“Building a company with a culture of innovation we’ll create something much more powerful and effective than a specific investment solution.” James Waldinger, CEO Artivest
[The Institute for Innovation Development interview series will be inviting top innovation specialists and innovative fintech companies from around the world to talk to our readers about their latest innovation activities. The series seeks to uncover innovation best practices, learn from innovative business creators, and discover how to apply these insights to a financial advisor’s business.
Artivest, a NYC-based fintech company, offers a technology-driven investment platform that expands access to leading private equity and hedge funds. We caught up with CEO and founder James Waldinger to discuss how Artivest brings innovation to the alternative investment ecosystem.]
Hortz: The Artivest alternatives investment platform is characterized as a “full-stack solution.” What does that mean?
Waldinger: Our mission at Artivest is to enable wealth managers, including financial advisors, family offices, and their qualified clients to efficiently access leading private equity and hedge funds. For us, full-stack means full service – an end-to-end alternatives investment platform that includes low-minimum access to a vetted set of managers, easy-to-understand online fund information, seamless monitoring capabilities, and integrated reporting. Our team has spent years building, testing, and refining our platform to remove friction and digitize the otherwise complicated, manual experience of private fund investing.
Hortz: You have mentioned that your mission is to service and upgrade the industry. How does the industry need to be upgraded?
Waldinger: Investments in alternatives have largely been driven by institutions - a high-dollar, low-transaction volume business - and have been done the same way they were done 20 years ago. 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.
Many HNW individuals and advisors have traditionally avoided alternative offerings given the logistical obstacles in making an investment, such as the cumbersome compliance, the error-prone paperwork, the access to funds, and the high minimums. The Artivest platform offers a single solution to all of these concerns for both individuals and their advisors. By tapping into technological efficiencies, Artivest aims to offer access to these types of products while keeping both minimums and fees competitive.
Hortz: Artivest has garnered a lot of attention due to powerful endorsements from a very prominent list of funding partners. How have you been able to gain the support of groups like KKR, RRE Ventures, Nyca Partners, Peter Thiel, among others?
Waldinger: 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 need and scale of the opportunity we’re addressing, and, of course, the strength of our team.
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.
Recognizing the evolving landscape, 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. 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.
Hortz: I can see how you are enabling a wider range of investors but how do you enable a wider range of fund managers?
Waldinger: In many ways it’s two sides of the same coin. Artivest’s technology-driven investment platform streamlines the process for both investors and funds. In the past, as a fund manager, the infrastructure to serve Limited Partners (LPs) became exponentially more resource-intensive as the number moves from 30-40 institutional LPs to 100 or 500 varied LPs. To complicate things further, these LPs could range from individuals, trusts, small endowments or pensions, with investment funds coming both directly or via an advisor or consultant. So even though funds hoped to appeal to the high net-worth audience they did not have the infrastructure to serve this fractured, nuanced investor channel.
Artivest makes it economically feasible for more funds to access the high net-worth market. Several top funds have told us they were actively considering building infrastructure when we created Artivest. They instantly recognized the clear advantages, from economics to regulatory risk reduction, to using a third party provider. Outsourcing to Artivest reduces costs, resources, and headaches for a fund, and ultimately allows firms to focus more on their investment approach.
Hortz: From your unique perspective, what do you see as the newest innovations coming from fund managers through the alternative space? Any trends you envision?
Waldinger: As funds look to access the rapidly growing HNW markets, 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. We are excited to play a part in driving these innovations in the HNW market. As our scale increases and we wring out more inefficiencies we can encourage and bring more innovation to this space.
Hortz: Can that be a challenge for your due diligence process in dealing with a wider range of new investment strategies?
Waldinger: Yes, due diligence can be challenging when dealing with innovative investment strategies, but we think this is a good thing. Due diligence and manager selection are what separate exceptional from average. Artivest is constantly investing in smarter due diligence processes. For example, we recently brought on a new head of investment research who formerly helped manage the Juilliard School’s endowment. In addition to our focus on traditional diligence functions, as we scale we have the ability to leverage our unique perspective being at the crossroads between investors and managers. We are continuously building our data and analysis capabilities to be able to find unique insights across a range of innovative strategies that benefit our fund partners and investors.
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.
Hortz: You started your firm with a limited group of investors, managers and financial advisors that you stated that you could best “co-create” with. What have you found as best practices for “co-creating” that financial advisors can use with their clients?
Waldinger: Early on, we created an Artivest Early Access program with a select group of our clients - registered investment advisors at firms large and small. We worked with this group to learn about their investment interests, understand existing operational pain points, and identify what Artivest could provide to meet their needs. Leveraging these interactions, we successfully built and released the early versions of our platform.
Artivest continues to maintain a close relationship with our Early Access participants and are active in broadening the network. We firmly believe that the best way to provide great investment opportunities and technology is to regularly spend time speaking with our clients and understand what they need.
In terms of best practices, we find that co-creation works best with many interactions and constant iteration. We tend to shy away from the “focus group” process. We use quick, independent interactions with our customers during various stages of development. This means that instead of drawn-out meetings, we opt for ten to fifteen-minute conversations where we discuss prospective fund strategies, solicit feedback on potential feature-sets, or demonstrate prototypes. Approaching a feedback cycle with this strategy helps us do three things: 1) not take up too much of any individual’s time, 2) constantly improve, and 3) confidently deliver a product that will be attractive and useful to our customers.
Hortz: Many financial advisors believe that they cannot innovate because of the industry’s heavy regulatory and compliance environment. You have stated that you are using technology to “innovate with compliance”. How exactly do you do that?
Waldinger: If you think about playing the blues, it’s a genre characterized by a lot of rules, a lot of traditional approaches, a lot of repetition. Sometimes it’s the most rule-bounded forms that lead to the most surprising and innovative improvisations, all within the confines of the form. Artivest innovates by working within the rules and applying them to novel situations. The rules remain the same, but the distribution methods have shifted, and Artivest uses technology to improve access.
Expertise in the rules of our industry is paramount to our success. Artivest leverages our expertise in the nuances of the regulations that apply to our industry to develop new approaches and products. Through research, counsel, and experience, we’ve developed a thorough understanding of the regulatory and compliance environment, which we continue to closely monitor. Developing this expertise has enabled us to provide a compliant platform that continues to innovate to meet the evolving needs of our clients.
Hortz: In one of your blog posts, you mention that your firm is dedicated to innovation, as you say, “beyond investing.” Why do you feel that a focus on innovation is important for all financial advisors to employ in their day-to-day decisions and work place?
Waldinger: I believe innovation is more culture than tactics. We’ve strived to create a culture of innovation at Artivest. This means that in addition to expanding access to private funds we are constantly finding ways to improve everything we do, from hiring to coding. We don’t plan to move “beyond” the vertical of investing, in terms of what we actually offer, but we do believe that by building a company with a culture of innovation we’ll create something much more powerful and effective than a specific investment solution. Ultimately, a culture of innovation translates into a continuously improving experience for our customers and industry.
Article previously published on Financial Advisor Magazine Online.
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