Delivering Alpha in Private Markets with Ryan VanGorder

Jack Sharry: Hello everyone, thanks for joining us for this week’s edition of WealthTech on Deck. We’ve already spent and we will be spending much more time examining private investments or alternatives or alts, call them what you will. They are white hot in terms of interest from asset and wealth managers and investors of all descriptions. We have a number of shows looking at the process of making, selling, and servicing private investments. Today we’re gonna be joined by Ryan VanGorder. Ryan is the CEO of Opto Investments. In checking out Opto online, I like the clarity of their messaging and purpose. Really caught my attention. It’s not too often I see that in early stage companies. The Opto team is clear in their beliefs. They recognize the issues the private investment industry faces. They’re working on the tech to streamline the process and the experience. Ryan and the team make a compelling case for their expertise and innovation and dedication to creating partnerships with their clients. And I’m looking forward to learning more. So Ryan, welcome to WealthTech on Deck.

Ryan VanGorder: I appreciate the opportunity to be here. Thanks, Jack.

Jack Sharry: Great to have you. So Ryan, let’s start with you describing Opto. Who are you? What do you do? Who do you do it for? And how’s it going? Please fill us in.

Ryan VanGorder: Alright. Yeah, at Opto we’re engineering the future of private markets, really with a focus on client outcomes and driving capital to the best ideas. Our platform is endeavoring to eliminate barriers faced by the whole wealth management community and finding and delivering alpha in the private markets. And we’ll probably get into that a little bit later as we double click on some of these topics, but we really allow wealth managers of any size from small RIAs to large MFOs and private banks to efficiently deliver bespoke private market programs for their clients. Right now, we’re super grateful to be partnering with amazing clients. We’re building on behalf of them, excited about the growth in front of us, launching funds, raising assets, building killer software, and really just helping clients.

Jack Sharry: Cool. So why don’t you give our audience, Ryan, a little of your background, how you got started and how Opto got started. So if you could take us through a little bit of your career journey and then how you and your partners put Opto Investments together.

Ryan VanGorder: Okay, great. I had a foray into the software space in the digital media universe at the turn of the century. I guess that dates me at a company called Avenue A and we went public under the name of A-Quantive or A-Q-N-T. And then after the dot-com boom and bust, I cut my teeth in investment management at a hedge fund, private equity, and multifamily office boutique called Quellos that was based out of Seattle. It was a really great experience. I had about six or seven years of great growth and experience there, at which point we were purchased by BlackRock. We had about 23 billion of assets under management. At that point, I was basically then off to the races within the walls of BlackRock building an alts and private market platform and then bounced around helping to build businesses, manage businesses from a finance perspective. I did my last stint with that firm in Hong Kong, leading the finance function in a space that was super exciting. We’re building business, 13 different tax jurisdictions or regulators, 800 billion in assets and just seeing a little bit of everything. It was nice to sort of bring that back. How that bleeds into me landing at Opto is that in about 2021, the current chairman of my firm and founder, Joe Lonsdale, was incubating the idea of Opto out of what he calls the Build Program, which is a program within the VC firm that he operates. The VC firm is ABC. I had experience across private markets software in the wealth space, which had me always looking to bring a solution into the space. A solution for scale and efficiency, a solution for what I could see is alpha and other folks treading water into the beta part of the private markets. But really, it really drew me in to join the team and help build something different. Opto is therefore built and backed by operators who understand the potential in the private markets, not by AUM focused mega funds or product pushers. It’s founded by Joe Lonsdale who built Addepar out of the same build program in ABC, as well as Palantir. Opto combines this exceptional Silicon Valley engineering talent with experienced investors and industry specialists to really address what we’re trying to build. The business is aligned with clients and it’s really forged free from the legacy of incentives on which this whole market is built. What that means from us is no static fund menus of mega cap asset gatherers, no fees or payments accepted from the GPs for us. We’re getting paid by our end client, gives us undiluted focus on quality. There’s no adverse selection bias that comes from that, from being paid by product pushers. And what we’re bringing to the table really on behalf of our clients are tools and data to arm them with both the ability to identify the right investments and avoid the wrong ones. We’re using our balance sheet to help navigate this space and sit alongside of our clients. We bring opinions, we are opinionated. We like that. We recommend investments with purpose. And when we choose to pass, it’s with conviction for a real reason. The programs we’re building are multi-year vintage approach to help clients achieve their desired outcomes and really retain clients, existing clients, and get new ones. So hopefully that all sinks in. It’s a lot.

Jack Sharry: Yeah, that’s pretty cool. So a couple of things that you said that I want to kind of backtrack a little bit and sort of maybe have you expand on. So what I heard in your journey, lots of build situations as you moved around, building stuff up from either scratch or maybe there’s some turnarounds in there, I’m not sure. But the idea is building businesses all around, seems to be all around private markets or largely around private markets. So I’m curious about that, particularly as it pertains to what’s underway. And I’d love to have you comment on this part too. That move from a more institutional approach to private markets to what is becoming increasingly a retail approach to private markets. So talk about all that. You’re a builder, clearly, in your background. And there’s this shift that’s underway where so many people, we’ll talk about the merits of that as more retail, classic retail investors get into this game. We’ll get to that in a little bit. But talk about that evolution of building businesses and heading toward the retail marketplace.

Ryan VanGorder: Yeah, so I’ll take that in a two-part question. The first is the build of business and the second is an entity approach into more of a retail or the wealth markets. And the business building approach for me is fascinating. I love it. Whether I was in my career sitting shotgun next to the driver who was building the business or helping from any different direction or actually building the business, there are basic building block components to building any business that look and feel like how do you build scale, how do you define scale and how you build it. And in the investment management space, as well as the wealth management and advisory space, there are some building blocks to that. In building for our clients, we’re actually helping with this concept. And what we’re thinking is how do you take this really sort of inefficient world of investing in the private markets? It’s inefficient for everybody, whether you’re a very, very savvy family office or a pension or a registered investment advisor, it’s inefficient without the use of software. And it always has been because of the regulated nature and I should say the unregulated nature of these types of investments. So we’re, what I’ve seen historically is the ability to manage the business build with people and process. That’s what we did at Quellos, we did it really well. We also brought some technology to the plate there. BlackRock does the same, brings people in process. They have centers of excellence in parts of the world where you can get cheaper labor and throw process at problems. And what really stood out to me was that because of the bespoke nature of investing in the private markets, it was hard to build a cookie cutter size application or software that sort of fits the mold. And there’s been a lot of attempts at that. So what I saw generally speaking is that people really struggled to build a business in this space that had extreme scale. There was extreme value, but extreme scale. And maybe what I’ll do is just sort of bookend that. That’s what I saw across all my business building efforts. And getting into how do institutions have this approach or tact into the space where they have a real, I would say as investors, a real pre-trade body of work that gets done, a real trade and trade execution, which is people in process and a real post-trade, which sort of drafted off of that people in process. And the pre-trade piece of the institutional business from an investment standpoint included some, not necessarily rocket science, but some more sophisticated approaches to think through what does risk look like in this space? How do we think about liquidity? How do we get the best of this opportunity into our portfolio? And then how do we maintain a position that’s right for our, the broader whole portfolio and what outcomes we’re looking to derive. So there’s kind of a lot in that statement. So, some of the items on, particularly with liquidity in the institutional space, there’s a liquidity budget and need. It’s different across different institutions as it is across different individuals. Managing that budget and being aware of it, super helpful. There’s an idea of cash needs and what you do with your, your cash. And, we bring that into the retail market and what we look to do is provide an opportunity for people to have an opinion on how do they pace and do exposures. So building pacing models, we’re taking the best really what we’re building and what we saw in this institutional space, the best of all the risks that I just called out, risk management and bringing that into our, our platform, vis-a-vis software to try to arm the more retail like investors to have the institutional mindset. So, sort of circuitously walking here, but things like pacing model, risk analysis, whole portfolio perspective, thinking through the transition of where you are today to where you’re going tomorrow and how to get there. Big part of that pre-trade analysis that we’re very proud of. And that’s what I think that our whole team has brought from the institutional style of investing and we’re trying to bring it to the wealth space. Gotten good feedback on it. So I sort of, sorry, I went from what I’ve seen to what we’re bringing, but that’s exactly what we saw is just a slightly different approach. That’s what we’re doing. And we’re super excited.

Jack Sharry: So one of the things that’s interesting is a lot of our guests on the podcast are in the classic wealth space. And the level of sophistication that you just shared is, shall we say, uncommon. And how do you translate that, what you just said, because it’s clearly an institutional orientation/mindset, what have you, how do you translate that to the retail world? Or what I call the retail world, but the wealth space that is now clamoring for this stuff. By the way, a question we’re get to, maybe you wanna do it now. I’m just fearful that they’re gonna get there and not know what they’re doing. Do you know what I mean? So anyway, if you’d maybe talk about how you’re making that transition from institutional to wealth and also making sure that people do the right thing.

Ryan VanGorder: I believe the trick in delivering the answer to your question and doing it vis-a-vis our work is to take what can feel complicated and turn it into a simple exercise.

Jack Sharry: I’m game. Tell me.

Ryan VanGorder: So that we can explain this sophisticated concept with the use of pictures, analytics, data as well as a picture of what your portfolio looks like today and where you’re going tomorrow. And we’ve baked that into our software. So, for example, if your portfolio has a current private market allocation of 3% and you want to get to a 20% allocation, the right answer isn’t to just make a 17 % shift. Because to do that, you’ll have to go to something that’s liquid today, that’s been invested in. And what you’ll have to do is pace into that allocation. So you have to have a sustainable approach. And to do that, you have to think through, do we have a front-weighted allocation or a balance-weighted or a back-weighted allocation to get you to that? And what we can do is go through and we’re building models that allow people to work through this in an iterative approach and see how it impacts their portfolios and how it works with their clients. That’s the most important piece, taking those concepts and removing the need to have a PhD and inserting them in a way that you can consume them, understand them, and actually talk about them. We’re building it into our proposals that we’re delivering to advisors with their sort of white labeled advisory shops brand and logo on them and allowing them to take those to their clients and be able to walk through them. It turns it into a linear equation, which I think is the real answer to your question is basically saying, here’s a strategy for you to be able to go from where you’re at today to where you want to go tomorrow in a way that everyone can understand.

Jack Sharry: And I’m presuming from what you just said that you’re looking at the full portfolio to make the recommendation on terms of the allocation of alts. Let’s talk a little bit about that because so often in the wealth world, retail world, it’s sort of the next best product. Oh, direct indexing, I hear that’s great. So let’s do that. Or ESG, that’s great. Let’s do that. In other words, it’s additive to whatever’s there. And yes, there’s some play with some asset allocation. But I’m hearing a much more sophisticated approach of not only what to buy but how you buy it over time. Talk about that if you would.

Ryan VanGorder: Yeah, we’re believers in modern portfolio theory and we definitely take a whole portfolio perspective on behalf of the advisor. The way our platform is built utilizes native API integrations across the board so that we can act as not another sort of sliver in the workflow, but allow a full private market workflow from end to end. We can go into the advisor’s, investor’s, allocator’s underlying performance reporting system and pull position level detail by client and allow a real look at where this client exists today. And then where you might be going tomorrow in terms of a private market allocation. You can also talk about what that allocation looks like and you’ll use our very enriched data and portfolio calculations to basically look at what your return expectations are today and what they will be with the inclusion of these types of exposures, what additional risk you’re picking up, what additional volatility you’re picking up, the other components your portfolio that really allow you to sort of make the statements that need to be made and draw conclusions that you might around that portfolio. Another cool thing that we’re doing is working with our clients to pull in their capital market assumptions also using their model portfolios to bring them in and then help them arrive from where their clients are today to those model allocations across the board and then use the custom funds that we’ll spin up for our clients for them to sort of bring that to their clients in the allocations that are appropriate.

Jack Sharry: So when you’re referring to clients in the… are you referring to advisors, RIAs, what have you, where you’re advising them on what their clients ought to do? Is that what I’m hearing?

Ryan VanGorder: Yes.

Jack Sharry: And as a full portfolio, are you looking at all of it? How does that work? Tell me a little bit about that. There’s that slivers, if you will, that you might suggest. But you’re really making recommendations across the board. I just want to clarify that. I think that’s what you do, but I just want to make sure we understand that.

Ryan VanGorder: Yeah, that’s very right. So we’ll allow the advisors who are our clients to look at their clients’ portfolios in our system, where they sit today. They can apply model portfolios or just use our sort of additional tooling to look at where they might want to go in terms of their underlying portfolio allocations. They can actually look at their whole book in its entirety to figure out what type of a private market fund would fit the archetype and underlying archetype of their whole client base. That way they can create something that may look and feel like a balanced fund or an income fund if they’re a yield shop or a growth equity fund if they’re looking for more equity allocation and you can imagine, and we cover the whole private markets, they can go across any mandate or asset class in the private market, real assets, infrastructure, income, equity. And so we’ll help them build a portfolio that they can use then with their name on it to then bring that to their clients for that year’s vintage, or they might have multiple asset class portfolios that they can deliver to their client base.

Jack Sharry: And how do you guys deal with taxes?

Ryan VanGorder: What we do is create private market portfolios that allow advisors to maximize tax efficiency based on how they invest and what their underlying clients look like.

Jack Sharry: And do you do that with that?

Ryan VanGorder: We are not, we’re not tax accountants, but we certainly align with the private market investing opportunities.

Jack Sharry: So do you guys do asset location, is that part of the process or do you guys… tax loss harvesting, I assume? Tell me a little bit about what your tax strategy is.

Ryan VanGorder: Oh yeah. So while we look at the whole portfolio, we will only service the private market sleeve of the portfolio. So we’ll leave the tax efficiency to the advisors.

Jack Sharry: Yeah, so you’re basically making a recommendation on that which you manage in the context of the full portfolio they’re managing and they take over from there, that kind of thing?

Ryan VanGorder: Yeah, and I guess, to your point, Jack, the consideration and the value that we bring in looking at the whole portfolio is what we’re trying to say is how does this sleeve or this exposure that you want to build in partnership with us fit into what you’re building in its entirety?

Jack Sharry: Yep, yep. Gotcha. Cool. This is exciting. I like what I hear. I can’t wait for our conversation after we’re recording. I got an idea for you. But in any event, that’s a whole ‘nother matter. Tell me a little bit about where you see the world going for, not only for Opto Investments, but for the alts private markets business. Where are we headed?

Ryan VanGorder: Yeah. So if I take a step back and just think a little bit about the industry, I think all eyes are going to continue to be on regulators globally and nationally as they’re sort of creating the frameworks that we all operate within. I think winners in our space, particularly our market, will be heavily investing in technology-based solutions. Can’t avoid that. And solving for a couple of things, basic things: transparency, scale, efficiency, and flexibility. You got to do all that while you’re delivering on your client demands. That is achieving outcomes that align with their portfolios or their expectations. This is exactly what we’re doing at Opto and we very much have our eye on the prize. As the industry peels back the layers of the onion across all of those, it’ll gain clarity into what advisors, investors, allocators are buying, who they’re buying it from and why. That’ll sort of create a space that’s clear that not only we’re building the model of the future, but sort of yesterday’s model is probably a little bit broken.

Jack Sharry: Cool. Well, as we look to wrap up, a couple more questions. Appreciate this. This has been a great conversation, Ryan. Appreciate it. What are key takeaways you’d leave with our audience around private markets and what you all are doing and what everyone should be aware of as they’re looking to their own portfolios in the future?

Ryan VanGorder: Yeah, I’d say three key takeaways for me if you’re going to get in the private markets or you’re in the private markets. There is guided intelligence out there. That’s what we’re building. And this is going to confidently construct private markets programs using the Opto sort of analytical tools. And I think if people feel like they’re taking sniper rifle shots into the private markets and aren’t building something that looks and feels like a, know, repeatable framework, we’re out there for that. We’re bringing customization on your terms. So that’s creating unique, proprietary diversified portfolios that will help you deliver the private market experience that you want your clients to have. And we are bringing effortless automation to scale businesses without scaling your team. And what that means for all the business builders out there is we’re going to help you fix your costs. You don’t need to put a lot more people in as you expand the number of private market investments, portfolios, underlying LPs. And as you grow your customer base and the assets in which you service, that means margins are expanding with use of technology. So we have those guided intelligence, customization on your own terms, and effortless automation.

Jack Sharry: Cool. One last question, always my favorite as we look to wrap up. I was looking on your website. I think I may know the answer to this, or at least have a sense of it. What do you do outside of work that you’re particularly excited or passionate about that people might find interesting or surprising?

Ryan VanGorder: I am a masochist for adventure and fun. And so I’ve been riding my bike, running, and kayaking all over the world and competing in this sport called adventure racing as an excuse to get out and see all these crazy places in the world and have the experience with my wife and my other teammates that do participate in adventure racing. Pandemic put a little damper on it because races were hard to get to and whatnot, but we’re still riding bikes and running up mountains and kayaking as much as we can and actually trying to bring that…

Jack Sharry: And what is it? Some kind of relay or some kind of sequential bike, kayak? What is adventure racing?

Ryan VanGorder: Yeah. So, adventure racing is point to point race. It’s a team sport, you travel together. Once you go through the start line, you’re on the clock and you’re not off the clock until you finish. So you can only go as fast as your slowest teammate. And if you really take this to its, its end, you’d participate in what’s called an expedition race. Am expedition race is, I think they characterize them by usually over 72 hours in length. So over three days in length, I’ve done… the longest race I’ve done is an eight day race. That means that when you’re sleeping, eating, going to the bathroom, changing your gear, you’re on the clock. So you’re just sort of maximizing efficiency. You’re looking for constant forward motion. Everybody’s got a role. You check your ego at the door and you go get to really get into the woods and see places on planet earth that not a lot of people are seeing. So I’ve done over 30 expedition races around the world. And was part of a pretty competitive team that traveled around and raced a lot. It was a lot of fun. It also hurt in a very good way and we enjoy it. And yeah, I think that we call it type two fun.

Jack Sharry: Type two fun. What’s type two fun?

Ryan VanGorder: It means you’re having fun, but it’s defined a little bit differently. There’s some suffering involved with it.

Jack Sharry: I got it. That’s great. That’s very interesting. And actually, you have some indication of that on your website. It’s part of your ethos, part of how you guys run the business, true?

Ryan VanGorder: Yeah, that’s right. We’re going fast, taking chances. We try to bring it in our, how we interact and operate internally and try to go out and have experiences, which might not include as much suffering as I just laid out, but experiences with our clients and…

Jack Sharry: You’re low on the suffering scale?

Ryan VanGorder: Yeah, we enjoy a good hike with our clients or spending time with them doing something that’s memorable and outdoors. It’s not a bad way to build relationships.

Jack Sharry: So Ryan, thanks so much. I really appreciate the conversation. For our audience, thank you for tuning in today. If you’ve enjoyed our 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 on our dedicated website, wealthtechondeck.com. All of our episodes are there, along with the blogs and curated content from many folks around the industry. Ryan, thanks again. It’s been a real pleasure. I enjoyed it very much.

Ryan VanGorder: Thanks a lot, Jack.