Private Markets Reshape Wealth Management Landscape

In Brief:

Karl Heckenberg, President of Constellation Wealth Capital, discusses how private markets have become a critical differentiator for wealth management firms on the Alt Goes Mainstream podcast. With his firm having closed a $1 billion fund dedicated to independent wealth managers, Heckenberg highlights how the most successful RIAs are leveraging alternative investments to compete with wirehouses. He reveals that across Constellation's nine portfolio firms representing $180 billion in total assets, over $50 billion is already allocated to private markets – signaling a fundamental shift in how wealth managers are constructing portfolios.

Big Picture Drivers:

• Democratization: Private markets once reserved for institutions now accessible to wealth channel

• Differentiation: Alternative investments helping RIAs compete with wirehouses

• Education gap: Both advisors and clients need better understanding of private market structures

• Fee compression: Competition driving down costs across the alternatives ecosystem

Key Insights:

• Wirehouse limitations: Bank-owned firms must "manage to the dumbest guy on the platform" while RIAs can customize offerings

• Yield dominance: Credit and real estate products dominate alternatives sales in the wealth channel

• Technology enablers: Platforms like iCapital have revolutionized access to alternatives for independent firms

• Operational realities: The COO has veto power at most Investment Committees regardless of performance metrics

• Customization opportunity: RIAs can work with GPs to build bespoke products unavailable at wirehouses

• Education focus: Leading alternative managers investing heavily in advisor education programs

• Co-investment trends: Increased use of co-investments to offset management fees in wealth structures

• Liquidity concerns: Advisors must clearly communicate limitations around secondaries and exits

• Client diversification: Alternatives provide crucial diversification from North America equity bias

• Institutional approach: The best wealth firms providing institutional-quality investment management

By The Numbers:

• $50+ billion: Amount invested in private markets across Constellation's portfolio companies

• 80%: Percentage of alternative allocations in wealth channel that are yield-oriented

• 30+ touchpoints: Number of interactions typically needed between a GP and wealth firm per allocation

• 25 basis points: Fee savings achievable when RIAs collaborate on alternatives access

• $180 billion: Total AUM across Constellation's nine portfolio firms

• $8 trillion: Size of the independent RIA market in the US

• 150+ people: Number of retail distribution professionals hired by top alternative managers

• 5%: Appropriate alternative allocation for a $1M client according to Heckenberg

The Wrap: 

As private markets become increasingly essential for wealth management differentiation, the relationship between alternative asset managers and independent advisors continues to evolve. The most successful wealth firms will be those that can balance customization with operational efficiency, driving down fees while maintaining quality access. This shift fundamentally changes how wealth managers compete with wirehouses and deliver institutional-quality solutions to their clients.