Alternative Allocations (Podcast): The model revolution—scaling private markets access through technology and education

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In the latest episode of the Alternative Allocations podcast, I had the pleasure of sitting down with Dana D’Auria, Chief Investment Officer of Envestnet Solutions. Dana and I discussed the growing demand for model portfolios, and how Envestnet is responding to meet advisors’ needs.

In my travels with advisors, I increasingly hear questions about the mechanics of adding private markets and creating model portfolios that can be scaled across advisory practices. Similarly, I hear from headquarters about the need to create models to provide greater consistency and an improved client experience. So, I began our discussion by asking Dana about some of the unique complexities of building models with private markets, including structure, liquidity and operational challenges.

Dana pointed out that, “Envestnet is a platform designed to help the advisory and the home office community use these instruments in a model context.” She added that the firm can assist in technology, implementation and due diligence, among other areas. Depending on how the platform is being used, Envestnet may offer risk ratings, asset class returns and capital market assumptions to assist advisors.

Dana and I discussed the growth of the evergreen fund structure and how that has helped provide access to these unique investments. Given the recent noise around redemptions and gating, I wanted Dana to weigh in on the structural tradeoffs and the need for education. She stated that, “. . . understanding the liquidity of these is obviously a big piece… educating properly, making sure that the advisor base truly understands that the underlying investments are illiquid, and then they in turn can convey that to their client base.”

With the growing adoption of private markets in the wealth channel, I asked Dana about resources for advisors. She pointed out that many of the larger asset managers and platforms create content for advisors, from foundational to advanced materials. She noted that CAIA (Chartered Alternative Investment Analyst) is, of course, a tremendous resource, and for those willing to commit the time, the CAIA designation or one of their micro-credentials are of great value.   

Given some of the recent noise in the marketplace, I asked Dana about her outlook for private markets.  She noted that her outlook remains very positive but stated, “There needs to be an understanding that there is a larger dispersion of return amongst managers in an asset class, like private equity, than in a public market asset class.” She emphasized that advisors need to understand the structural tradeoffs and the illiquid nature of private markets.

As an industry, we have experienced an ever-growing adoption of private markets in the wealth channel. Model portfolios can help advisors efficiently allocate capital and access world-class managers. We will need to continue to educate both advisors and investors about the versatility of these new investments, the structural tradeoffs between drawdown and evergreen funds and the changing mind-set of allocating capital for the long term.

The purpose of the Alternative Allocations podcast series is to address the challenges and opportunities above in an honest and transparent fashion.

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