By Leo Almazora in InvestmentNews, featuring Brian Spinelli, CFP®, AIF®, Co-Chief Investment Officer
While alts-focused RIA advisors might not be putting their clients in BlackRock’s new public-private model portfolios anytime soon, they’re certainly counting it as a step in the right direction for the industry.
To quickly recap: In late March, BlackRock launched a new series of customizable model portfolios, which combine public and private market investments in a UMA structure.
The new offering, developed in partnership with iCapital and GeoWealth, included an in-house private credit fund and a private investment fund at the time of launch, with BlackRock leaving the door open to incorporate additional alternatives over time.
Not long after, Envestnet built on the momentum through a new collaboration with BlackRock. By making the world-leading asset manager’s customized model portfolios available to RIAs on its platform, Envestnet has set the stage for even more advisors and firms to eventually access the new private-infused offerings.
Brian Spinelli, co-chief investment officer at Halbert Hargrove, says his firm has had alternatives and private markets in their toolbox long before BlackRock’s March model portfolio reveal.
“I would say it’s a good reinforcement into the industry that these things do belong in wealth client portfolios, and they’re not just institutional allocations,” Spinelli told InvestmentNews in an interview.
He says Halbert Halgrove probably won’t be adopting the model portfolios in the near term, as the asset exposures would likely overlap with the strategies the firm is already using. But he anticipates they’ll appeal to firms and advisors that might not necessarily want to do the end due diligence on private markets, choosing instead to lean more on the work BlackRock puts into its models.
Stephen Margaria, a manager research analyst at Morningstar, agrees. Margaria co-authored a February report diving into the customized model portfolio landscape, which highlighted BlackRock as one of the leading players.
“There’s a spectrum of model portfolios, where advisors can either build it themselves, or completely outsource with off-the-shelf models.There’s also customization that acts as a middle ground to both of those,” he says. “For advisors that do like to outsource or work with asset managers on customizing models, this could definitely be attractive.”
Monish Verma, managing partner at Vardhan Wealth Management, says his firm’s strategy team is in the process of reviewing BlackRock’s new options. Similar to Spinelli, he says his firm is no stranger to private markets investing, having had those alternatives in client portfolios for over a decade.
“This looks like something that we’ll be including,” Verma says. “We always look for things that are innovative, that are coming from a brand name that has some reputation behind it.”
In conducting due diligence, Verma says Vardhan takes a hard look at historical performance, the degree of aggressive or conservative exposure they have, and whether a fund or model’s underlying holdings reflect its stated investing strategy. On those counts, he says BlackRock has historically scored high marks.
It’s also important that “they provide a lot of good support to us, the advisors for education,” he adds, as even sophisticated retail clients occasionally need to understand the nuances of private market investments.
“What is private credit? What is private equity? What are the other options that are involved in that space? … BlackRock and others have done a great job of explaining why people should look at the private markets,” Verma says.
For retail investors used to the convenience of mutual funds and ETFs, Spinelli says the risk of not being able to redeem funds immediately could prove to be a steep learning curve. Because the underlying assets are illiquid and not publicly traded, he says managers running private market strategies like BlackRock’s may need time to get out of those investments in times of market stress.
“The type of clients we serve … mostly do not spend outside their means from their portfolios,” he says. “So one of the conversations we have with people is to say ‘Hey, you can have some illiquidity in your portfolio.’ ”
For his part, Verma says BlackRock’s new model portolios could offer a good entry point for new retail investors because of their lower cost thresholds, as they would be allowed to invest over time as opposed to making a large capital commitment on day one. He also points to the greater transparency investors would have relative to many other options, as well as support from BlackRock on determining how they fit in certain client goals.
While there’s no shortage of skeptics saying private market investments are too opaque for retail application, Spinelli emphasized a point Larry Fink also stressed in his most recent annual letter to shareholders: with a growing share of capital market activity remaining in the private space, it makes perfect sense for retail client portfolios to move with the times.
“There’s a lot of companies that you just can’t access in traditional markets or public markets right now, and this is a way to spread your wings a little bit, get a little bit more diversification in the portfolio,” Spinelli says. “We’re witnessing an evolution in clients’ access to the private markets, and more people participating in these opportunities than ever before.”
