The private markets have gained greater interest with more private companies remaining private for a variety of reasons, according to Axxes Capital, a Miami-based asset manager seeking to become the go-to firm for advisors looking to gain access to the private markets.
In addition, private funds have been traditionally outperforming public funds. said Axxes, which announced it will be rolling out a series of private vehicles covering different strategies early next year. Axxes Capital, which launched in January, believes that the private markets are an untapped resource, said Joseph DaGrosa, chairman and CEO.
“We believe an important asset class that ...there hasn’t been a lot of access to is the private investment class,” he said. “We’re looking to be the turnkey solution to what we believe is going to be a pretty significant re-allocation of client assets in private investments.”
In response, the firm announced it will be launching a series of new funds in the private investment class exclusively distributed through financial advisors. The firm wants to elevate the role of the advisor through these funds. DaGrosa, who began his career as a financial advisor, said advisors serve important functions with their clients in helping them properly allocate assets across investment classes.
“We want to be a one-stop solution for financial advisors who are looking for a way to re-allocate into private investments,” he said. “We are here to support the financial advisor and really make them shine.”
The firm is targeting investors with $1-5 million in investible capital, who are looking to allocate 5-10% of it into private investments. Axxes Capital will launch a series of private investments that cover private equity co-investments and secondaries, distressed debt, venture capital, real estate equity, and debt. The firm is also interested in certain specialized sectors including climate and alternative energy.
“We want to offer a full suite of private investment products both on the credit side and the equity side that will enable financial advisors with one decision to re-allocate into private investments,” DaGrosa said.
The first product, which is currently in registration, will be secondaries and co-investments vehicles. It should be out of registration in January with full marketing efforts ramping up in the first and second quarters of next year, according to DaGrosa.
DaGrosa was unable to speak in detail about the pending funds because they are currently in a quiet period. However, according to the SEC filings, the Axxes Private Markets Fund, sought an exemption from Sections 17(d) and 57(i) of the Investment Company Act of 1940.
The fund needs to seek exemptive relief because it would otherwise be prohibited under the 40 Act because it includes co-investment transactions, according to the filing. This is a common move that other firms have requested. There are two reasons for the relief.
The first is so the fund can avoid the complexities that might take place while seeking a counterparty to enter a transaction while still awaiting individual exemptive relief for the underlying funds. The other reason is so the fund can avoid the various expenses that occurs with those applications.
Finally, the filing stated that the advisors of the fund have established what it referred to as a rigorous process for how it will allocate initial investments, subsequent investments, and dispositions of securities in a fair and equitable manner.
The firm will register its next two products in December and hopes to have three to five products in the market by the end of second quarter of next year, DaGrosa said.
To distribute the funds, Axxes Capital has signed a deal with Vision4 Fund Distributors, a wholesaler for independent broker-dealers and wire houses based in Scottsdale, Ariz. It will help the firm distribute the product domestically.
Internationally, the firm has signed a deal with Banco Bradesco, which is the largest bank in Brazil, to handle distribution there. Axxes Capital is also in talks with other entities in the Middle East and other places, but DaGrosa could not go into details on those yet. He anticipated having 30% of his business come from outside the United States.
DaGrosa emphasized that Axxes Capital sees the accredited investor space as an underserved market because those investors hold about $15 trillion domestically, according to the Capgemini Research Institute, which is based in Paris. Of that money, only about 1% is going toward private investments.
The reason for this disparity is partially regulatory. Most private equity funds cater to the qualified purchasers, who have at least $5 million in investable assets, according to DaGrosa. Most firms launch unregistered private investments. However, if they open these funds up to accredited investors, it limits the number of investors they can have in that fund.
“The SEC says that if you have a single accredited investor in your private fund vehicle, you are limited to 99 investors,” DaGrosa said. “It means the traditional large private equity firms … they don’t waste their time on accredited investors.”
To prevent that limit from occurring, Axxes Capital will register its products but not list them. By treating these funds this way, DaGrosa said they work similar to an initial public offering (IPO), with ongoing reporting requirements.
The products will be evergreen products so there will be no closing period on new investors meaning the fund will be raising capital on an ongoing basis. DaGrosa wants to provide investors with quarterly liquidity with a target of 5% of net asset value.
By embracing SEC oversight, Axxes Capital can fully cater to the accredited market pool with no limitations. In addition, it will have the added security of regulators monitoring what the firm is doing.
“We’re looking to have the oversight of the SEC in everything we do which we feel is an important protection for investors and rather than fleeing from oversight, which a lot of large private equity firms do because they want to stay private, we embrace regulation,” DaGrosa said.
To stand out from its competition, Axxes Capital will use the best managers it can for each strategy it offers. Other firms might limit the managers to those who are in house. DaGrosa said it will be using only the best quality managers regardless of firm affiliation. Once it identifies the strategies it wants to offer, the firm will match it up with the right manager.
“We identify and work with the top 25% of managers within each of those strategies so our goal is to bring top quality managers to manage the various strategies that we’ve identified,” he said.
DaGrosa intends to use his experience when making these decisions. He has more than 30 years in the investing world and also serves as the chairman of the Miami-based private equity firm, DaGrosa Capital Partners.
Throughout his career he has served in leadership positions in different private equity firms and has experience investing in multiple sectors including sports and entertainment, retail, food and beverage, insurance, real estate, hospitality, healthcare, and aviation.
Another way DaGrosa said that his firm’s investments will stand out, is in the way the fees are structured. Axxes Capital customers will only pay one set of fees, according to DaGrosa. The firm will share these fees with its managers. It is an improvement from other firms that may double the fees on clients for those investing in fund-of-funds, DaGrosa said.
Once the new funds are fully available, DaGrosa is confident in their success anticipating at least $500 million in assets under management for the products with the credit offerings fetching up to $1 billion in assets.
DaGrosa is looking to have his firm stand out from his competition through the prominence it places on advisors and the care it takes to its funds for investors.
“When you come to Axxes Capital, we’re objective [and] looking for the best managers possible,” he said. “We think that we are squarely on the investor’s side of the table as we think about the best way to deliver returns.”