Last month, BlackRock unveiled a “first-of-its-kind” model portfolio for US investors that delivers access to both private and public market assets in a single account, launched off the back of rising adviser demand.
Produced using GeoWealth’s unified managed account (UMA) technology and iCapital’s underlying technology capabilities, the asset manager said this marked the first time a customisable model portfolio offered access to both private and public markets alongside each other via an UMA structure.
Toby Potter, chair of the Institute of Managed Account Professionals (IMAP), told Money Management he could expect a similar solution to hit Australia eventually.
“I could see something like this offered in Australia; there are already listed vehicles which invest in private markets so nothing would stop people from putting these or an active ETF in their model portfolio or as part of their separately managed account,” he commented.
According to Anthony Golowenko, senior portfolio manager at MLC, integrating private assets and strategies in separately managed accounts (SMAs) represents the “next frontier, challenge and opportunity”.
“Private market assets and strategies have long complemented public asset investments in institutional portfolios and are increasingly gaining traction in retail pooled investments,” Golowenko said in conversation with Money Management.
“We see benefits in an increased opportunity set and genuinely diversifying risk and return profiles, which need to be appropriately balanced against what is, in most instances, a longer investment horizon and a lower underlying liquidity profile.”
One challenge borne from combining private assets into SMAs includes the requirement for daily priced funds on platforms, making it more difficult to directly integrate private market opportunities, he explained, such as private equity or unlisted infrastructure.
Investment managers like MLC have developed ways of bringing private assets into SMAs by incorporating them as components of alternative strategies, offering diversification benefits via different profiles of investment risks and returns.
However, the senior portfolio manager reminded investors and advisers to be cognisant of the natural limitations that exist when providing regular liquidity in inherently illiquid investments.
“These ‘workarounds’ do mean that the investor does not have beneficial ownership of such less liquid underlying assets, typically a major benefit of managed accounts,” Golowenko added.
“That said, given the wealth industry’s long history of innovation, it’s conceivable that the private assets challenge in SMAs will eventually be overcome, enabling these types of diversifying investments to find their ways into model portfolios.”
Speaking on a recent IMAP webinar, Ironbark Investment Solutions CEO, Alex Donald, also acknowledged the difficulties of accessing private assets in the managed account structure.
“A lot of people think putting private markets into a traditional SMA is a difficult thing to do. There are a number of things that are different though, so it’s not going to be in the same scheme and won’t be intermingled with daily liquid strategies. It’ll be in a separate scheme with its own liquidity profile,” he explained.
Looking at the broader picture, Kieran Canavan, founder and CIO at Centric Wealth, said bringing private market investments into managed accounts is “fantastic” for investors.
“It’s an important building block of any portfolio, especially if you look at the liquidity premium you can get out of there,” he said on the webinar.
A recent example of this type of innovation in the Australian market is Lonsec Investment Solutions’ (LIS) upcoming alternative asset investment solution for financial advisers and their high-net-worth clients.
The LIS growth alternatives (LGA) individually managed account (IMA) solution includes a range of alternative strategies, such as private equity, hedge funds, real assets, gold, and private credit.
The solution accesses the partnership between investment platform Netwealth and global fintech iCapital to provide a wholesale IMA focused on alternative assets.
