Private wealth funds ditch the middleman for more alternatives exposure

Alternative asset managers have spent years building pipelines to tap into the adviser-led wealth channel to reach well-heeled individual investors chasing hot deals.

But now a quiet reversal is underway.

Most of the capital entering private markets through registered investment advisers is funneled into evergreen funds led by the biggest-name brand managers targeting the so-called mass affluent. US-domiciled fund assets stood at a record $607 billion across 567 funds through March 31, according to PitchBook data.

However, an ascendant group of wealth managers is cutting out the middleman, standing up their own institutional-grade drawdown fund vehicles and seeding them with capital from ultra-high-net-worth investors.

The evolution of wealth advisers into a new breed of GP highlights the effects of two closely watched trends: the private market’s growing dependence on the wealth channel, and wealth advisers’ newfound capability to run capital-allocation strategies on a par with professional institutional investors.

“These are firms that have the economics where they can actually hire dedicated, experienced, professionally trained private markets experts when it comes to sourcing and underwriting private investment vehicles,” says Don Calcagni, chief investment officer of Mercer Advisors, a $115 billion RIA catering to wealthy clients. “You didn’t see that previously because these firms were all sub-scale.”

The change also reflects the growth of individual fortunes. As their wealth has grown, UHNWIs are increasingly attracting the attention of the biggest wealth managers due to their similarities to institutional clients in terms of risk appetite, market savvy, investable assets and investment time horizons.

“The entire industry is focused on the wealth channel,” Calcagni says.

Inspired by the family office model, Calcagni’s Mercer Advisors launched a platform in 2024 to offer access to sought-after private-market opportunities, billed as “institutional-grade access on institutional-grade terms.”

Dubbed Aspen Partners, the debut strategy raised $100 million exclusively from 325 client families of Denver-based Mercer for a multi-asset fund-of-funds that invested in several private market managers through a classic, institutional drawdown structure. Its minimum investment: $100,000, with no additional management fees.

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RIAs have grown large enough to hire dedicated private markets talent, negotiate directly with top GPs for favorable terms, and absorb the legal and administrative costs of fund formation.

Wealthtech startups including Opto Investments and Allocate have also lowered operational barriers by serving as leads for fund setup and administration. For wealth advisers that remain sub-scale, mass-market intermediaries such as iCapital and CAIS have long offered feeder funds that meet many firms’ needs.

But for the largest RIAs, doing it in-house is now both feasible and economically superior.

‘Golf course-type deals’

For its part, Mercer hired a team of private-market veterans under Bob Burlinson to lead Aspen Partners, and backed them with several blue-chip service providers. When it designed the Aspen platform, Mercer believed it was filling a void in the quality of private opportunities shopped to investors.

“A lot of it was just golf course-type deals, country club deals that they get pitched by their buddies,” Calcagni says. “They didn’t have good vintage diversification, and they didn’t have asset-class diversification. We felt like we have a fiduciary obligation to actually help them do this better.”

Some money managers have a longer history of running proprietary funds, while others are new to the approach. Atlanta-based BIP Capital grew out of BIP Wealth and has operated separately since 2009, running its own private credit, venture and growth strategies distributed through RIAs. Granite Harbor Advisors, a $600 million RIA based in Houston, launched a closed-end fund earlier this year dedicated to private equity and real estate.

To be sure, there can be drawbacks to investing in a wealth manager that acts like a GP. Critics point to conflicts of interest when the client’s fiduciary has essentially made its main business becoming a GP, or when it holds an economic interest in a manager’s deal opportunity. Additional management fees may also be passed along to the investor.

“If it’s a profit center, it’s a no-go,” says Karl Heckenberg, managing partner at Constellation Wealth Partners, a Chicago-based PE firm that backs wealth managers. (According to Calcagni, Aspen Partners passes all of the cash distributions from its funds back to its clients and is legally separate from Mercer.)

Scale, however, creates legitimate institutional power. One of Constellation’s firms wrote $2 billion in private fund commitments in a single year—on par with a global insurance company’s allocation. That scale, Heckenberg says, is what earns RIAs the right to negotiate for the same terms institutions get, and potentially to take lead positions in funding rounds.

In an effort to boost their manager-research capabilities, many firms in the industry have stepped up their work in the past couple of years with institutional-caliber consultants, in some cases acquiring top players.

“If you’re a $2 billion RIA thinking you’re getting access to the best funds and vehicles out there, I just think you’re wrong,” Heckenberg said.

But some private-wealth-focused funds are undeterred. Earlier this year, a $234 million VC funding round for an AI chip specialist had an unlikely co-lead investor: Arena Private Wealth. This Chicago-based adviser created a special-purpose vehicle for its clients to participate in Positron’s Series B funding.

For Arena, based in Cleveland, the Positron deal marked a breakthrough, proving the value of the firm’s network, which in turn expanded through the deal to include the Qatar Investment Authority, its co-lead investor, according to Mitch Stein, Arena’s founder.

Arena’s clients are mostly in the Midwest and rarely get access to coastal deals.

“In a world that seemed distant and inaccessible,” Stein said, “now we have a seat at the table.”

Arena’s wealth-advisory clients don’t pay a management fee on vehicles for direct investments like the Positron deal, but partners earn a 15% share of all profits after they’ve achieved an annualized return of 8% on the fund, according to a spokesperson for the firm. Arena clients also participated in direct investments of private companies, including apparel brand Rhoback, AI specialist Lambda and Spindrift Beverage, which was sold to PE firms last year for $650 million.

Read more: Wealth advisers race to serve small investors who own huge pools of capital

Wealth-client groups, in fact, take part in hundreds of venture deals every year. More than 200 VC rounds involved at least one wealth-focused fund this year and 396 last year, according to PitchBook data.

For Mitesh Agrawal, CEO of Reno, Nev.-based Positron, bringing Arena into the deal wasn’t just a capital play. He drew a distinction between capital that “filters through the VC ecosystem” invisibly and the “untapped potential” of wealth manager capital: the underlying clients themselves.

An Arena client who runs one of the largest data centers in the Midwest connected Agrawal to hard-to-find intelligence on power sources. Another client ran a major beverage company, and Agrawal used that conversation to think through how to break into an oligopoly market. That was analogous to Positron’s challenge against Nvidia and AMD.

The line between wealth manager and alternative asset manager is blurring in both directions. The RIA community may be producing a new generation of GPs—not just their best customers. As Mercer’s Calcagni puts it: “If you want to work with high-net-worth, ultra-high-net-worth families, well, a lot of them are voting with their feet, and they’re now over here. You have to work with their gatekeepers.”

Featured image by Chloe Ladwig/PitchBook News

This article originally appeared on PitchBook News