Artivest’s James Waldinger on bringing private equity and hedge funds into the digital era

James Waldinger is the founder and CEO of Artivest.

What is Artivest? What was the genesis story (where did you come up with the idea)?

[dropcap size=big]O[/dropcap]ur mission at Artivest is to enable wealth managers, including financial advisors and family offices, and their qualified clients to efficiently access leading private equity and hedge funds. We are an end-to-end alternatives investment platform, starting with low-minimum access to a vetted set of managers and easy-to-understand online fund information, and ending with seamless monitoring capabilities and integrated reporting.

I came up with the idea when I was working at Clarium Capital, Peter Thiel’s hedge fund. I saw how institutional investors had access to premier private funds that individual investors didn’t, and also noticed how cumbersome and inefficient processing investments was, in terms of filling out subscription documents, managing distributions and reporting, etc.

Artivest solves both the access and the operational problem. We rely on expertise across technical, financial, legal, and operational areas to provide solutions that create an exceptional experience for advisors and clients, including:

• Access to in-demand private equity and hedge fund managers at lower minimums
• A single log-in for fund diligence, investment processing, capital calls, distributions, and ongoing individualized reporting including tax documentation
• Hassle-free online subscription document completion
• Integration with fund managers’ performance report providers
• White-glove service from our seasoned Investor Relations team

Our team has spent years building, testing, and refining our platform to remove the friction of and digitize the otherwise complicated, manual experience of private fund investing.

Why build Artivest now? What forces are conspiring to make this a smart offering in today’s market?

Fundamental shifts in the industry are creating new challenges for both fund managers and financial advisors. The Artivest platform addresses the imperative for both groups through a single innovative solution that facilitates engagement:

• Alternative fund managers are increasingly looking for solutions or products to reach the advisory community—increasingly, the fast-growing independent advisory community—as they recognize that the HNW channel is key to future growth. Private bank platforms have already demonstrated the opportunity. The independent wealth management channel is the next frontier, and fund managers who understand this shift are prioritizing it.
• For advisors, increased alternatives education and investment sophistication have sparked demand from investors for uncorrelated returns, varying liquidity profiles, and other portfolio solutions for today’s markets. These investors are looking for institutional quality investment choices.

In the past two decades, our society has upgraded our technology from desktops and pagers to tablets and smartphones. We do our banking online, we do our jobs online, we buy cars and homes online…yet, when it comes investing in alternative investment funds, the sector does things the same way they were done 20 years ago.

In a way, it makes sense that not many resources have been spent thus far changing the system. After all, investments in alternatives have largely been driven by institutions–a high-dollar, low-transaction volume business. However, these institutional-focused processes that private equity and hedge funds utilize to process investments, including customized pitch books and phone calls, travel, and cumbersome error-prone legal documents cannot scale to meet the needs of the large number of smaller sized investors that now seek these products.

As the demand for alternatives has expanded to the individual high net worth (HNW) market, the processes and infrastructure currently in place for most fund managers fall short.

Another example of where this plays out is with asset managers and private banks. We’ve found this group to be very interested in using Artivest’s platform to streamline their own fund operations.

You have a very strong group of investors, including KKR, who led your most recent round. What’s their play?

We are grateful and humbled by the support of our financial backers and partners. We believe our success thus far in attracting these premier partners is predicated on the scale of the opportunity we’re addressing, and, of course, the strength of our team.

Recognizing the evolving landscape of alternative fund managers looking to deepen their reach into the HNW channel, and the increased interest among advisors in accessing quality alternatives, our team relied on decades of collective experience in technical, financial, legal, and operational areas to create an innovative and integrated software solution.

The Artivest business team hails from well-established alternative investment managers, top tier banks, and advisory firms; while our technology team brings a Silicon Valley emphasis on design and usability not traditionally found in financial firms. Our executive team has decades of leadership experience across technology and finance. We believe that this level of talent and sophistication is uncommon for a young, venture-backed company like ours.

Who’s your target investor? What were their options before Artivest launched?

Many HNW individuals and advisors have traditionally avoided alternative offerings given the logistical obstacles in making an investment, particularly the cumbersome compliance, paperwork, and the challenges of finding investment opportunities at appropriate minimums.

As HNW investors have entered the alternatives space, the breadth of needs have expanded and products have begun to fill these new requirements. The fund of funds model addresses the HNW investor’s desire to pool money so they can meet the high minimums required to achieve diversification across private funds. However, we’ve seen downward pressure on the extra fees that accompany product structures like these in recent years. By tapping into technological efficiencies, Artivest aims to offer access to these types of products while keeping both minimums and fees competitive.

We are also very careful about the financial products we offer. One challenge in the space is the tendency to innovate too quickly on “trend” products before an economic cycle or two have proven out their results. Suitability is also an important consideration. It’s obvious that private equity funds are not for everyone. They are highly illiquid. In addition, not all private equity funds are the same.

As we bring these products to the HNW market we’ve been very focused on providing a carefully vetted selection of funds. We’ve worked with regulators to build comprehensive know your customer (KYC) and compliance infrastructure to ensure that these products are only made available to suitable investors. We see liquid alternative versions of PE and other variations; there’s certainly room there to innovate, but we strive to build products that bring real benefits to our partners and investors and that takes time to do it right.

What kind of tools do you provide investors with to help them choose funds?

Artivest presents each fund in a straight-forward, consistent, and transparent manner.  The strategy, team, market, performance , terms, and fees are all clearly displayed so advisors and their clients can quickly and easily access relevant information. In addition, we provide full versions of the PPM and tear sheets in a secure data room. Advisors are able to securely share this information with their clients through our platform.

Additionally, we are focused on advisor and investor education; our investment research team is available to explain investment diligence in detail. We also create white papers, primers, and other content to help educate those who may be new to the asset class or a particular strategy.

What’s next in the product/service? Where are you headed with the business?

As funds look to access the rapidly growing HNW market, we will see innovations around the different needs of these individual investors versus their existing institutional clients. Two of the most important distinctions between these groups are tax treatment and time horizon. For example, an institution may have a 200+ year investment time horizon while that of individuals and families is typically shorter.

We’ve already seen this demand for increased liquidity result in the development of liquid alternatives. This is just one example. Other products, such as those optimized for individual tax treatment, will continue to surface as HNW demand continues to grow.

Another trend is the increased sophistication of the HNW space and the resulting development of niche needs. For example, we’ve seen an increased demand for co-investments as individuals either understand individual investments better or have portfolio needs specific to their own risk profile or financial situation. As we remove the inefficiencies associated with one-off deals we will see granular choices become more and more economically feasible.

Artivest aims to be the destination for alternative investing. We have custom-designed our investment platform to serve the unique needs of clients, including investors, advisors, private banks, and asset managers. For example, the Artivest platform helps larger advisory platforms work more efficiently with their advisor network, and aids fund operations activities for private banks and asset managers. Through our consultative relationship with these clients, we have  built tools to streamline their marketing, reporting, and workflows.