Blog > Fintech Industry > The Practical Steps Needed to Offer Private Market Funds

The Practical Steps Needed to Offer Private Market Funds

The administrative burden of implementing a private markets program in your practice is definitely greater than that required when investing in public markets. But, as we argued in our previous post, the current macroeconomic environment, historical performance metrics, and the prevailing dynamics in the wealth management industry make a compelling case that this extra effort may be essential to the future success of your practice.

In this post, we will discuss some of the processes needed to both establish and then monitor and maintain a private market offering.

For those new to private investing, this may sound daunting, but there are resources available, sometimes within a practice, to help support you throughout the process. An external partner may be appropriate for advisors or practices that do not have the scale to handle this in-house. However, as we will discuss in more detail at the end of this post, not all potential partners are the same. You should look for one whose interests are genuinely aligned with yours, that offers guidance across the whole process, and that can give you differentiated access to the most coveted private market funds.

Considerations when making a private market investment


Selecting a private market fund is typically a more laborious and challenging process than selecting a public security or fund, for several reasons:

  1. More limited information: Information is far more limited in the private fund space. Sourcing a high-quality manager is not as simple as looking at public fund ratings. There are data sources that can provide historical performance data, but without a broad network of industry contacts and in-depth knowledge it can be difficult to develop a holistic view of upcoming funds.
  2. More in-depth due diligence: Most private market funds are “blind pool” funds. This means you do not know the precise companies or assets in which you will invest at the time of committing capital. In effect, you are trusting and investing in a team and their strategy. This heightens the importance of a detailed due diligence process, including examining a manager’s track record, and investment philosophy and personnel, among other facets, which may demand significant time and resources if attempted in-house.
  3. Selecting does not equal access: Sourcing and selecting are only half the battle. Many of the most well-regarded managers are “oversubscribed” – meaning they have far more demand to invest than their target fundraise amount. This means many of the most coveted funds are difficult to access without established relationships or a strong reputation as a reliable investment partner.


Prior to executing a private market investment, there are administrative hurdles you and your client must clear, including:

  1. Accreditation requirements: Private market funds typically have strict accreditation requirements that advisors must ensure their clients meet prior to investing. Traditional, closed-end private funds are generally only available to qualified purchasers (QPs). Newer fund structures with some limited, intermittent liquidity options are typically available to accredited investors (AIs).

    Investor Accreditation Categories

    Qualified Purchaser: A “QP” must own not less than $5M in investments, excluding the value of their primary residence.

    Accredited Investor: An “AI” must have recorded an annual income over $200,000 (individually) or $300,000 (with spouse or partner) in each of the prior two years, and reasonably expect the same for the current year. Or they must have a net worth exceeding $1M, excluding their primary residence.

    *Note: These are simplified for the purposes of this article. For a full QP definition, please click here. For a full AI definition, please click here.

  2. More complex documentation: Investing in a private market fund typically involves processing a greater volume of paperwork than do public products, including subscription documents, operating agreements, and private placement memoranda. These documents can be more lengthy and complex than clients are used to dealing with, which may place demands on your time.

Considerations after making a private market investment

Once a client has actually made an investment, there are some further additional challenges that may be unfamiliar to advisors new to private funds. Some are related to reporting, others reflect the distinct operating model of private market funds.


On the reporting side, some potential challenges may include:

  1. Different financial reporting standards: Reports from private funds may be less standardized than those provided for publicly-traded securities and may require more time and effort to review and communicate. Private funds also typically only release valuations on a quarterly basis. The different reporting requirements and distinct investment model may potentially present issues integrating performance data with your portfolio management software.
  2. Tax reporting: Advisors with clients investing in private funds may face extra burdens when it comes to tax season, particularly as most of these funds provide K-1 forms, rather than 1099s. These are more complex, and can take several months to be delivered, which can delay tax return preparation. If a client has invested in multiple private funds, they may receive multiple K-1 forms, each with its own set of reporting requirements. Private funds may also invest in multiple states, which can create additional state tax reporting requirements.


Private market funds can come with additional ongoing operational burdens that reflect the way they invest. Key challenges advisors may face include:

  1. Capital calls and distributions: Private market funds may require investors to make capital contributions at different points in time, known as capital calls, and often with limited notice. This means advisors must actively manage cash to ensure that their clients have sufficient liquidity to meet the capital calls. On the other side, they need to track distributions from the funds as they exit investments, and factor those into their future portfolio planning.
  2. Communicating performance: Private funds have unique performance metrics, such as internal rate of return (IRR) and various measures expressed in multiples. Advisors need to appraise themselves of the meaning of each of these metrics and be able to explain them to clients, who may not be familiar with these terms.
  3. Ongoing due diligence: It is important to conduct ongoing due diligence on private investments to assess potential risks and ensure that the fund manager is still operating as promised. This could involve analyzing financial statements, reviewing legal documents, and meeting with the fund’s management team.

Consider finding an advisor-focused partner

This list is far from exhaustive, but rather illustrative of some key challenges. For advisors new to private markets it may still seem long and daunting, but none of these challenges are insurmountable and at Opto we’d argue that the effort is typically worth it, in terms of potentially elevating both returns and your practice.

Nevertheless, advisors might want to seek out a partner that can help both streamline the administrative processes and help them navigate challenges with sourcing and access.

There are several private fund platforms out there, but not all are created equal. It is important to ensure that you select one that is truly advisor-focused, including:

  1. Aligned interests: Fee structures should be such that your partner only succeeds when you do. Your interests may not be a platform’s primary concern if these platforms derive significant revenue by taking fees from managers to place their funds with you. The best fund for your clients’ goals may not be what is most lucrative for these platforms.
  2. End-to-end guidance: An effective private markets partner should do more than just offer a menu of funds. They should work with you to provide the full context around each recommendation, to help you make the decisions that best serve your clients’ goals, and then arm you with clear, attractive materials to help you make compelling proposals to clients.
  3. Differentiated access: You and your clients deserve access to highly coveted funds. Reflecting point one, you should look for a partner that has differentiated access to in-demand funds – ones that don’t typically need to work with brokers because they are frequently oversubscribed.

Opto Investments is a technology-enabled end-to-end solution designed to help RIAs craft tailored private market investment portfolios comprising funds from coveted managers in private credit, private equity, real estate, venture capital, and infrastructure. To start a conversation with Opto about partnering to help you build and maintain a private market offering for your clients, please visit our website. To sign up for our upcoming joint webinar, in which we will be sharing more about the Opto platform, as well as our partnership with Nitrogen and how it helps expand access to private markets for RIAs, click here.

Sean Mulcahy is Head of Investment Operations at Opto Investments. Visit our partner page to learn more.


Share This Story