round table


Making connections can open possibilities: Ideas from the 2019 ICI GMM


When seemingly disparate trends in investment management are observed together, a new vision of private equity emerges that may foretell the industry’s future.

June 5, 2019

A blog post by Doug Dannemiller, Investment Management research leader at the Deloitte Center for Financial Services, Deloitte Services LP

The whole is greater than the sum of its parts

This year’s Investment Company Institute (ICI) general membership meeting (GMM) theme was “making connections.” I would like to make a connection between some of the messages highlighted on stage. While there were many topics delivered and discussed at the conference, three messages—when taken together—improve access to investment opportunities for average investors while pointing to a potential future that serves the goals of the Securities and Exchange Commission (SEC) and the investment management industry.

The three ideas that could be combined came from three separate sessions in the GMM. Let’s make the connections, as the theme for this year’s ICI conference has asked us to do. The concepts to explore connecting are:

  1. Efficient platforms that democratize access to investments
  2. Model portfolios that provide professional management of holdings through market cycles
  3. Limited access to, but growing importance of, the private equity investments

Technology eliminates barriers to entry

One of the early speakers at the conference, from China’s technology and e-commerce leader Alibaba, noted the success in gathering assets at very low cost by using technology that connected e-commerce to the small amounts of capital held by millions of consumers. The magnitude of assets gathered through this approach surprised many. It even helped change the Chinese culture to embrace investing and is helping increase the ratio of financial capital to total capital. Technology eliminated a key barrier to individual capital growth, the minimum investment amount. The Alibaba platform enabled a low minimum, the equivalent of $0.16, opening the door to investing for a new segment of investors. Without a truly efficient platform, minimums this low would be the death knell to profitability.

Model financial advisors use model portfolios

The second connection explained how as much as half the assets coming into the market through financial advisors are invested through some form of model portfolio. These portfolios are helping consumers get consistent quality in their investments. Many models are created and maintained by certified investment professionals that focus on portfolio construction. This specialization allows financial advisors to focus on relationship management. This combination likely leads to more satisfied customers that receive personal attention from their advisors and develop investment portfolios built with more technical expertise.

watch gears

Unequal access can bias the investment market

Investor access to quality growth companies early in their lifecycle is the third element to connect from the conference. Many firms are electing to remain private, and there are fewer listed companies in the US now than 20 years ago. These facts amplify the difference in access to private equity, which is only available to institutions and accredited investors, leaving out the majority of retail investors. The SEC would like to reduce the burden of becoming or maintaining a public company. This effort is part of a solution to the problem of investment access to these quality private companies. While reducing the burdens of public companies is to be commended, it isn’t the only way to broaden the ownership ranks of these growth-oriented firms.

Could a trifecta be on the horizon?

Connecting the three elements together is where the magic happens. The connection opens another potential solution to this investment access problem. By combining intelligent platforms with model portfolios that include private equity, access to private equity could be safely democratized. These portfolios would be safely and professionally managed through model portfolios. The SEC might also provide guidance.

This combination of elements will open access to high growth potential investments to many more Americans, and it can do so in a measured way. What surprised me about this combination of ideas is that the solution they appear to foreshadow is not necessarily a 1940 Act mutual fund, even though the ICI GMM is a strong advocate for mutual funds. Interestingly, this is the second year in a row that private equity has been given a strong voice at the ICI general membership meeting. These circumstances indicate to me that some form of opening access to private equity is a possibility.

What do you think?

What do you think about opening up access to private equity? Are model portfolios managed on efficient and technologically advanced platforms the avenue to this democratization?

Join the conversation on Twitter: @DeloitteFinSvcs.

QuickLook is a weekly blog from the Deloitte Center for Financial Services about technology, innovation, growth, regulation, and other challenges facing the industry. The views expressed in this blog are those of the blogger and not official statements by Deloitte or any of its affiliates or member firms.

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