a marketplace matching asset managers with financial advisors, according to Michael Maroon Jr., managing director. Instead, GLASfunds views itself as an enterprise solution for advisors to access alternative products and grow them within their portfolios, regardless of the size of their allocation or whether they use the funds available on GLAS’ platform or source the funds themselves.
WealthManagement.com recently spoke with Maroon about how the firm views its place in the alternative investment ecosystem, what types of funds and asset managers it works with and what trends it’s seeing among advisors pursuing alternative investments.
This Q&A has been edited for length, style and clarity.
WealthManagement.com: Can you describe GLASfunds’ core client/user?
Michael Maroon Jr.: We primarily work within the wealth management channel, independent RIAs ranging in size from about $300 million AUM to $160 billion AUM, private banks, multi-family offices and trust companies.
WM: Approximately how many users are currently on your platform?
MM: I can speak at a high level to this. We work with over 100 financial advisory firms, with thousands of underlying investors coming from those advisory firms.
WM: What are the investment minimums on your platform?
MM: Low investment minimums into the funds is a core attribute of our solution, although it’s [just] one component. Typically, for the funds on our platform, the minimums at the investor level are about $50,000 per fund.
WM: There are a number of different alternative investment platforms in the marketplace right now. What sets GLASfunds apart from the others?
MM: While there is some crossover and similarity with other platforms, we look at those as marketplace solutions. These are platforms that are trying to provide a large list of asset managers and then also get a large list of RIAs to access those asset managers on that platform and create a marketplace. And they could have some feature sets that focus on scalability for the advisor.
But we are 100% dedicated and focused on being an enterprise solution for advisors. The open architecture approach that we’ve taken and the commensurate technology and infrastructure that we have to make it scalable is really what sets our business apart. While we do have relationships with 200 or so asset managers, and we do have a recommended platform, our focus is not on being a marketplace for asset managers to sell funds. Our focus is being an enterprise solution for advisors to be able to access and scale alternatives within their firm, regardless of what their goals are. For smaller RIAs, with $300 to $400 million in assets and $100-billion-plus RIAs, those alts programs are going to look very different, so they need highly scalable, flexible solutions to do that. And that’s where our core focus as a business is.
WM: What trends are you seeing among RIAs investing in alternatives right now? Are you seeing them gravitate toward certain sectors or maybe certain types of asset managers? How is that segment of the market evolving?
MM: Out of the 100-plus RIAs that we work with and many more that we have relationships with and converse with, everybody is at a different life cycle when it comes to investing in alternatives. Some RIAs have less than a percent of client dollars allocated to alternatives. Surely, they are going to allocate a little differently than, for example, an RIA firm or multi-family office that has 20% to 30% of their client portfolio dedicated to alts.
One general trend that we see with advisors allocating to alts is advisors are becoming more programmatic. What I mean by that is as opposed to investing in funds on a strategy-by-strategy basis, they are trying to implement vintage programs or model portfolios where the underlying clients are going to be allocated to something more programmatic, that advisor’s alts program, for example. That gives the advisor the ability to allocate to a number of different strategies at scale while using a platform like GLAS as opposed to just sort of doing diligence on an idea-by-idea, fund-by-fund basis.
We see every advisor do it differently, but it’s certainly a trend we are seeing, the more programmatic allocations, whether it’s vintage funds or model portfolios. We see advisors get really good adoption across their client base that way.
And then, more specifically across the asset classes that we are seeing, private credit has been very popular. Private equity remains our asset class with the vast majority of flows. And then, within private equity, we are seeing a lot of traditional buyouts, as well as secondaries. Secondaries are very attractive to the global wealth market for advisors and their high-net-worth and ultra-high-net-worth clients because they provide a high level of diversification almost immediately. It could be across a number of funds, hundreds or thousands of underlying portfolio companies within certain secondaries portfolios, with a mitigated J-curve as well. So, especially with advisors looking to get exposure to private equity where maybe their clients don’t have a lot of experience, we see secondaries as a really popular option.
WM: Do you notice a trend among your clients regarding the amount they have allocated to alternatives?
MM: It very much ranges. And not only is it going to range across the RIA market, from RIA to RIA, but it’s also going to range within the RIA. One client may be very suitable for alts, and they are comfortable with a lot of illiquidity. For example, a client portfolio could be 30%, 35% in alternatives. And maybe another client within that same RIA is less than 5%, less than 2%. So, we do see a lot of ranges within RIAs.
But, an overall theme is that advisors are allocating more to alternatives. They are spending time and resources and putting solutions and platforms in place to make it scalable within their practice, so they can take the average client portfolio from, say, 5% today and try to get it closer to 10% or 15%. Advisors are spending time educating their firm, educating their clients on the merits of and considerations around alternatives and why it may make sense. So, certainly, what we are seeing is it’s trending in one direction and growing within client portfolios.
WM: What do you see as the biggest pain points for advisors in accessing alternatives and possibly getting their clients invested in them?
MM: Five years ago, I would have told you it was access, but today, that’s just not the case. Access is abundant now. You have platforms like GLAS and others that have made access pretty palatable. Every large asset manager within the alts space has made products for the wealth market. All of the products that were traditionally reserved for institutional investors are not only accessible via platforms but these products are specifically designed for the wealth market. So, access to alts for an advisor and their high-net-worth clients is no longer the issue.
Now we sort of entered into phase two, I call it the alts takeover of the global wealth markets, which is scalability. An advisor that wants to allocate to alts, they are not just going to do it one time for one client. They need to do it programmatically across the vast majority of their client base, and they need to do it in a way that is palatable, scalable and understandable for their clients. But also in a way that is scalable for their firm.
Traditionally, with alternatives, it could be a very operationally cumbersome process to make one investment into a private equity fund for one client, let alone 20, 30, 40 clients. And then think about doing that over the course of five to 10 years where you want to diversify across maybe three, four, five funds a year across the entirety of your client base. The scalability question is what advisors are looking toward now.
Where we are focused at GLAS is not only on providing the solutions that make it scalable but also on being flexible enough, knowing that every advisor is different and every client is different. So, you have to provide tools that can make investing in alts scalable, but you have to do it in a way that also makes it flexible because the advisor market is very different.
WM: Can you go more in-depth into what tools you offer advisors to help them with those issues?
MM: Our focus is being an enterprise solution for the advisors. Regardless of where they want to allocate in alternatives or how they want to allocate to alternatives, meaning at what scale, GLAS could be a solution for them.
There are a number of different pain points within alternatives that the market has generally identified.
One of those that we mentioned earlier on the call is investment minimums, which has generally been solved for. So, a fund that has a $10 million direct minimum could be accessible on GLASfunds with a $50,000 direct minimum. That gives high-net-worth clients not only the ability to invest in these funds but build a diversified portfolio across funds.
Another component, what we call the pre-trade and trade component of the transaction, is how am I actually registering and subscribing for this fund? In our advisor-facing portal and in our technology tools that we’ve built—we like to call it the TurboTax of alternative investing—where advisors can go onto our portal, and it provides them a list of questions that allow them to subscribe their clients to funds in a very time-efficient manner and do that across the entirety of their client base. The technology we give advisors makes the subscription process much more efficient.
And then on an ongoing basis, what we call the post-trade, is performance reporting and tax reporting. When using GLAS, regardless of how many funds a client owns, we are able to aggregate the client’s K-1, so we are only delivering a single K-1 to the underlying client, which is highly significant. Specifically within advisor firms that are scaling calls at a good pace, because clients could be investing in five to 10 funds in any given year. So, over the course of five to six years, these clients could be getting dozens and dozens of K-1s. But by using GLAS, we are able to aggregate that for them in one K-1.
And then from a performance reporting perspective, we are able to feed advisors portfolio reporting and performance reporting that is digestible into their advisor report systems, into the custodians in a way that they don’t have to change too much about how the are practicing today, which is key for the advisor.
I would say most advisors that we talk to on a daily basis want to increase their exposure to alternatives, but it’s those pain points that give them pause and stop them from doing that. So, constantly evolving on our feature set and continuing to solve for these different pain points is what’s going to make alternatives more accessible and scalable for the advisors that we work with.
WM: What types of alternatives are available on the GLASfunds platform?
MM: We will split the funds into two different verticals. We have open-ended funds, which are mainly hedge funds, and then a variety of different asset classes within hedge funds. We probably have had over 40 to 50 hedge funds available on the platform. Maybe not right now, but we’ve invested in probably 40 to 50 hedge funds since inception.
And then, within the private capital sphere, we have drawdown funds. Really every asset class within private capital, so mainly private equity, private credit, private real estate and private infrastructure. And then, within those four core asset classes, you have venture capital, secondaries and so forth. We’ve invested, and by “we’ve invested,” we mean any fund that was allocated to by an advisor through GLASfunds, in probably over 230 underlying funds since inception. We have invested probably in most of the major asset classes within alternatives.
WM: How does the company feel about semi-liquid funds?
MM: These are certainly newer products. It’s something that we are going to be deploying on our platform and we are working with a number of different asset managers to evaluate products. We are working with our key advisor clients to evaluate where their needs are and where they see interest. But the semi-liquid products within alternatives, as we see it, are the next iteration of the democratization of these products.
But with that—something new comes, you have to make sure that the advisors, as well as the underlying clients, understand the risks, the considerations, the merits. And being the provider of these products, we need to make sure that we understand them in a very detailed way.
There are a lot of semi-liquid products coming out into the market right now, every mega-cap asset manager has a semi-liquid product or is going to be coming out with one. There is certainly going to be a flood into the market. But these semi-liquid products, which we see as probably a net positive for the market, these products are typically available to a lower accreditation of investors, so it’s making alts more accessible. But with that comes further education, you have to know and understand these products very well. That’s where our thinking is as we are evaluating all the products in the market and surveying our client base to see where the demand is. We want to be tailored for the intersection of that—product, market and where our client demand is.
WM: Since you brought this up, does the platform offer educational opportunities for advisors to learn about their options in the alternatives sphere, the benefits and drawbacks of different types of vehicles and so on?
MM: We do. Over the last two years or so, it’s been a big push of ours to release a lot of content that’s education-focused. That’s the first step to further democratizing the alts and having advisors increase their percentages of portfolios in alts—they have to understand them in a very detailed way, and, ultimately, they have to be able to explain it to their clients. Our job as a platform is not only to facilitate the tools to scale and access these products but also to further educate on the merits and considerations around alts within a portfolio in general and within specific asset classes. Why private equity may be good for somebody and not good for somebody else. That could apply to every asset class. And we’ve done a number of white papers and education-focused content around those different components.
WM: Your website mentions that the platform can offer opportunities for enhanced liquidity. Can you talk about what that involves?
MM: With a lot of the products that GLAS makes available on the platform, there could be very limited or no liquidity, specifically in private equity and private real estate. And what our platform allows advisors to do—and this is a highly variable circumstance, this is only available with certain clients at certain advisory firms that are in certain products—there can be potential for enhanced liquidity when you are using a platform solution like GLAS in the sense that clients may be able to trade amongst each other. So GLAS can facilitate a transaction for a client that wants to lower their exposure and a client that wants to increase their exposure. That is a possibility. That’s a feature set we may be seeing more and more of as clients get more mature portfolios.
WM: How many asset managers do you have on the platform?
MM: We have invested across 220-plus unique asset managers since inception. On our flagship platform, which is sort of our recommended platform of funds, we’ll have anywhere from 20 to 30 managers available at any given time.
A unique component of GLAS is that we are open architecture, meaning advisors that utilize us have the ability to source their own managers to the platform and then use the GLAS technology and infrastructure to invest in those managers. We are not a strict marketplace of funds. While we do keep an ongoing recommended list of funds for advisors to choose from, and then the commensurate diligence as well that we make available for advisors on the platform, they do have the ability to source their own funds, which is a huge trend we are seeing. Advisors are bringing a lot of sourcing and doing diligence on managers in-house to their firms and they don’t necessarily need a marketplace to access these funds. They just need infrastructure and technology to be able to access and make it scalable, and that has been a large part of our business.
WM: So, with the managers and funds they source themselves, they would be able to take advantage of all the reporting automation available on the platform?
MM: Yes, exactly. It all resides within the same platform for advisors, whether they are picking a fund off our recommended list or sourcing their own.
WM: Can you tell me the names of some asset managers on your platform?
MM: We work with large managers—Blue Owl, Apollo, Vista, Carlyle, KKR. We have relationships with these mega-cap asset managers and have invested in several of their products. We also work with some smaller satellite managers.
WM: For those 20 to 30 funds you mentioned that are recommended on your platform, what sets them apart? What makes you feel those will probably work for most clients?
MM: Our focus with the recommended platform of funds sits between quality and demand. We want to be spending time sourcing, doing due diligence on and recommending managers that our advisors are ultimately going to be interested in and have demand for. We are constantly surveying our advisor base to see what asset classes they are interested in, whether that’s private equity or secondaries or venture capital, whatever it may be. We are constantly trying to get feedback from our client base.
And then from there, we are just trying to find the highest-quality managers—managers that have a great track record where they can deliver quality risk-adjusted returns within that given asset class. For the recommended platform, we don’t take any placement fees or sales fees. The managers can’t pay to be on the GLAS-recommended platform, which we think is very important. It’s a 100% non-conflict, merit basis.
