Advice firm driving private market access for retail clients with SMA

Invest Blue’s managing director says the firm is aiming to implement responsible private market access to its retail clients following the launch of its SMA last month.

Working in partnership with Russell Investments and Ironbark Asset Management, Invest Blue launched the Cornerstone Private Markets Managed Portfolio, a separately managed account (SMA) intended to help its access the private market space amid concerns that retail investors are at risk of being locked out of value creation if they are limited to just publicly listed companies.

“One of the things we've observed over the last five-seven years is, obviously, public markets are shrinking around the world and some of the forms of alternative return, non-correlated return, haven't done what they'd said,” Stephens argued.

Despite the launch coming at a time of considerable scrutiny of private markets and managed accounts from the regulator, Stephens explained that this SMA is the culmination of three years of work in the background to ensure it meets the needs of retail clients with safeguards in place to establish responsible utilisation.

“Clients traditionally are quite conservative, I think. And so that's why we've taken so many years to build this, and it's why we are so cautious and careful in its implementation,” he added.

Although private markets have traditionally been relegated to large institutions and ultra-wealthy investors, Stephens said the firm’s advisers have begun raising conversations around private markets with its retail investors regarding opportunities in this space, conscious of clients’ hesitancy.

“We don't take our fiduciary obligation lightly at any level in our organisation, and we can clearly see great client benefit. But, if not executed well, or if people were trying to build their own portfolios to put all their clients’ money into illiquids, which we've seen, clearly that's not a good thing. So, we've been extra cautious around that.”

For this reason, the firm wanted to keep retail clients’ needs at the heart of the SMA, meaning that all funds underneath the offering are retail, evergreen, and a mix of monthly and daily liquidity.

Another key priority when developing the SMA, Stephen said, was working with experts in this space, explaining that their advisers’ role is to help support the needs of their clients, “not to be stock or fund pickers”.

"From our client's perspective, they get the benefit of our scale, of being a client of Invest Blue and the broader Ironbark group. They get the benefit of the responsible entity oversight. They get the benefit of Russell's expertise. They get the benefit of our scale. Because it's very difficult for anyone to build this type of offering without some scale.”

While expanding retail access to this space was a driver behind this SMA, there are still eligibility requirements regarding its use to ensure clients are being protected.

For example, there is a minimum initial investment requirement of $25,000, advisers are only able to allocate 5-15 per cent of a portfolio to private market assets depending on their risk profile, and clients must have a minimum of $500,000 of wealth before they are able to invest in this product.

Noting the air of concern around private markets at the moment, Stephen said that delivering access to private markets through an SMA structure introduces strict guardrails that help protect retail clients without keeping them locked out of potential investment opportunities.

“We're naturally cautious; however, fundamentally, we believe that if we constantly have our fiduciary obligations front of mind, we have client best interest front of mind, we clearly understand the risks, we work with our platforms and trustees to ensure that they understand what we're doing. We understand what we're doing. Frankly, we actually think this is exactly the type of design that should be supported.”