Private markets are testing the wealth stack

Private markets have become much more accessible in recent years. Gaining access however may have been the easier part for advisors.

Once an alternative investment sits inside a client portfolio, a different set of problems appears. It has to be valued and reported. Liquidity has to be accounted for. Tax information has to flow through. The advisor has to understand where the allocation belongs alongside public equities and fixed income, and be able to explain why it is there.

Mat Dellorso, Managing Director of SEI Access™, thinks wealth management has made considerably more progress on access than on those mechanics. SEI works across both the investment and operational sides of alternatives, combining manager access and portfolio capabilities with fund administration, reporting and technology support.

“The bigger point is that private markets cannot simply be ‘made available,’” he says. “They have to be integrated into the way advisors plan, allocate, communicate, and report for clients.”

The infrastructure has some catching up to do

Dellorso doesn’t hedge on how far behind the industry is. “I think the industry has generally underestimated how much infrastructure is required to bring private markets to a broader wealth audience,” he said. “The opportunity is exciting because it gives more investors access to sources of diversification that historically were limited to institutions or very high-net-worth investors. But access alone is not enough.”

The industry has made real progress on the mechanics of access. Subscription processes have moved online and custodial connectivity has improved. But much of that work has focused on getting investors into private markets, rather than on what happens once those investments become part of an ongoing client portfolio.

Liquidity management, redemption terms, valuations, tax reporting and portfolio modelling are where some of the harder problems remain. Dellorso’s point is that private investments cannot simply be added to an account and treated as separate from the rest of the portfolio. They have to work within the same planning, allocation and reporting processes advisors already use with clients.

Dellorso says advisors increasingly want private investments incorporated into broader models rather than managed as a separate sleeve, which puts more emphasis on what the allocation is actually doing for the client and how it affects the portfolio around it.

“For many clients, the next sources of alpha may not come from simply picking one more public equity or fixed income manager,” Dellorso said. “They may come from better tax management, more thoughtful asset location, and prudent exposure to private markets where appropriate.”

His point is that those decisions work best when they are considered as part of the broader portfolio, rather than treating a private-market allocation as a separate product choice.

The next problem is connecting the pieces

Advisors are often moving between marketplaces, data providers, custodians, reporting systems, fund administrators, subscription tools and portfolio analytics. Each handles part of the process, but the systems do not always work together in a way that gives the advisor a complete view of the investment.

Rather than adding more stand-alone tools, Dellorso says the industry needs better connectivity. “If the advisor has to manually stitch together five or six different systems, it becomes harder to explain the investment, monitor it, and keep the client confident over time,” he says.

Better technology should raise the quality of diligence, not create the impression that diligence can be skipped. That fragmentation becomes most visible when advisors are trying to answer a client question or prepare a review.

The issue is less about any single system failing than about the amount of work required to pull everything together into one clear picture. That fragmentation can show up in fairly ordinary ways, such as a statement that is difficult to reconcile or an advisor who needs extra time to answer a client question. Over time, those small gaps can make the overall experience feel less reliable.

AI still depends on the quality of the data

Private markets were dealing with inconsistent data long before AI became part of the conversation. Dellorso sees AI as useful here, but only if firms are realistic about the information being fed into it.

Much of that information still comes from different places and in different formats. AI can help firms sort through that material, extract relevant information and reconcile data more efficiently, but Dellorso says, “If the underlying data is incomplete, inconsistent, or poorly connected, AI can make bad information move faster and appear more confident than it should,” he says.

For that reason, he sees data standards, governance and system integration as necessary alongside the technology. Dellorso sees potential for AI to help organize client education.

As more firms offer similar access, it increasingly comes down to how well those holdings can be incorporated into the rest of a client’s portfolio and supported over time.

That also puts the current enthusiasm around AI in perspective. Better tools can speed up diligence, reporting and data handling, but they do not remove the weaknesses underneath them. In private markets, where information is still fragmented and ownership is more operationally demanding, technology tends to expose the quality of the underlying infrastructure rather than hide it.

This article is produced in partnership with SEI Investments Company