ALL ABOUT ALTO
Why Alto is building a tool to provide alts for all
March 21st, 2024
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Alto is equipping everyday investors to participate in alternative assets
A 2022 survey revealed that over 80% of registered investment advisors believe all retail investors should be able to access alternative investments. However, those same experts acknowledged that everyday investors who do seek to participate in alternative investing face some serious barriers to entry.
Respondents reported:
69%
Lack of education in alternative assets
44%
Rigid regulations defining an “accredited investor”
38%
Extensive administrative burden and complex paperwork
34%
Confusion around due diligence and compliance processes
These are the same hurdles Eric Satz, Founder and CEO of Alto, encountered when he first tried to mobilize his retirement capital for alternative investing.
“I had a terrible first experience trying to invest in alts with my IRA savings. I tried using several different custodians, only to be more frustrated with each successive experience. I couldn’t help but wonder if this was a “me” problem, but what I found was that I wasn’t alone. Millions of people want to invest their retirement dollars in alternative assets, but prior to Alto, it was incredibly difficult and expensive to do so.”
Eric Satz
Founder and CEO of Alto
The systemic challenges of investing in alternative assets presented opportunities
Eric started researching how to address the friction he encountered. What he found was a green field opportunity to solve a common problem for a massive market, similar to the way Turbo Tax solved taxes for self-filers.
In early 2015, he learned there was a rapidly growing interest among everyday investors for information on and access to alternative investments, and that Americans collectively had about $7 trillion saved in retirement funds. The vast majority of that capital was allocated to general public market equities. Today, that pool has grown to nearly $13 trillion, still with very little allocated to alternative investments like private equity, private credit, or real estate.
Eric connected the dots between a growing interest in alternatives and a much larger expanded IRA pie that exhibited little change in investment allocation. He figured that most Americans likely didn’t know they can use their retirement funds for alternative asset investing. And, based on his own experience, he figured that once they do learn that it’s possible, they may not know how to get started or they’ll find it too time consuming and expensive to do so.
Equipped with these realizations, he decided to build the company and team to do for self-directed IRA investing what TurboTax had done for self-filing. The goal would be to use technology to educate, streamline and standardize.
Retirement investors needed to be educated on their options
“The first objective was to demonstrate that this ecosystem and this investment opportunity are not just for sophisticated investors and people who are already wealthy,” Eric recalls. “Conventional wisdom said the same thing about people who invested in the stock market until Charles Schwab showed the country otherwise. Alternatives can also be appropriate for the everyday investor saving for retirement.”
Put simply, people needed to know they’re welcome to participate in alts using their retirement savings.
Investors and issuers alike needed standardized processes
Trust companies and broker-dealer firms needed to establish transaction plans (with clear steps, regulatory approvals, roles, and responsibilities) to walk investors and issuers through the process: from discovery to close and money movement, in a clear, easily digestible form of delivery. Strategically, these steps needed to be repeatable and scalable so investors could quickly and easily invest and issuers could continue to raise capital and grow.
The industry needed to incentivize issuers and custodians to evolve
The adoption of the Jobs (“Jumpstart Our Businesses”) Act enabled issuers to sell securities to all individuals through an SEC-supported fundraising process called Regulation Crowdfunding.
”Regulations kept non-accredited investors from participating in most alternative investments — until roughly 10 years ago,” Eric explains. For the first time, many issuers experienced the power of pooled capital outside the bounds of traditional institutional and ultra-high-net-worth investors. But it would take another few years for them to begin proactively helping individual investors invest their retirement funds into such alternative investments.
Thankfully, a few pioneers on both sides of the dealmakers’ table continued to probe the status quo for ways to enable “Alts for All.”
Alto offers a clearer way to invest retirement funds in alternative assets
Today, Alto enables participants on both sides of alternative investment deals: the issuers who want to access the $13.6 trillion in America’s retirement savings and the individual investors who want to tie at least some of their retirement investment and portfolio strategy to the innovation and diversification away from public markets, potential for larger returns, and improved risk-reward profile provided by alternatives.
Ryan Kirchner, Director of Investor Relations and Sales at Alto, agrees: “The biggest ah-ha moment is when an investor says, ‘Wait, I can invest alongside these larger and more successful institutional investors.’ It’s the best part of our job.” Alto exists in no small part to offer individuals the access to financial opportunities that have long been available to only a selective professional and social class of highly sophisticated, well resourced investors.
But highlighting the fact that everyday investors can participate in alts is just the first step. Alto also demystifies various asset classes (from real estate to fine wines, farmland, venture capital, and more) and the professional investors experienced in these sectors. From there, individual investors can continue self-educating to better understand the risks, commitments, and opportunities attached to alternative investments.
The solution began with clear education that enables investors to access alternative investments
Increasingly standardized processes ease administrative burdens and pave a path toward more deals
Compared to Eric’s original experiences, Alto’s technology offers investors an intuitive, easy-to-execute, best in class technology workflow that addresses the challenges and complexities involved in alternative asset deal execution.
Alto evangelizes the benefits available to a retirement portfolio diversified with alternatives. Individuals may want to smooth public market volatility, offset inflation, hedge against geopolitical unrest or enhance financial returns, and portfolio diversification has been shown to have the potential to help achieve those goals.
“Seventy percent of investable household wealth is committed to general equities,” reports Eric. “Even if you now qualify as an investor that can participate in alternatives, you need a way to access that capital easily.”
Understandably, many fundraising entities or fund managers don’t directly service individuals who want to access the capital in their retirement accounts since it’s not a common practice, in no small part because it has been labor intensive, complicated, and time consuming. Alto helps the issuer by facilitating the movement of this capital into their fundraising pipeline, and the investor by making it possible to easily access capital earmarked for retirement.
The more investors allocate to alternative assets, the more lessons everyone involved can collectively learn. These value-adding best practices will better equip the incoming generation of investors and fundraising entities.
With Alto, issuers can build a beachhead in the emerging ecosystem of alts in IRAs
Issuers in the alternatives space have typically looked to institutional investors and ultra-high-net-worth individuals to raise funds.
With Alto, they now have another option: the $13.6 trillion pool of capital in Americans’ retirement accounts.
For any fundraising effort, tools are required to exhibit and manage offerings, process transactions, and receive funds. “Conventional technology makes it difficult for issuers to work with the retail investor at scale,” explains Eric. Practices in the private capital markets involve many analog processes and paperwork, which can work if most of a firm’s dealmaker relationships are one-to-one.
But with the emerging investment ecosystem — where issuers offer everyday investors opportunities to invest — Alto and its partners provide the technology to manage the one-to-many connections involved.
“Right now, projections suggest that we're going to have tens of millions of Americans living in poverty by 2050. Our goal is to demonstrate the value of diversifying with these alternative investment opportunities and increasing returns such that we shift the future wealth curve and improve people’s financial futures and livelihoods.”
Eric Satz
Founder and CEO of Alto
“The big change here is the technology of Alto and our partners in the ecosystem. The issuer now has an easier way of raising capital across a broad spectrum of individuals, putting the funds to work, and making distributions in a way that makes sense economically.”
Eric Satz
Founder and CEO of Alto
According to Scott Harrigan, President of Alto & CEO of Alto Securities, when issuers partner with Alto to remove barriers for retail investors to participate in alts, they’re investing in people. And that investment has the potential to be profitable in its own right. “Issuers are starting to recognize that the everyday investor is as interested in their alternative assets as the large institutions and high-net-worth individuals are,” says Scott. “They’re making the investment in people because they know this is a really incredible opportunity.”
Individual alternatives investing will continue to evolve
As individual investors grow more curious about the evolving ecosystem of alternatives and their ability to allocate to it, there is increasingly clearer, more reliable information to get started and steer their decision-making. Alto is proud to contribute to this educational dynamic, and to provide tech-enabled tools to help execute those investment decisions.
Take it from Eric, who recently tried once again to invest in alternative assets using his retirement dollars. However, this time he invested with Alto and had a very different experience.
Across the alternative assets ecosystem, shifts are already in motion: individuals want to invest their retirement funds in alternatives, and they now have the means to do it efficiently. Partners like Alto are simply here to facilitate and accelerate those investment decisions.
Consider the saying: “During a gold rush, provide shovels.” As investors and issuers alike find valuable opportunities in partnering together, Alto empowers those partnerships.
Navigate these exciting opportunities with us by creating an account today.
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Want to learn more about Alto?
Check out the rest of this six-part series on Alto’s work and how we’re building towards alternatives for all.
