DEEP DIVE is a series of in-depth articles on FinTechtris that explores a particular fintech leader, discussing its history, products / services, and how it has grown to be an industry leader.

In the alternative investments sector, high-paced growth is fueling a new era of wealth management. These investments include private equity, hedge funds, real estate funds, and others that are traditionally outside public markets — providing the potential for diversification and risk mitigation.

The problem with these investments was the high minimum investment amounts (over $1M) excluded most individuals. Even the top tier investors (by net worth) would refrain from locking in such a large portion of funds into a single deal. With regulatory changes in the last 8 years, individual investors (high net worth or retail) are now able to participate at lower thresholds.

The boost of technology in this niche provided new and varied program structures that improved the delivery, timing, and user experience from alternative investment platforms. Being able to quickly structure transactions, onboard investors, aggregate investments, fund deals, and manage payouts — has become tablestakes in the industry. The appetite from investors seeking higher yields beyond bank deposit rates is at an all-time high.

iCapital Network was an early fintech pioneer in enabling non-traditional investing to high net worth individuals (instead of institutions and family offices only). Emerging fintech companies have followed in this leader’s footsteps by building their own investor marketplaces with lower minimums across varied asset classes (from private equity to cryptocurrency).

COMPANY OVERVIEW

iCapital Network was founded back in 2013 by Lawrence Calcano, Dan Vene, and Nick Veronis. The company’s vision is to connect financial advisors and their clients to investment opportunities in private equity or debt, venture capital, real estate, or hedge funds. iCapital aggregates its investor network's capital to fund larger deals and syndications. The minimum investor amount to participate was $100,000 per fund instead of millions (then moved down to $25,000), far lower than other companies at the time.

The fintech leader delivers a technology platform that bundles the subscription, administration, tracking, and reporting processes of investments. Additional services and features include due diligence, education, distribution, and marketing. A key value driver is making sure investors have enough information to make educated decisions, especially on how alternative investments as an asset class fit into portfolios. Many new investors and advisors were unfamiliar in balancing the characteristics of hedge funds & private equity in relation to their existing investments.

For fund managers and advisors, iCapital provides tools to manage the increase in volume from smaller investors. Instead manual processes and documentation, the company provides automated and customized flows through its platform for onboarding and overall administration.

iCapital is a white label provider (investors are only aware of the company’s presence in disclosures) to over 100 firms. The names include Blackstone, HSBC, UBS, Fidelity, Deutsche Bank, and Goldman Sachs.

The firm has raised over $235M from top names that features BlackRock, Credit Suisse, and Ping An at a recent valutation of $1.4B. iCapital has gone on to use the funds to purchases Artivest (competitor platform that provides alternative investments to Wells Fargo). At the end of 2020, the company had $70B in assets invested (an increase of 48% from the prior year).

GROWTH THROUGH BRAND NAME PARTNERSHIPS

Banks and financial institutions started to catch up on iCapital’s success. In 2018, Blackstone Group purchased a stake in the company. JPMorgan Chase followed soon after. The Carlyle Group joined in as well and started to use iCapital’s platform for their own wealth management needs.

These key partnerships showed how its robust infrastructure and business model was making waves with institutions, who had to build their own internal systems in the past. These firms had confidence in iCapital being able to streamline/automate both access and management to alternative investments.

Individual advisors also had new options for clients interested in participating in new deals with smaller investments. These lower thresholds also started to open access to retail investors, who traditionally had only ETFs available.

OUTLOOK

iCapital Network fits well with the fintech thesis of democratizing access to financial services by lowering barriers to entry and opening up alternative investments to an entirely new segment of investors. The industry veteran put together a suite of supportive services and features to further propel its platform — ensuring a solid experience for both advisors and investors. For high net worth individuals, investing into alternative investments now becomes similar to traditional investments, and part of a properly diversified portfolio.

Through fintech platforms such as iCapital, this investment sector is no longer reserved for the top 1% in the investment community. With further regulatory support and emerging companies, this sector can continue to open up to wider audiences such as accredited and high-dollar retail investors seeking higher yields beyond bank deposits and volatile cryptocurrency markets.

Join our community @FinTechtris for more industry content & insight (includes deep dives & sector analysis).

As a bonus, access our subscriber-only tools (eBooks, guides, case studies) to evaluate bank partnership models, user onboarding, and monetization!