Alternative Assets: Q&A with iCapital’s Lawrence Calcano
We asked the chairman and CEO about which strategies within alternative assets advisors are focusing on and why, and what is the key need of the wealth management industry when it comes to investing in alts. Calcano also discussed the recent launch of iCapital’s new portfolio construction tool, Architect, and the company’s future M&A strategies following the recent acquisition of Mirador.
Q: When iCapital engages in discussions with wealth managers, where do alternative assets stand in terms of both interest and understanding?
A: The adoption of alternative investments is an ongoing process, and education plays a crucial role in helping advisors navigate this landscape effectively. ICapital aims to empower advisors with the necessary resources to make informed decisions for their clients.
The adoption of alternative investments within the wealth management community follows a continuum. At a high level, there is significant interest among financial advisors and their high-net-worth (HNW) clients to understand and eventually incorporate alternatives into what would traditionally be considered a 60/40 portfolio.
Over the last decade, advisor interest has steadily grown. A subsegment of advisors and family offices has already fully embraced the value of alternatives, particularly private equity. However, overall, we are still in the early stages, especially when considering other asset classes such as hedge funds, venture capital (VC), and annuities, which are less widely understood within the wealth management community.
A clear concentration dynamic is at play: approximately 20% of advisors drive 80% of the alternatives’ transaction volume. Each advisor approaches alternatives with a unique set of objectives for their clients, including considerations related to risk, return, diversification, and liquidity constraints. Therefore, having robust educational resources of varying degrees is essential to meet advisors where they are on their individual alternatives journey.
Last August, iCapital conducted a survey amongst 400 registered financial advisors which found that half of all advisors reported client interest in alternative investments had increased over the past two years. In addition, when asked about future intentions, 95% of advisors said they planned to maintain or increase allocations to alternative investments in the coming year, with 44% planning to increase. So, there is a clear appetite to engage with alternatives amongst wealth managers and their clientele.
iCapital is passionate about education. In our view, advisors and clients can benefit from exposure to this asset class, but expanding access requires advisors to be equipped with the proper tools and knowledge to work with these investment products properly.
Q: Which strategies within alternative assets are advisors focusing on and why?
A: That same iCapital advisor survey I just mentioned found that of the advisors allocating a portion of their portfolio to alternative investments, 78% invest in real estate, 62% invest in private equity, 50% in private credit, and 48% in hedge funds. But, within these categories, we currently see the appetite for private credit as growing the most right now. This asset class provides enhanced income potential and diversification benefits, while also generally exhibiting lower market volatility versus public market credit options.
Q: What would you say is the #1 need of the wealth management industry when it comes to investing in alternative assets? What is iCapital doing to address it?
A: We believe that access to alternative investments is important, but if the financial advisor does not have a proper understanding of the investment product, who are the best managers to work with, which alternatives strategy complements their client’s portfolio the best, etc. – then the overall goals of the client portfolio may be jeopardized. The good news is that advisors are tremendously enthusiastic about learning about alternative investments.
At iCapital, we’ve launched several programs to help educate advisors: we offer online courses on 20+ alternative strategies, product-specific training through our learning management system, a library of timely thought leadership on various industry trends, and most recently the launch of iCapital Architect.
Q: Can you discuss the recent launch of iCapital’s new portfolio construction tool, Architect?
A: Absolutely. iCapital Architect is the first-of-its-kind portfolio construction tool that allows financial advisors to seamlessly assess and incorporate alternative and structured investments into traditional, existing client portfolios. Architect was launched in February 2024 after six months of beta testing with 300 wealth managers across RIAs and independent broker dealers, as well as leading asset managers.
With the launch, more than 350,000 U.S. financial advisors can access Architect via iCapital Marketplace. At a high level, the tool analyzes the risk and return profiles of alternative investments and structured investments alongside traditional assets such as equities and bonds, allowing the advisor to see the impact of incorporating alternatives into a portfolio.
The tool aims to meet advisors where they are by offering an interface/operating system that mirrors the tools advisors are already more comfortable with or regularly using when developing their public-market-focused portfolios.
Architect is an important part of our recent partnership we announced with Morningstar in January of this year. The 170,000 users of Morningstar also now have access to Architect and together with Morningstar’s Advisor Workstation, they can create risk scores for client portfolios that incorporate alternatives. All of which allows advisors to be informed and confident when proposing an alternative investment allocation to their client.
Q: Given iCapital’s recent announcement of the acquisition of Mirador, what are the company’s M&A strategies going forward?
A: The Mirador acquisition is an exciting step for iCapital and our continued mission to broaden access to high-quality alternative investments for advisors and their clients. iCapital will expand its data management and reporting capabilities to create an enhanced technology experience for clients in the wealth management, family office, endowment, and foundation segments.
Our goal is to provide a holistic solution for both wealth and asset managers that offers an efficient and reliable operating system whereby the entire lifecycle of an investment is accounted for and can be managed– from pre-investment due diligence and education, investment selection, to post-investment processes (like capital calls and distributions) and client reporting.
We will continue to explore opportunities to add a complementary benefit to our existing services alongside our strong continued organic growth and development of new innovations.
Q: What’s your message to wealth managers in terms of how and why alternative assets should be a long-term component of their client’s portfolio?
A: While they may be called alternative, alts are no longer exclusive or niche. Private market assets under management are currently valued at over $13 trillion. With more investors seeking uncorrelated sources of return to help mitigate risk in a traditional 60/40 portfolio, these investments will likely, and necessarily, become ubiquitous components of a well-balanced portfolio.
In fact, historical analysis shows that a 20% allocation to alternative investments (alts) in a traditional 60% equity/40% bond portfolio would have lifted annualized returns nearly an entire percentage point over the last ~16 years, while reducing volatility.
Calcano is Chairman and CEO of iCapital. He began advising and working with iCapital shortly after its 2013 founding, leading key strategic and business development initiatives, before joining full time as CEO in early 2014. Since then, he has led the rapid growth – both organic and through acquisition – of iCapital, building it into a leading global fintech company.