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Better partnerships: How alternative asset issuers can improve investor relations
March 18th, 2024
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In 2023, institutional fundraising for alternative assets experienced many challenges, resulting in headwind events like a 300% supply-demand gap in private equity, according to Preqin funding data, via Bain.
Other alternatives like real estate also felt the effects, suffering a 45% decline in successfully raised funds. The good news is that individual investors have shown increasing appetite in alternative investments, and they’re looking to their retirement funds to enable those ventures.
However, issuers seeking to fundraise from individual investors sitting on $13.6 trillion in IRA capital must embrace the responsibility that such an opportunity requires. As diligent investors understand and vet investment targets, issuers must uphold substantial commitments on their end (which we’ll unpack below).
The effort of both parties required to operate in the alternative investing space can be mutually beneficial. As investors find their way around alternatives to diversify their portfolio, issuers are simultaneously learning how to build the most fruitful relationships possible, a seemingly nebulous task, but one that can be lucrative if done right.
To crystalize these opportunities and responsibilities, we sat down with Kali Mon, VP, Research & Analysis at Alto. In her role, Kali sees firsthand what helps issuers stand out and earn the trust — and repeat participation — of individual investors.
“At Alto, we conduct the strongest possible issuer due diligence, working with issuers for clarity and transparency to protect the end investor. And at the same time, we help issuers grow.”
Kali Mon
VP, Research & Analysis at Alto
Find the right channel for tapping traditionally ignored capital sources
Investors who are new to alternative asset investing must navigate an emerging market — much like the issuers of these assets. For issuers, access to retirement funds (and, hopefully, repeat investors given their capital power) starts with finding the right entry point.
The first step for issuers is to choose a facilitator or platform. This means selecting a conduit to enable great matches between issuers and investors. As a baseline, Kali recommends seeking out a transaction partner that has the interests of both investors and issuers at heart.
Alto believes that any platform or team that assists, or administers transactions should:
Have experience in varied financial management roles that can emerge during investment deals
Look for a facilitator with a proven record of creating and enabling opportunities for issuer and investor discovery that can then turn into long term relationships.
Show ongoing curiosity about trends in investor preferences
Look for a facilitator with a proven record of creating and enabling opportunities for issuer and investor discovery that can then turn into long term relationships.
Help turn transactional connections into ongoing relationships
A good tool (and its team) should offer tech-forward solutions to legacy problems that provide mutual discovery and reciprocity between issuers and investors.
Imagine a person introducing two mutual friends to one another to start a new friendship, knowing both parties will benefit from the new connection. Alto helps pair issuers with investors with that same goal. Investors entering the emerging alternatives space through unlisted securities also have a responsibility to navigate safe entry points.
Engage in trust-building efforts to foster investor relationships
Trust is essential, both in established investment spaces and the new frontier of investor relations. In fact, Kali advocates that successful issuers work to demonstrate their trustworthiness.
The reward of building foundational trust with investors is like training for a marathon. The race doesn’t begin when the gun goes off at the starting line. It’s won by intense training sessions in the months leading up to the event.
“When it comes to critical components, issuers should first build trust. Trust is the cornerstone in the finance world because we’re dealing with people’s money.”
Kali Mon
VP, Research & Analysis at Alto
In the context of this emerging ecosystem — where retail investors cautiously put their retirement savings toward an alts issuer with a sense of aspiration and a dose of caution — trust manifests in a few observable ways.
Ideally, issuers win investor trust by displaying more of these qualities than other potential partners can. Once that trust is in place, issuers and investors can collaborate seamlessly for mutual profitability.
Reliance on one another for insight
Just as issuers want to know about investors’ motivations and interests, investors want to know how issuers will use their expertise to operate, grow, and return their capital.
Mutual willingness to learn and stretch
Investors are often venturing into new territory to access alternative investments. Issuers should return the favor by fostering new, perhaps more open investor relations practices that may seem unfamiliar, or even unnecessary at first.
Reciprocity
“Trust means having confidence that your partner will support you like you support them, and that you’ll have each other’s best interests at heart,” says Kali. With that ethos, issuers should strategize with every party’s success in mind.
Proactive communication
The earlier you can make all disclosures, the better. Late-stage revelations can notably threaten or even kill deals by eroding trust.
Seek value alignment with investors for longer-term partnerships
Given the widely varied nature of alternative investments, resulting in the influence of personal investor preferences, we see issuers mulling their next move.
One option is to support individuals in their search for value-driven investing. Removing barriers for this emerging community of investors may not appear to serve the conventional goals of fundraising (as much low-cost capital as possible).
However, it may be closer-aligned with issuers’ needs than we realize. For example, Kali points to Prosper, a leading private credit loan servicer and an Alto API partner.
Investor interests, tastes, and motivations vary. That can mean many individuals invest for passion or personal values — not just returns –as markets evolve.
“We want to make sure investors have a breadth of options to align with what they want. Are they interested in growth? Are they interested in passion investing? Perhaps DEI or ESG? What financial goals do they have in mind? Do they want to retire at 40 or build generational wealth?”
Kali Mon
VP, Research & Analysis at Alto
“Both the Alto and Prosper teams looked to educate each other and jump on top of opportunities and challenges. That mutual effort built a really strong partnership. It drove and educated us all internally, which in turn helped our external clients. As a result, they’ve been pivotal to our success, as we’ve been to theirs.”
Kali Mon
VP, Research & Analysis at Alto
Prosper’s story shows that when Alto and issuers collaborate to help newer investors enter the space, everyone involved can benefit.
As issuers explore this channel, some may adapt their investor relations to better support their new investment partners’ personal values and motivations. We predict this approach can solidify issuer/investor trust and come full circle — ultimately supporting the chances of stronger, repeat capital raises.
Before getting involved, investors should understand the difference between alternatives vs. conventional public exchanges and their general equities.
When issuers champion investor relations, capital is just one potential benefit
When issuers work to nurture investor relations, it’s not just the investors reaping the benefits. Issuers can win, too — and the capital opportunities are just the beginning.
You can start by finding the right partnership facilitator or platform, building foundational trust, and understanding your investors’ values and motivations. As for next steps, seek out partners who share your vision of a mutually beneficial industry, for issuers and investors alike.
Looking ahead, Kali says Alto plans to nurture collaborative, bidirectional knowledge sharing.
“Alto can become an education hub where people not only come to us to find deals, but also as a networking spot. Investors can talk to investors, investors can talk to issuers, issuers can talk to issuers. Alto will be a point of connectivity, where everybody is both acquiring and providing knowledge in the alternatives space.”
Kali Mon
VP, Research & Analysis at Alto
Prefer a shortened version with key takeaways? We’ve got you covered.
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.
