There is plenty of talk in the wealth management space about the attractions of direct investing and non-public markets, but getting to the best deals can be hard. The most popular, highly-regarded investment managers can fill their fund-raising targets rapidly from a select club of big institutions, while others can be frozen out if they lack institutional connections and buying power.
What to do about this? There have been a number of efforts to “democratize” access to areas such as hedge funds, private equity and forms of real estate, such as through use of listed vehicles or indices that allegedly replicate returns of such investments, and so on. However, there are drawbacks, possible hidden biases and costs. And there is another issue: when it comes to placing private capital investments, banks will often charge a fat fee for all that supposedly rigorous due diligence, leaving the end-client wondering what exactly the value proposition is.
So step forward Mercury Capital Advisors and the Mercury iFunds™ platform. The business argues that its platform widens access to alternative investments like never before. This is a firm which, while headquartered in New York, is expanding, rolling out offices across the country, with an international footprint and a desire to have a wider one. The rise of such a firm is indicative of how some long-established intermediaries – typically banks – are being squeezed, with upstart firms creating new distribution channels, harnessing mobile technologies, apps and the power of video presentations to get access to clients.
“Middlemen will continue to be dis-intermediated by technology and this paradigm will be no different in the financial services space. Digital Darwinism is upon us and those that do not adapt will go the way of the dinosaur. That said, the large private banks may ultimately be dis-intermediated because of excessive pricing required to support their infrastructure, the limited scope of their alternatives offerings, and slow embrace of technological efficiencies. This augurs well for all financial services clientele,” the firm told this publication in response to questions.
The firm is currently beating the drum for its Mercury iFunds platform. Mercury iFunds is an end-to-end solution that offer high-end authorized investors access to the company’s aggregated alternative investments. It has two elements: a public side and a private one. The public side is purely informational, and the private side is much more advanced, requiring users to go through a firewall before accessing its features. Mercury iFunds, already up and running, is being rolled out globally next year.
Mercury Capital Advisors has been busy; earlier this year it opened an office in Palm Beach and plans to open further presences in Chicago, Los Angeles, Texas and Bellevue, Washington. It currently also has offices in New York, Boston, San Francisco, London and Dubai, plus local presence in: Lima, Bogota, Santiago, Rio de Janeiro and São Paulo. The business has had plenty to brag about; it scooped the award for Placement Agent of the Year from Private Equity International in 2015 and finished #1 in the Thomson Reuters league tables in three of last five years.
Opportunity out of turmoil
The financial tsunami of 2008 created an environment in which the big banks, required to slash costs and de-leverage, let certain business units go. A lot of Wall Street professionals begun to wonder whether they would do better to strike out on their own.
The co-founders of the firm – Alan A Pardee, managing partner; Michael G Ricciardi, chief executive, managing partner and Enrique Cuan, managing partner – have backgrounds at firms such as Merrill Lynch. They bring investment banking DNA to the operation, benefiting from the skills learned at such big-hitters while also mindful of where such firms might have been missing opportunities during the boom years. Mercury Capital Advisors was launched in 2009 when, according to the firm’s news archives, Bank of America, then wrestling with fallout of the financial crash and its purchase of Merrill Lynch, decided to get out of the funds placement business. That created a gap in the market, and the Mercury Capital Advisors founders saw their chance.
“Mercury Capital Advisors is one of elite global capital-raising teams focused on alternatives and we are the only firm in that group that has built a digital platform to complement our existing institutional business. Given our focus on being the low-cost provider, we deliver the same funds at the same prices to the private wealth community that we currently bring to the world’s largest, and most sophisticated, investors,” the firm said. Mercury says it has to date raised more than $160 billion; it has what it claims are “the best alternatives managers in the world across 19 investment verticals including 30+ current offerings.”
Even in this day of inflated values, $160 billion is serious money.
Mercury Capital Advisors isn’t entirely alone in getting into the placement business in recent years; it would be surprising if it had not occurred to other financial rainmakers that such a business idea makes sense. Other operators, while using different models and processes, include CAIS, Artivest and iCapital Network. To some extent the rise of non-bank intermediaries and networks reflects how banks have vacated such a space in the aftermath of tough capital adequacy rules and restructuring.
How it works
So how does Mercury Capital Advisors work? Its executives walked FWR through its platform: After logging on, a user can see a video, summary track record, fund terms, market presentations, due diligence, questionnaire, investment analytics, IRA access and can have a watch list of funds they want to keep in view.
The firm explained that if a client invests at the minimum for a particular manager, they invest alongside other investors, with no additional fees. Should a client invest an amount less than the underlying manager’s minimum, they are able to do so through Mercury i Funds™ for $100,000 per fund. Regulatory requirements limit these funds to Qualified Purchasers who are also Accredited Investors. To invest through the Mercury i Funds™ channel, the firm charge 50 basis points. The organization typically works, it says, with family offices, wealth advisors and small institutions to match leading managers and sophisticated investors.
The Mercury i Funds™ platform has a range of alternatives across the liquidity spectrum, from liquid ’40 Act funds to hedge funds through private equity and real estate funds that have 10-year lives. The firm said it also has direct deals and secondary funds which are often preferred by family offices.
Mention of the word “direct” raises the question of how this firm responds to demands by family offices and similar investors to get straight into a company rather than through a pooled route, attracted by the promise – it is hoped – of superior returns when those from conventional markets are not shooting the lights out.
“Affluent families are increasingly focused on direct investments. This continues to be an important part of our business as families look for unique investments. We source these transactions through fund sponsors, and also through entrepreneurs, who approach Mercury with select opportunities,” it said.
Mercury i Funds™ has initially focused on US private wealth investors, the firm said. “Mercury i Funds™ expects to enter this market in 2018,” it said.
Growth of this business to 12 offices and billions of funds raised is a clear achievement; an issue for this firm, like the others that have sprung up in recent years is how they will cope in the event of a sharp turn in the broader economy, or if banks ever manage to get fully back into the placements game to recapture lost territory. Mercury Capital Advisors will hope that the attractions of its model have enduring value with a new generation of clients whatever the economic weather holds.