Viewpoints | Advyzon

Having the right tools enables advisors to co-invest with their clients

Written by Advyzon Team

“I think the most exciting thing about what we created is that it’s this highly aligned model. We’re investing our capital in public and private investments, and we’re helping our clients invest in those very same things.”

William (Biff) Pusey is explaining the investment philosophy behind Crossgrain Family Investments, a Richmond, Virginia-based RIA that combines elements of a family office approach with its RIA business catering to ultra high net worth clients.

Pusey and his business partner Jeffrey Mussatt bring a unique service to a select group of family, friends, and clientele. Both men have experience in both the advisory business and the world of private and alternative investing. They combine this expertise in private markets alongside their knowledge of more traditional public markets to offer unique solutions to clients. They also invest their own money alongside client assets, bringing another dimension of trust to this unique approach.

Using private markets to better serve clients

Private markets can feel opaque to many investors and even some advisors. For Pusey, though, the diversity and size of private markets are vast and offer investors a wider array of opportunities than the public market. A number of the barriers to entry—from various accredited investor requirements to the general lack of access, transparency, and liquidity—can be more feature than bug with the right approach.

Pusey started his career at a family office, learning the ropes of this type of private-public investing style from the start. After working with more traditional firms, he began to appreciate the unique benefits of alternative investments in a new way. To truly develop an all-weather portfolio with a long time horizon, private investments are important, in his view.

“I’d rather be in the private world where you can make longer-term decisions and avoid the short-term volatility of public markets. You can really lean into creating a quality portfolio with good management teams,” explained Pusey.

He and Mussatt find alternative opportunities they like, ranging from private credit to venture capital, and offer clients the option to join them in the investment.

Because the pair is putting their own money into these opportunities, clients may get less caught up in common sticking points—opacity, liquidity, or the feeling that they are being sold a product.

“At the end of the day, they’re putting their money where their advisors are putting their family’s money,” Pusey explained. “It puts everyone on the same side of the boat.”

Are private investments right for your clients?

Because they are co-investing alongside their clients, Jeff and Biff are intentionally selective with who joins them. The firm does not currently have a website; referrals and trust are key. Crossgrain Family Investments works almost exclusively with ultra high net worth clients and keeps the practice small—they had around $140 million in assets under management in the first half of 2023.

This approach helps clear some of the hurdles to private investing. Crossgrain’s clients need Qualified Purchaser status, not just Accredited Investor status. (The former requires $5 million in investments, versus the $1 million net worth and income requirements that define Accredited Investors.)

Many of these clients have a family mission or purpose. Pusey’s goal is to help them build a private investment portfolio that augments those goals and complements their public investment portfolio or business operations. After all, those discretionary dollars can make a big difference over the long run.

“At the end of the day, we just want to work with and invest with some good people. We want to do a good job of managing and growing capital bases for families to go and invest in what’s important to them,” he says.

To that end, Crossgrain does offer to manage client investments in public markets and offers financial planning services. The goal of including private investments is to create a more holistic view of the investment landscape and add opportunities, not limit them by using, or excluding, public investments entirely.

Advice for advisors eyeing private markets

The financial services industry tends to focus on the diversification benefits of alternative investments. But there are benefits beyond that, Pusey pointed out. For instance, emotional decisions by individual investors often drive the public market, making it volatile and unpredictable. Beyond that, many public companies think in calendar year quarters thanks to continued pressure to beat earnings expectations.

If these benefits are something that interests you, Pusey suggests doing your own research and familiarizing yourself with the risks and potential opportunities. That can be easier said than done, especially when you’re looking at a field as diverse as alternative investments and private markets.

The good news is, there are more platforms and companies available today that make private investments accessible to advisors and investors than when Pusey and Mussatt started out. But access shouldn’t necessarily translate into immediate action.

Pusey warns advisors to be mindful of fees. Many of the large financial institutions offering access to private investment opportunities layer in fees that can cut into returns and make the investment less of a value-add for advisors and their clients.

He suggests building or joining a network of people who work in and around private investments. Much like investing in public markets, there’s a certain expertise that can only come from experience.

It’s also important to have the right tools in place to help you trade, track, bill, and report on any alternative investments you decide to explore on behalf of clients.

Solving the alternative investment dilemma with technology

Pusey and Mussatt needed a platform to bill and report on private investment data alongside publicly traded portfolios. For many technology providers, this is a nonstarter. Private investments don’t naturally lend themselves to data feeds.

Platforms like CAIS, Banríon Capital Management, and iCapital tackle this problem for advisors working with more traditional alternatives, but they don’t solve for the type of white glove private investing Crossgrain offers clients.

Crossgrain needed a provider that could turn their raw private investment data into a flexible schema, then translate that data into performance reports that integrated with publicly traded investments for both billing and reporting.

Luckily, they found Advyzon, which developed an accounting and reporting system based on Crossgrain’s desired metrics, including vintage year, multiples on invested capital, internal rates of return, and custom asset classes.

“Advyzon has been a really great partner for us in terms of cost, flexibility, and capability,” said Pusey. “Not to mention, the team has been super responsive.”

Want to see how Advyzon can help your firm evolve? Book a demo today.

Written by Advyzon Team