Alternative investments have a time. Their popularity has grown over the past decade, with the asset class growing from just over $ 3 trillion in 2008 to over $ 10,000 billion in 2019, according to data provider Preqin.
Institutions have fueled much of this growth, investing at an all-time high in alternatives such as crypto, private companies and real estate. Some ultra-rich investors have made a boon by investing in alternatives using tax-efficient accounts, a strategy billionaire Peter Thiel has used to increase his Roth individual retirement account from $ 2,000 to $ 5 billion in 20 years. , tax free, ProPublica reported last year.
Today, average investors are looking for a share of these markets, attracted by the potential for outsized returns, which are even more attractive if they are tax exempt.
While investing dollars from your tax-advantaged retirement account into alternatives has long been legal, it has remained largely inaccessible to average retail investors. Veteran investor Eric Satz realized this in 2013 when he first tried to deploy money from his IRA to private companies and was turned away by his financial advisor, who was concerned about potential risks, Satz told TechCrunch in an interview.
After 10 weeks of research and logistical obstacles, Satz was finally able to make its first tax-efficient alternative investment via a self-directed IRA.
“At the end of this 10 week process which seemed to have the ever-changing goal posts in terms of what was required to make the investment, I wrote to the custodian that I was using a check for the privilege of making. this investment that I discovered and did all the homework and research on, ”Satz said.
Frustrated with these complexities, Satz tried to go through the same process using three different custodians and found that his experience “got worse every time.” The expensive process, according to Satz, explains why less than 2% of $ 35 trillion in assets sitting in individual retirement accounts is invested in alternatives. In contrast, most high net worth investors and institutions have much higher allocations to alternatives, ranging from 15 to 80 percent, Satz said.
Retirement accounts are particularly suitable for start-up investments in private companies because of their long duration and risk-return profile, Satz said. Using self-directed IRA companies to make such investments cost Satz more than $ 500 a year in fees, a problem he aimed to solve for others by starting Alto in 2018.
According to the company, Alto’s self-directed IRA platform gives individuals a simpler and more affordable option to invest their retirement savings in alternatives. The Nashville-based startup gives its users access to a plethora of alternatives through its partnerships with more than 70 investment platforms, including AngelList, Grayscale and Masterworks, according to the company.
Alto hosts nearly 20,000 funded accounts representing nearly $ 1 billion in assets, Satz said – and 40% of the accounts are dedicated to holding cryptocurrency, he added.
Alto today announced that it has raised $ 40 million in Series B funding led by Advanced business partners, whose founder and managing partner David T. ibnAle will join the company’s board of directors. Existing investors Unusual companies, Capital of Acrew, Alpha edison, Foundation capital, Gaingels and Coinbase Ventures also participated in the round. Alto last raised $ 17 million for its Series A in April 2021.
The startup plans to use the new funds to grow its team of product and engineering employees from 50 today to 120 by the end of 2022, Satz said. It also plans to expand its content offering to help investors educate themselves about alternatives, although the company is not a registered broker or investment advisor.
While crypto is one of the fastest growing areas of interest for Alto users, Satz said he expects demand to increase in other areas, including investments. in private businesses and works of art.
“I think what you’ll see from us in Q1 and Q2 is greater penetration of collectibles and collectibles markets. There is just one product innovation that we are offering that will make this a lot easier for most people, ”Satz said. “I [also] I think we will see some innovation in 2022 in access to funds and the ability for more people to participate in investing in funds. “