ALL ABOUT ALTO
Why issuers should rethink conventional fundraising methods
March 14, 2024
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Why alternatives issuers should raise capital from the $13.6 trillion in Individual Retirement Accounts (IRAs)
Fund raising in the private markets has always been a challenge, but issuers have faced even more hurdles and hindrances in recent months. It makes sense, then, that issuers of alternative assets are awakening to the untapped potential of American household retirement savings.
Individuals in the U.S. hold a collective $13.6 trillion of retirement savings in IRAs. That’s capital private entities can access in order to raise, deploy, and grow their funds and other investment vehicles — benefiting issuers and the investors of their retirement savings alike.
When issuers offer alternative assets like private equity, private credit, or real assets to everyday investors, they can tap into this massive pool of capital. But that’s just the beginning.
We sat down with Kacie Connors, Director of Issuer Relations at AltoIRA, to explore the various ways issuers of alternative assets can benefit by fundraising from individual investors and their IRAs.
“Seventy percent of investable household assets are held in general equities through their retirement accounts. If you, as an issuer, utilize IRAs as a funding method, you can tap into the trillions of investable assets sitting in retirement accounts.”
Kacie Connors
Director of Issuer Relations at AltoIRA
Huge pools of largely untapped capital lay beyond conventional institutional fundraising
“Seventy percent of investable household assets are held in general equities through their retirement accounts,” says Kacie. “If you, as an issuer, utilize IRAs as a funding method, you can tap into the trillions of investable assets sitting in retirement accounts.”
Scott Harrigan, CEO of Alto Securities, agrees: “At the end of the day, issuers are looking for success. And success to them is simply raising capital.”
In today’s fundraising climate, in which fund managers may be exploring options other than institutional fundraising, that opportunity can’t be ignored. During 2023, issuers encountered changes across industries, asset types, financing products, and regions. They navigated:
Fluctuating interest rates
Increased costs of debt servicing (combined with shrinking access to these services)
Geopolitical and macroeconomic uncertainty
Newly enacted regulations, like the SEC’s Private Funds Rules
Growing demand for transparency from consumers and lawmakers alike
These factors, and others like them, contributed to headline-making valuation disagreements, frustration on both sides of the deal-making process within alternatives, and even a return to megafunds. Subsequently, some smaller entities have seen more difficult capital raises and distribution plans. Issuers that do break through can also now face investors who may hesitate for longer before committing capital.
Retail investors have grown increasingly curious about alternatives
Consider the traditional fundraising process: preparing pitch decks, presentations, and road shows. Alto reframes that traditional approach; by connecting alternative asset firms with an often overlooked investment community: individuals saving for retirement.
Why? This group is large and growing larger, and sits atop one of the largest pools of capital in the world. And even with the struggles listed above, consumer appetite for alternatives has reached new heights.
- According to research from iCapital, 95% of financial advisors planned to maintain or increase investments in alts in 2024 for clients. Individual investors are going to advisors to access alts because they’ve heard they can outperform traditional growth channels.
- A 2022 survey found that 89% of millennials say they’re likely to invest in alternative investments, a proportion higher than both baby boomers and Gen Xers.
- As initial public offerings lost popularity, in July 2023, 31% of retail investors said their risk appetite had increased (up from 16% just six months before).
- The World Economic Forum reports that the majority of non-investors say they would invest if only they had access to alternative assets.
of financial advisors planned to maintain or increase investments in alts in 2024 for clients
95%
of millennials say they’re likely to invest in alternative investments
89%
of retail investors said their risk appetite had increased
31%
How can issuers connect with the everyday investor?
When fund managers reach out to Alto, they often want to remove barriers for these everyday investors to contribute capital. They want a conduit to make it happen.
Consider the process of accessing individual retirement capital through Alto. Not only is it a direct line to tap into the $12.6T pool of capital that is retirement savings nationwide, Alto, through its wholly owned subsidiary, Alto Securities, LLC, also connects firms with individual investors representing a huge pool of investable capital that is nurturing a newly invigorated interest in alternative investments.
Issuers and investors alike enjoy reduced administrative burden
Fundraising and capital management operations can drain the limited time and resources of issuers. Paperwork, approvals, and information management drag executives into tedious tasks that cost more and more every year.
The result is a more efficient, cost-effective process.
Streamlined cap table management
Issuers who partner with Alto have typically raised money from institutional investors, in part because it simplified their cap tables. Now, Alto Marketplace helps issuers maintain that simplicity and reach individual investors. “We’ve structured a product through our registered exempt advisor to expand access to investors at lower minimums — without complicating the issuers’ cap tables,” explains Kacie.
Personalized support through the process
Alto’s team helps issuers understand the products available to them and the steps involved in each transaction on our platform. This way, depending on the fundraising method, an issuer can move investments through their transaction process without preventable delays.
Improved transaction efficiency
One barrier Alto removes for some issuers is the challenge of money movement once the decision for an investment has been made. “Moving money has long been a difficult process,” says Ryan Kirchner, Director of Investor Relations at Alto. The team here at Alto has simplified that.”
Consistent relationship building
Alto’s Issuer Relations team manages key issuer relationships from onboarding and implementation to ongoing relationship management with a focus on increasing customer satisfaction and driving mutual account growth. The team works collaboratively with issuers to understand what’s going well and what’s not going well to inform solutions that improve our products and services.
Mutual understanding between investors and issuers can propel capital fundraising growth opportunities for both parties
Within private market relationships, investors and issuers pursue transactions, yes. But as the industry evolves, we see that in addition to building contact lists, issuers build investor partnerships. How? With a mutual understanding of each other’s motivations. It’s from those mutual partnerships that we increasingly see innovative capital management strategies.
Kacie’s team helps issuers find the right avenue for connecting with investors, whether that’s on Alto Marketplace, through Integrated Partnership, or by opening an issuer account on Alto’s Private Raise Portal.
For example, Alto Marketplace enables issuers to raise publicly, allowing Alto to take a proactive role in marketing specific investment offerings in addition to providing broader education on alternative investing. This two sided-familiarity fosters deeper, more committed partnerships between investors and issuers alike.
Upon confirming which Alto fundraising method meets the needs of their motivation to raise IRA capital, “issuers can provide investors more ways to participate in their offerings, either as a newcomer or a repeat investor,” says Kacie.
“One of the barriers to investing is education. Everyday investors don’t all understand what venture capital or real estate is, and how those assets produce returns. We provide the education to investors to know what alternative assets are, how they operate, and how to assess which specific opportunities may meet their needs.”
Kacie Connors
Director of Issuer Relations at AltoIRA
The alts space is filled with a wide variety of asset classes across regions, industries, and offerings. Alto brings those issuers and their unique differences together for investors who otherwise would never have had a chance to learn about them – let alone invest. The ability for investors to explore the space on Marketplace has led to many investor-issuer matches that excite everyone involved. It has been rewarding to see individual investors who have not committed capital before to participate based on new introductions, new understanding, and new partnerships.
Capital commitments from retail investors can jumpstart a flywheel for issuers
Over time, these channels can nurture a progressive flywheel:
This is a grow-raise-grow cycle that institutional investors have enjoyed for decades. Now, issuers and their increasingly active retail investor counterparts can experience it for themselves.
When issuers build connections with individual investors, accessing retirement capital is just one of many potential benefits
With trillions of investable dollars sitting in retirement savings, issuers have a massive incentive to connect with IRA investors and access this huge source of capital.
But the benefits don’t end there.
In fact, opening up offerings to individuals can produce more than just financial returns for issuers.
Take it from Kacie’s personal investment story.
In her early days of saving for retirement, she was introduced to women-owned startups which she would have loved to support financially. “These companies were raising friends-and-family rounds with investment minimums as low as $500 to support marketing and ops needs for their businesses,” she remembers.
Kacie wanted to see those founders thrive, but like most young people, she couldn’t risk investing speculatively with the small amount of savings in her account.
“At the time, I didn’t have the disposable income to participate in alternatives. I did, however, have a meaningful 401(k) sitting at Morgan Stanley. Had I known about Alto, I would’ve rolled over my 401(k) and invested in a few of the WIN Lab companies through my IRA.”
Kacie Connors
Director of Issuer Relations at AltoIRA
Today, Alto gives individuals like Kacie the opportunity to invest in alternative assets with the funds sitting in their retirement accounts.
By connecting with these investors, issuers of alternative assets can experience:
An investor group that’s shown their eagerness for alternatives
Streamlined processes for issuers, fund managers, and investors alike
An issuer/investor relationship that encourages trust and repeat investments
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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.
