Jack Sharry: Hello everyone, thanks for joining us for this week’s edition of WealthTech on Deck. If you pay attention to trends in our industry, you can’t help but notice alternative investments is an area that is hotter than hot. As I find myself in more and more conversations around alts, I have become a student of this rapidly accelerating trend. I recently came across a statistic from October of ‘23. It was a Cerulli report on US managed accounts and that is that 87 % of US companies with revenue of 100 million or more are private. And the number of companies staying private is growing exponentially. Over the course of the coming weeks and months, we’re going to be having a lot more conversations on WealthTech on Deck with industry leaders and around alts. We will look at it from a product and solution design standpoint. We’ll look at it from a platforms and operations standpoint to tax and risk, to opportunities around distribution and partnerships. Lots going on here and we’re going to dig in and see how and why alts are fast becoming part of the household level portfolio. And of course, having been around the industry for a few decades, I have, I’ve been a spectator to a product blow up or two that can occur if the latest and greatest products aren’t positioned and sold properly. We’ll look at that as well. As alts come down market and rapidly expand in popularity, we may find ourselves watching a movie that we’ve seen before that doesn’t end well. So we’ll keep an eye on that as well. Today we’re going to start our journey into alts and all of its ramifications as we speak to Ryan Eisenman. Ryan is one of the founders of Arch. Arch provides digital administration for private investments. It was created to solve administrative pain for managing investment operations. Ryan and his team leverage software and insights to power private investment operations to make private investing secure, efficient, and standardized. Ryan, welcome to WealthTech on Deck.

Ryan Eisenman: Thanks, Jack. Great to be here. It’s fun to talk to a true industry legend.

Jack Sharry: Oh, please. Oh, stop. Thanks. Appreciate that. So Ryan, now let’s start with you describing Arch. Tell us about your business. What do you do? Who do you do it for? How long you been around? Please fill us in.

Ryan Eisenman: Yeah, absolutely. So if you invest in public markets exclusively, you don’t need Arch. You can log into your Fidelity account, Schwab, Goldman.com, Morgan Stanley, and see all your investments in one place. What do you own? How are those investments doing? Find your tax documents, see your cash flows. If you invest in private markets, so think about hedge funds, PE funds, credit funds, real estate, direct investments. Today, mostly you probably have spreadsheets, antiquated systems and a lot of manual labor that goes into getting information from platforms like Intralinks and Carta, pulling down PDFs, digitizing them, and putting numbers into systems. We automate that process. So we go get all your information for you across every alternative investment and private market investment. We turn documents into structured data. We feed you insights and create AI summaries and other things that help you better understand your portfolio. And then we make that data available via API to downstream systems, the reporting, accounting, and other systems that you might use to understand your portfolio holistically.

Jack Sharry: So let’s take a step back. If you would, provide a little background on your career journey, how did you get started? How did you wind up in this business? Just curious what led you to this, and we’ll talk about the business again in a little bit, but talk a little bit about the journey.

Ryan Eisenman: Yeah, absolutely. One of my first jobs and internships was at a wealth management firm that has now been rolled up to a larger wealth management firm. I think they’re now part of Corient. And in that experience, I just learned how much back office work, sometimes being done by 20 something year old interns and analysts, needs to be done in order for clients to get their reporting on time, advisors to be able to do their job, and ultimately for folks to be able to understand their investments and make good financial decisions. So that experience stuck with me for a couple years. So this is probably like three or four years later and really started to dig deeper into private markets, investment management overall, and started talking to a few family offices and professional allocators and just learned that they oftentimes have late reporting, really clunky workflows, and things like getting K-1s and tax documents to accountants is something that is a really big pain point and something that makes them want to invest less in alternative investments. I think the why here is important because it’s like, well, if there’s all this pain, why would I invest in an alternative investment? And the why for a lot of folks is that higher returns, less market correlation, and sometimes they’re just generally more interesting. So we want to, as a company, unlock the ability for folks to make, manage, track alternative investments without the pain that they’re used to when they do make those investments.

Jack Sharry: So let’s talk about that a little bit. I’m trying to understand this phenomenon because it’s one of these things that all of sudden, I can’t turn anywhere without hearing about Alts. You and I were chatting before we went on the air. I was just in New York and literally every stop at big names, everybody knows, that became part of every discussion. So talk a little bit about maybe a little bit of a history of how we find ourselves, where it’s clearly coming down market, it’s going more retail. What’s your take on that? You know, alts have been around for a long time, why all of a sudden, boom, it’s here? And I imagine it has a lot to do with technology. But fill us in, what is that evolution, that rapid, more recent rapid evolution?

Ryan Eisenman: Yeah, well, I think there’s a couple of things here. The stat you mentioned at the beginning is really important. The fact that more and more companies are private at later stages and you have big late stage companies that are growing fast that have attracted a lot of capital like Stripe and SpaceX that folks now want to invest in and don’t want to wait until they go public to invest in these companies or to invest in the funds that invest in these companies. ‘Cause it used to be that you, a company would IPO with maybe even like dozens of millions of revenue. And then you could invest in the public markets and be a part of all of the growth. Now a lot of growth for companies happens before companies go public. And then you also have essentially like the private equity-ization of every industry. Some of this fits within age demographics within US and other countries where there’s a lot of businesses that are being rolled out, rolled up into private equity as the founders of the businesses of different HVAC businesses or wealth management businesses, which is a huge trend in our industry, start to retire or start to professionalize. And so then this asset class is just growing and it’s growing in the wealth channel. Institutions are already pretty allocated to alts and they have been for decades. And now if you are a private equity manager and you’re thinking about where does my new capital come from? Wealth is where there’s a lot of opportunity, where folks may own single digit percentages of alternative investments, and that can go to double digit percentages. And then of course, there’s the iCapital cases, Epics, Optos of the world that have been built to distribute alternative investments into the wealth channel in smaller increments. So no longer do you need to write a $5 million check, you can write a $50,000 to $100,000 check and have alternatives exposure. So we’re seeing this like both democratization of alts and this increasing exposure of alts in the wealth channel.

Jack Sharry: I want to go back to something you said earlier, just about the fact that 87% of companies of a hundred million or more are private. What are the dynamics driving that? Much lower IPO market is one of the outcomes, but why are people waiting around and that’s where the big growth occurs. Talk about that if you would.

Ryan Eisenman: Yeah, it’s much easier in a lot of senses being a private company. There’s things you miss. It’s really nice to have liquidity and be able to buy and sell shares on an open exchange. But there’s a regulatory burden of being public and a lot more scrutiny. And then you have to worry about what your stock price does on a daily basis and potentially your employees are looking at your stock price on a daily basis. Where when you’re a private company, you get valued, maybe it’s every year, maybe it’s every couple years. And then you can operate and grow. And so why would someone go public? Well, there’s a lot of reasons, but like one of the big ones is for more access to capital. But no longer is that like the only way to get capital. There’s so much late stage growth equity, private equity, venture capital, chasing hot companies that it allows companies to stay private longer and still have robust access to capital markets. So I think that just kind of creates this dynamic where you can have a thriving ecosystem of private companies.

Jack Sharry: Actually, you remind me, I started to chuckle as you were saying that because I was part of what was a small cap company. But I mean I wasted so much time looking at the stock price multiple times a day. And I just remember our CEO spent way too much time paying attention to the daily moments of the stock market as opposed to running the business. And I’ve been in a private company now for a long time, back with a public one. But at the time, with a private company, you just didn’t pay attention to it. There’s no way to know. You just worked hard and try to make better products and sell more of them and provide better service and all the stuff you ought to do. So I guess what I’m hearing you say, and I’m curious because you’re close to these companies who release this whole marketplace, is it because people are just focused on doing the best they can in terms of what they’re offering?

Ryan Eisenman: Yeah, I think so. And it allows you to focus a bit more long-term. Because if you as a private company, or as a public company, need to focus on the next quarter, you might make short-term sacrifices to hit that quarter’s objectives that sacrifice your long-term growth. And as a private company, certainly every quarter’s performance matters. We meet with our board. We talk about the quarter’s performance. We talk about what went well and what can be improved. And they, of course, hold our feet to the fire. But it’s way less important when the quarter’s performance doesn’t impact the value of the company. And we can actually make long-term bets and think about things with a really holistic long-term view. I think it’s pretty liberating for the innovation economy and for the ability for companies to innovate long-term. Cause if you think about like, if you’re a SpaceX and a rocket blows up, your stock price would probably fall 20%. But if you’re a private company, that doesn’t happen.

Jack Sharry: Yeah, interesting. I hadn’t really thought about it that way, but it’s so true. I mean, public companies are just trigger happy in terms of trying to make the best decision each moment to moment. So talk a little bit about your business. Where are you in your process? Talk a little bit about the age of the business, where you are in the process. We’ll talk a little bit about where you want to go, but let’s talk about where you are now and what are some of the things that you’re working on currently.

Ryan Eisenman: We just celebrated our seventh birthday, started the business in 2018. We were a very small company for the first three or four years. Beginning of 2021, we just passed a billion in assets on the platform. So that’s like a billion of private market investments that we were tracking, managing, marketing to market. Had a couple dozen clients and about five people on the team. Now about four years later, we’re a team of about 120 in our New York city office.

Jack Sharry: Wow.

Ryan Eisenman: And serve 360 clients. Our clients range from single family offices to large institutional allocators, serve one of the top five US banks in a pretty large and integrated way. And then a lot of RIAs, multifamily offices, fund-to-funds, fund admins, accounting firms. And those clients have about 175 billion in assets on the platform of assets that we’ve connected to, Blackstone and KKR, Sequoia Capital, we’re getting all the K1s, capital calls, distributions, account statements, and pulling the latest values into our platform and sending it downstream to partner platforms.

Jack Sharry: So that’s pretty dramatic growth. What do you think are the key contributors to that growth? You know, the first four years slow as you go and all of sudden, boom. What’s going on? Why do think that is?

Ryan Eisenman: Yeah, the growth rate has been pretty constant for us since the beginning. It just gets to compound on a larger base at this point, which is really helpful for us. So at the beginning we had two design clients and then by the end of the year, like two had turned into six. So it’s like, okay, we’ve tripled the business, but we’re tripling on a very small number of clients at the very beginning. And I think we’re lucky that the industry has really started to understand that a solution is needed here. There’s so much more consolidation today, especially if you look at the RIA aggregators where you might’ve had a small RIA with a couple dozen or a couple hundred private investments that they’re managing for their clients. But now some of the firms we’re bringing on board have thousands, tens of thousands of investments. And that’s outside of the bank channel. And when you’re looking at things at that level of scale, like you absolutely need a solution so that you don’t miss capital calls and you can get your reporting done on time. But even managing a couple dozen private market investments, I think people are starting to realize that there is a better way than logging into a portal with a human, getting a document, and then doing something with it. And you can actually buy technology to solve these problems.

Jack Sharry: What would you say the contributor in terms of the rapid growth, is it word of mouth? Do you have a sales force? In other words, how did you make that happen? How did that occur?

Ryan Eisenman: Yeah, we have a sales force, but word of mouth will always be, think, our strongest kind of factor for the company that we’re building. We focus really significantly on how we serve our clients and make sure our clients are successful. And we measure this interesting kind of net promoter score, which is like, we call it Realized NPS. So it’s how many of our clients have actually made a referral or served as a reference for another client. And that’s over half of our clients have done this. 24 of our 25 biggest clients have made a referral or served as a reference for another client.

Jack Sharry: Is there any incentive for that? Or it just occurs naturally.

Ryan Eisenman: No, no incentive. Intentionally so. Because we want, when someone’s referring Arch to a friend and saying, hey, you should use this, or like, I use this system for my business, you should use it for theirs. We don’t want there to be any negative or perverse incentives. We want it to be where it’s like, it’s a really trusted referral and folks are doing it because they’ve really benefited from the platform and they think that someone else will benefit from the platform.

Jack Sharry: And what do you think the key contributors are? I mean, that’s pretty significant, that level of referral.

Ryan Eisenman: Customer satisfaction is a huge focus for us. So this starts at onboarding. We put a lot of our resources into onboarding, so it’s much easier for clients. So it can be twice as fast as the next closest onboarding that they might do. And then if people have questions, if people need things, they can get in touch with us really quickly. Our average response time on our website for getting in touch with a real human is 12 seconds today. So you send us a chat, you’re talking to someone in our office quickly who can troubleshoot with you. And then we’re continuing to push the pace of innovation and roll out new features, most of which are given for free to our clients. Because we want people to feel that this is like a rapidly improving product that can just continually make their lives and the lives of their team better and give them better data on how they manage alternative investments.

Jack Sharry: And what’s the mix between retail clients and institutional? What’s the… percentage wise?

Ryan Eisenman: Our clients end up skewing a little bit like north of retail. So like the average family office on Arch is managing probably like in the $400 million range of alternative investments. But that kind of makes up probably about 20% of our business is our family office side. RIAs and multifamily offices probably somewhere in the 40% of our business range. And then a big chunk is kind of and a growing chunk is large banks, institutional allocators, fund admins, fund to funds. And it’s a place that we’re spending a lot more time.

Jack Sharry: So it sounds to me like you are really, true to your word, you are really providing customer service people like and they’re passing it on. Am I hearing that right?

Ryan Eisenman: Yes, yeah, super important to us.

Jack Sharry: Interesting, interesting. How do you go about that? I’m just curious. It’s one thing to say you do that, but then to do it is a different matter. So talk about that.

Ryan Eisenman: Yeah, well, we’re really intentional with the team that we build and the people that we bring onto the team in order to serve clients. So like to work at Arch, you have to love clients and love learning. And that like really matters. And we want to be doing this for decades. And we think that the way you do this for decades is you invest in customers because customers can be the best advocate for you. And then that helps us build our brand and helps us be a really trusted brand because then our customers know, if I have a problem, Arch will figure it out for me. If I need something, Arch will help. And if I am looking for someone to innovate or solve a problem for our business, Arch is the fastest one to probably innovate for us. And so that’s really important to us because it also allows us to get really good feedback from our customers that informs the next product so we can build to automate more of the alternative investment workflows and further democratize the ability to invest in alternatives.

Jack Sharry: And what’s your feedback loop? How do you do that? In other words, how do you make that happen in terms of getting that feedback and turning it into better service or better product?

Ryan Eisenman: Yeah, whether the feedback comes directly to our product team or through our operations team or sales team, it all gets centralized in a way that it’s viewable across the organization. So then we can start to pattern match where it’s like, okay, we’re hearing from this bank, but also this family office that capital calls are painful. And people are worried about their wire instructions and worried about fraud within wire instructions. And it’s like, okay, well, let’s now… that’s interesting. Let’s go run an investigative project on that and go talk to a couple dozen clients and really understand in depth, how are people thinking about capital calls? Is it something that you would want to have automated? How automated is it? Do you want Arch to send the capital call instructions directly to your JP Morgan account and then they can be completed through that? Or do you want us just to verify the wire instructions or do you want us to like integrate with your sales force or do you want us to create workflow steps within Arch? And so we’ve built three out of four of those things. We haven’t built the like pushing it into your JP Morgan account piece yet, but it’s a focus on really understanding the need. Once something gets surfaced to our product team, then understanding the need and applicability across our current and future client base. And then once we green light a project, we work with clients to make sure that the solutions that we’re building really fit their use case. And so we can continually iterate because like version one might solve the problem, but it’s like, oh, but like this takes three clicks to do this thing and it would be much better if it was one click or if I didn’t even have to click. So we’re always looking for that kind of feedback on how we can optimize a piece of our product for our clients.

Jack Sharry: Very smart, like what I’m hearing. So tell me, where do you see things headed? Where do you guys go from here?

Ryan Eisenman: I don’t think alts are slowing down. I think if anything, they’re picking up. So as like SEI now has a solution for buying alts and kind of creating that like democratized marketplace, there’s more of those type of solutions. And I think that just further feeds into our thesis here, which is you might buy alts now through SEI or directly from Blackstone or from iCapital or from all these different sources. And then at the end of the day, you need something like an Arch to help you manage all those alternative investments. And so we’re continuing to build the like plumbing, operations management, automation tools that help people scale their alts businesses. And we’re doing it increasingly in partnership with larger firms to support their offerings. And so kind of looking at a lot of a lot more of like the strategic partnership aspect of like, where can folks leverage Arch to serve their clients? A good example of this early on was investment advisors, where this isn’t just a tool for the back-office teams. The best firms on Arch use it for back office, they use it for their advisors. Advisors are pitching new clients with a, hey, we leverage Arch. It solves all these painful things across your alternative investment stack. So no longer do you have to worry about collecting your K1s, because Arch will do it for you. Then they give their client access to it and the clients get their first Schwab-like dashboard of their alternative investments. That’s nice. The accountants get access to collect the tax documents and we’re increasingly building CIO tools to help CIOs be able to leverage this data also when they’re either evaluating new investments or tracking the portfolio. So for us, we want to go deeper into all these different workflows and think about the interplay between all the different parties that are involved in the value chain of alternative investments, including the asset managers themselves. And so kind of looking for where are more problems we can solve and kind of who can be collaboratively with us on this journey.

Jack Sharry: You guys are doing good stuff. I like what I’m hearing. So anything I missed or any key points you want to share with our audience before we look to close up?

Ryan Eisenman: Yeah, Jack, I’m curious from your perspective as someone who’s steeped in this industry, where do you see alts and the alts industry going in the next 12 to 18 months?

Jack Sharry: Well, our listeners will say, here he goes again. But the future is multi-account. So people own lots of different stuff, usually spread all over the place. No real coordination on asset allocation, certainly no coordination on asset location. So the future in my mind, and this is what we do, so of course I would say this, but I also believe it to be true, it will be a multi-account, unified managed household kind of effort. So alts has an important role, I believe, in this, for all the reasons you’ve highlighted. And because of the democratization of alts, it’s just being more accessible and so on. I do have a concern, frankly, as an industry that we’ll… they’ll be miss-sold along the way, but that’s just what our industry does. I can’t stop it, but I know it’s coming. But we’ll get through it. We always do. But in the meantime, it just undermines trust in the marketplace. That all said, managing it as a more holistic multi-account, unified way really improves after-tax returns and income or whatever it is the objective is for the client. So my prediction on the future, alts will be at the table. They’ll be part of a household portfolio and all the kind of supporting software that is needed to make all that happen. And then people will have more money and live happily ever after. So that’s what I think is coming, but we got a ways to go before we get there.

Ryan Eisenman: Cool, sounds like a great future.

Jack Sharry: Actually, I think you guys are really on to something. So one last question before we part, always my favorite, what do you do outside of work for fun or that people might find interesting or surprising? What do you do when you’re not changing the world on alts?

Ryan Eisenman: So I live in New York City, which has very little nature. So the adventure here is oftentimes like finding interesting new restaurants or there’s a lot of cool things to see in the city. But when I can, I love to get outside the city, hike, bike, snow ski, both downhill and uphill. So those are kind of like the two pieces of balance in my life.

Jack Sharry: Yeah, where do you go? Do you go upstate New York, Vermont, New Hampshire?

Ryan Eisenman: Sometimes upstate New York, it’s actually amazing what you can accomplish driving for an hour and a half or taking like an hour and a half or two-hour train and then make it to Colorado as well when there’s time to go out west.

Jack Sharry: That’s great. That’s great. So Ryan, this has been a lot of fun. I really enjoyed our conversation. Really impressed with what you guys are putting together. I think we’re going to be hearing a lot more from you and Arch over time. So congratulations on what you’ve done and I wish you all the best as you go forward. For our guests, thanks for tuning in for our podcast today. And if you’ve enjoyed what we’ve been talking about here and in another podcast, please rate, review, subscribe, and share what we’re doing here at WealthTech on Deck. We’re available wherever you get your podcasts. You should also check us out at our dedicated website, wealthtechondeck.com. All of our episodes are there along with blogs and curated content from many folks around the industry. Ryan, thanks a lot. This was real pleasure. I really enjoyed it.

Ryan Eisenman: Thanks Jack, same here.