Lawrence Calcano's new push to address RIAs' gripe about shopping alts on his software means getting providers to sell alts more like commodities, less like rare paintings
The CEO of iCapital knows RIAs and alts managers would benefit from selling more like Amazon or Kayak -- a tough sell to alts managers when snob appeal itself is a selling point.
8 min read- iCapital launches a unified marketplace to address RIAs' frustration with fragmented alts access.
- Calcano aims to standardize alts distribution, moving away from boutique sales models.
- RIAs' increasing allocation to alts drives demand for streamlined platforms like iCapital.
- iCapital boasts $160 billion AUM and profitability, fueling further marketplace development.
Brooke's Note: The potential of an alts marketplace is staggering and the undertaking is staggeringly difficult. iCapital keeps raising eyebrows and raising the bar by muscling its way ahead, true, but also by its willingness to just keep trying different means of advancement-- with ardor. Central to Lawrence Calcano's skill set is his ability to slowly shift the subculture of alts providers. These ‘masters of the investing universe’ are also mostly neophytes at distributing their own services. It's a tough combination. What Calcano seems to be saying here is that he did it their way for 10 years to get this project airborne. Now he has presumably earned enough credibility to demand they suck it up and share a marketplace, create a one-stop Amazon, rather than buying his software and going it elegantly but anemically alone.
Lawrence Calcano got iCapital to $160 billion of AUM in 10 years with one hand tied behind his back – selling a marketplace with de minimus one-stop shopping.
The CEO and chair of iCapital in New York City is now ready for Phase II.
It entails one modest advance in technology and one giant attitude adjustment among "general partners," namely alts makers, who have insisted on selling from their own boutiques to avoid the appearance of being a commodity.
iCapital is also launching iCapital Marketplace with a big assist from RIAs.
"General partners (GPs) were going to RIAs and saying we’re on iCapital through a white-label, then RIAs would login and not see the GP as it was on a separate platform, and RIAs were calling … [so] we’ve brought it all together," says Calcano.
RIAs are willing to give general partners the straight dope about how they invest clients' millions through OneSource-type platforms that virtually all mutual funds have long since adopted.
“I wondered; would some of the GPs not want to use the marketplace? How the larger GPs would react. But so far, none [have declined.] … Are we back to the future?
"Evolution is the most helpful way to understand it,” he says.
Reinventing the wheel?
In a release, iCapital variously describes its revamped marketplace as “groundbreaking,” “bridg[ing] a historical divide,” “unrivaled” and ushering in “a new era.”
Yet, the descriptive language has drawn raised eyebrows from others in the alts industry.
Brian Shapiro, CEO of low-cost alts rival aggregator, Altsmark in Manchester, Vt., questions all the superlatives.
"How is casting themselves as a new marketplace, ten years after launching as a marketplace, revolutionary?" he asks, via email.
"All the funds are on the same system already, just some were listed [on iCapital]. Others chose to isolate and invite only a select set of names to see [their funds] ... [iCapital's new marketplace] is a new page that lists more [alts funds] in one place," he adds.
Yet, iCapital is certainly doing something right.
It has oodles of venture- and private-equity capital sitting untouched in the bank. The value of its AUA is up 43% in the last 12 months to $160 billion, and it claims 78% of RIAs, or 13,000 advice shops use it.
No sooner does Lawrence Calcano raise $146 million than he buys rival Artivest -- then Wells Fargo alts service -- capping iCapital's 500%-plus run on alternatives 'platform' to $58 billion -- with almost every wolf on Wall Street chipping in
“We're on track in terms of our financial plan; we continue to grow, and as a company, we have a lot of capital. We have hundreds of millions on our balance sheet, and we're profitable,” says Calcano.
“What we’re building is strategic in the long-term, not the short-term … [it’s] changing the asset and wealth management landscape,” he adds.
RIA benefits
Rising RIA interest in alts may spark more and more alts managers to accept Calcano's logic in pushing for a single storefront.
As a segment, RIAs are investing more, according to data from Boston consultancy Cerulli Associates. By year-end 2022, advisor allocation to alts overall stood at 6.2%; it will likely hit 7.1% by 2024.
Today, RIAs allocate 7.9% of their total managed assets to alts, and this figure will likely hit 8.6% by 2024, Cerulli reports.
“A lot of large RIAs … have asked to build [up] alts infrastructure … so they can increase their allocations,” Calcano says.
As of year-end 2021, RIAs managed $219 billion of illiquid alts out of a total domestic market of $1.8 trillion. Wirehouses, which iCapital also serves, managed $720 billion.
Bringing it together
Alts managers are notoriously reluctant to share shelf space, so bringing them closer together is also no mean feat, even if it has taken Calcano ten years to convince them shared parking equals more sales.
“By operating a white-label in the market, [alts managers] were in effect building their own audience to their own store in the mall. We've brought it all together, so the benefits to the RIAs are significant. They see everything in one place,” Calcano explains.
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"We spent a lot of time talking with GPs; they understand the value of aggregation, of creating a real marketplace where everybody is going to come.
“Bringing this together is the next step forward in the vision of making [alts trading] easier in the whole value chain from the advisor to the client to the GP.
"It’s a huge step, a passport to a world," he adds.
The new evolves
Launched June 14 after 18 months in the making, iCapital's new alts store already lists 21 more funds directly than its predecessor, taking the total number of investable alts funds to 74.
Teamwork More than a dozen managers participated in the pre-launch of iCapital Marketplace:
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iCapital raises heart-stopping $440 million at $4-billion valuation, after signing big deals to become the alts engine of Envestnet and Allfunds
It also includes a new search engine to filter alts, upgraded back-office services, new data analytics software, expanded due-diligence support, investor education services and performance reporting upgrades.
At least 14 alts managers have signed onto listing directly through iCapital for the whole-kit-and-kaboodle, including Blackstone and Carlyle Group.
“The launch of iCapital Marketplace enhances our ability to discover new alternative investment opportunities via one simple and streamlined platform,” said Michael Moriarty, Chief Investment Officer of Wealthspire Advisors.
"It allows us to customize and fine-tune investment searches in a way that best aligns with our clients' goals.”
Neither iCapital nor Bridgewater have confirmed whether the famous Ray Dalio-founded alts shop will make the leap. See: Ray Dalio finally deigns to let RIAs allocate AUM to Bridgewater funds.
Buying in
But Todd Myers, Blackstone's senior managing director & chief operating officer for private wealth solutions, is one of a number of alts fund executives to publicly pledge support for the new venture.
"We are committed," he says, in a release.
Schwab's 1992-launched OneSource is another apt example, according to Calcano.
“In the mutual fund world it was hard to get [proper] access until custodians built a mutual fund marketplace to see things all in one place, and we believe what we're doing is analogous to that,” he says.
iCapital will not force alts managers to use its marketplace; it remains an opt-in system, and the company will still run white-labeled marketplaces for its clients.
Huge opportunity
iCapital is flush with cash, having raised $729.2 million over 13 rounds since 2013 from Bank of America, WestCap, Carlyle, Blackstone, BNY Mellon and Goldman Sachs. It has averaged 52% growth year-over-year since 2020, and RIAs now hold 13% – and growing – of all illiquid US alts.
“We are fortunate to have significant resources,” Calcano understates. "We have big aspirations … [and] how we finance is a second tier question.”
The opportunity for iCapital, as the largest alts marketplace in the US, is huge, given it only administers 8.9% of US illiquid alts, or $160 billion, through 1,270 funds.
iCapital's new marketplace will also not subtract from its revenues, according to Calcano.
“[There's] zero short-term revenue hit; it probably helps our revenues," he says.
“It's really good for the market and everything we do [is] with the best interest of our customers and partners, and if we can deliver that, our business will be super.”
Moonshot silence
iCapital declined to provide details of the progress of its moonshot bid to standardize alts data reporting, beyond noting all projects are "on track."
“We don’t undertake projects that we believe are moonshot bids. Everything we undertake we believe are things needed by the industry and things that we are well positioned to deliver,” says Calcano.
BlackRock, Blackstone, Apollo Group, Morgan Stanley KKR, and the Carlyle Group all pledged in April 2022 to abide by an iCapital-designed standardized alts reporting protocol. See: Fresh off a $440 million raise, iCapital CEO Lawrence Calcano is ready to dream the impossible.
iCapital has also massively kicked up its headcount last year, growing from 800 staff to 1,200, of whom 400 work in technology-connected roles.
It is making solid headway on its latest hiring round of an additional 100 technology staff, too, according to the firm.
“[It's] a new era,” says iCapital co-founder and managing partner Dan Vene, who heads the new marketplace, in a release.
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