Happy Sunday to those who celebrate!

Hopefully the scaries aren’t hitting too hard right now. For the first time in a long time, we are back with another Sunday deep dive. Previously, we’ve written about startups like Titan and beehiiv, and today we are pumped to profile a startup that is making waves in the asset management industry…

For years, alternative assets such as venture capital and private credit have remained off-limits to all but the wealthiest investors. Gridline is disrupting the world of alternative assets by creating new opportunities for more investors to access these sectors, and we are here to tell you more about their mission.

Before we get started, You can start investing in alternative assets with Gridline here.

This is a sponsored deep-dive, and nothing in this article is investment advice. See here for legal disclaimer.

Without further ado, let’s dive in 🤝

A Very Brief Intro to the Alts Market

Before we discuss Gridline, let’s take a brief look at the alternative asset market.

“Traditional” investments refer to the big three publicly traded asset types: stocks, bonds, and cash. Alternative investments are, well, everything else, such as private equity, venture capital, real estate, private debt, fine art, etc.

While traditional investments are highly liquid, accessible to most investors, and subject to heavy regulations to protect investors, alternative assets are typically illiquid, reserved for high-net-worth individuals, and subject to different levels of regulation that vary from asset to asset.

To give you an idea of just how big the alternatives market is, London-based investment data company Preqin forecasted that the alternatives market would grow from $13.2T in January 2022 to $23T+ by 2026 (the total market value of all US-listed stocks is about $40T, for reference).

And the alternatives market isn’t just fast-growing, it offers compelling returns.

The S&P 500 is the most commonly used benchmark among traditional investments due to its diverse composition and easy accessibility. From 1998 through mid-2022, the S&P 500 returned 7.8% per year. Over the same time period, median private equity funds averaged a 15.3% annual return, and top quartile funds averaged a 24.5% annual return per PitchBook.

The issue is that unlike stocks, bonds, and treasuries, most private equity investments aren’t available to the average investor, but it doesn’t have to be this way. It may be hard to believe now, but the stock market only just became broadly accessible in the last few decades too.

A History of Market Accessibility

In 2023, retail investors can buy and sell individual stocks, invest in sector-specific ETFs, and manage their brokerage accounts however they wish, for virtually no cost. But this wasn’t always the case. In fact, until 1975, the New York Stock Exchange controlled a pricing monopoly on commission fees. Between March 3, 1959 and December 5, 1968, for example, New York Stock Exchange commissions were set according to the following schedule:

1% on $2,400 might not seem like much, but in a market that historically averages 9% annual returns, those 1% fees would add up. (In 2023 prices, adjusted for inflation, you would be paying a 1% fee for trades up to $25,000 today. How would you like to pay $250 in commissions per $25,000 trade? No thank you.)

Want to buy shares of Coca-Cola or General Electric in the 60s? You were going to pay a hefty fee to your stock broker. And if you wanted to build a diversified portfolio, you were going to be charged commissions on every single position because index funds didn’t exist.

Everything changed on May 1st, 1975. Now known on Wall Street as May Day, this was the day that the Securities and Exchange Commission mandated that brokerages negotiate commissions instead of charging fixed rates.

In one swift move, the NYSE’s pricing monopoly was dismantled.

While some firms initially tried to limit discounts to 8-10% for their institutional clients, competitive pricing was cutthroat, and there was no turning back. By the end of the year, 35 brokerages had disappeared.

Commission fees continued to drift lower and lower in the 70s and 80s as brokerages competed for market share, and the popularity of low-fee online brokers exploded in the 90s as retail investors sought to make millions by day-trading high-flying technology stocks.

In 2013, Robinhood raised a $3M seed round and announced that it would offer zero-commission trading, marking the beginning of the end for broker fees. Industry-wide broker fees reached a new low of $4.95 per transaction in 2017 as Schwab, Fidelity, and E*Trade all slashed their fees, and the writing was on the wall.

Finally, on October 2nd, 2019, Schwab, TD Ameritrade, and E*Trade all waved the white flag and announced that they had reduced their trading fees to $0, signaling the end of an era.

44 years after the SEC ruled the NYSE’s pricing practices illegal, the cost of buying and selling stocks fell to zero. Finally, anyone could afford to invest.

But the widespread availability of public equities raised a new problem: yes, investors now could invest in anything. But what should they invest in? Researching investment opportunities takes time, after all, and someone with a 9-5 job isn’t going to have a free 30 hours per week to research stocks.

Enter: Jack Bogle.

Thanks to a 1960s study by Louis Engel and the Chicago Graduate School of Business (now the Booth School of Business), we have known for 50+ years that the S&P 500 averages 10% returns per year, but there was previously no way to invest in the S&P 500, or any other broad market index, without making hundreds of individual transactions.

Competitors in the mutual fund industry derided Bogle’s idea as “un-American,” naming the fund “Bogle’s Folly.” Then-Fidelity Chairman Edward Johnson stated, “I can’t believe that the great mass of investors are going to be satisfied with receiving just average returns.”

(Yes, this is an ironic statement considering that by definition, the great mass of investors has to receive average returns. That’s how averages work.)

Despite early doubters, the next few decades proved Bogle right. As of April 2023, Vanguard managed $7.7T in assets, and its flagship ETF, the Vanguard 500 Index, has $300B+ of AUM (they also have ~$890B across all of their funds designed to mirror the S&P). It turns out that the great mass of investors are, in fact, satisfied with receiving “just average” returns.

Index funds aren’t for everyone, but they have provided the retail investor who lacked the time and resources to research individual stocks access to excellent risk-adjusted returns. Combine these index funds with zero trading fees, and suddenly, the stock market was open to everyone.

But that’s just public equities. Alternative markets have been waiting on their 1975 moment.

Enter: Gridline.

Gridline Intro

So, what is Gridline?

The short version: Gridline is an investment management platform that provides investors access to top-performing alternative asset managers, enabling them to build diversified portfolios in a matter of minutes in a fully digital experience.

Their mission is to deliver the best risk-adjusted long-term investment outcomes by allowing investors the opportunity to emulate what the smartest investors in the world have been doing with their portfolios for the last two decades.

Kind of like Vanguard’s vast index fund offering, but for everything that isn’t stocks.

Gridline’s founder and CEO, Logan Henderson, began his career doing M&A advisory, but he was actually running an enterprise software company when the idea that would become Gridline was formed. Frustration with his own limited investment options coupled with the antiquated and analog process for investing in alternatives provided an opportunity to build an entirely new platform for how people discover, deploy, and manage private market assets.

Logan realized that investors would encounter several friction points when investing in alternative assets, and those friction points looked something like… this:

1. Performance evaluation across different funds was difficult to measure because there wasn’t a central database compiling side-by-side performance comparisons between private funds. Want to check the historic performances of different stocks, ETFs, and mutual funds? You have dozens of options, from Yahoo! Finance to Morningstar. With private funds? Not so much.

2. Let’s say you do the research and compile a list of possible investments. While ETFs and mutual funds can typically be bought and sold daily, private funds only raise capital in temporary windows, and tracking fundraising announcements is a tedious endeavor.

3. Okay, so you found your list of funds, and you know when they’re raising capital. Now you have to do your due diligence across your selected funds to see which one(s) meet your investment criteria, free from red flags.

4. Due diligence done? Be ready to write a 7-8 figure check, or you won’t get allocated in that fund.

It’s not exactly a simple process.

While the youngest generation of stock investors can simply open their brokerage account, check the historic performance of their chosen stock or index fund, and invest to their heart’s desire, private market investors have to jump through a dozen hoops just to have the “privilege” to invest millions in an illiquid asset.

Even if he ignored the informational hurdles encountered at the first three friction points, Logan, and plenty of others like him, lacked the investment capital of large institutions, so he couldn’t build a properly diversified portfolio of top managers. And this lack of access didn’t just affect would-be investors. On the other side of the equation, fund managers were having to turn away individual investors despite their need for more capital.

The alternatives market was ripe for an update:

Thus, Gridline was born.

Interested in investing with Gridline? Get started by clicking the button below!

Why Does Any of This Matter?

Perhaps you’re now thinking, “Very cool guys, but why should I care about alternative assets anyway? I can just invest in stocks and bonds.”

Great question, hypothetical reader whose question I created to introduce this section. Allow me to enlighten you:

1. Private assets diversify one’s portfolio, generating greater risk-adjusted returns over time, and the IRR on private investments tends to be outsized coming out of market downturns

2. Companies are staying private longer, and more of the value creation is happening in private markets

3. There is a massive wealth transfer coming as older business owners retire and look to sell, and newfound “inheritance millionaires” look to invest

Some more details on each of these points:

1) Private Market Allocations Create Stronger Portfolios

Let’s start from the top: private assets just plain perform well. According to UBS’s May 2023 Private Market Allocation Guide, a 40/30/30 portfolio invested in 40% global equities, 30% US bonds, and 30% alternatives would have significantly outperformed the traditional 60/40 global equities / US bonds portfolio over the last 15 years. Why? Because private market fluctuates aren’t 1:1 correlated with public markets, allowing investors to benefit from that increased diversification over time.

And this effect is especially pronounced coming out of down markets. According to Bain’s 2023 Global Private Equity Report, IRR for buyout deals is highest for deals closed in the years immediately following recessions and market downturns, a detail that matters a lot right about now.

The last 3.5 years have been one of the most turbulent periods in market history as assets across the board experienced their fastest drawdown and subsequent recovery ever in 2020. In 2021, reduced interest rates and loose monetary policy created asset bubbles and nose-bleed valuations in every market sector, but we have since seen a return to normalcy as those bubbles deflated.

Valuations are reverting to the mean as interest rate increases have disrupted two years of “easy money,” creating new opportunities for funds and investors looking to deploy dry powder.

Investors who over-deployed capital in 2021 may be facing steep losses, but if this market cycle plays out like previous decades, private equity investors making deals now could see outsized returns throughout the next bull market.

2) Companies Are Delaying Their IPOs

Companies are staying private longer, and the biggest winners are those who can invest in private funding rounds.

In 1980, the median age of a company at its IPO was 6 years, and a company’s median market value at IPO was (adjusted for inflation) $105M. In 2021, the median age of a company at its IPO was 11 years, and a company’s median market value at IPO was $1.33B.

In 2013, Aileen Lee coined “unicorn” to describe companies privately valued at $1B+, because at the time, such companies were rare and mythical. 10 years later? There are 1200+ unicorns. No longer an endangered species, I suppose.

This shift toward companies staying private longer has benefited later-stage growth investors, who deploy capital in Series D, E, F, and later funding rounds, at the expense of public market shareholders because most of a company’s value is now accrued before it ever goes public.

Microsoft, now one of the world’s largest companies, priced its IPO around a $500M valuation, and it was worth $777M ($2.1B in 2023, adjusted for inflation) by the end of its first trading day. Microsoft is now worth $2.5T, meaning that you could have made a more than 3000x return by investing after it went public.

Compare Microsoft to a younger company like Stripe. Stripe is privately valued at ~$50B (down from its $100B valuation just over a year ago). Say that Stripe IPOs at $50B, and you can invest at $50B the first day it hits the market. You’re not going to see 3,000x returns (unless you think Stripe has a $150T future). The upside, especially when you adjust for risk, just isn’t favorable for many IPOs today.

We are seeing this play out right now with 2021’s IPO darlings: the carnage is real, and public market investors are getting fleeced. The truth is that IPOs are often just liquidity events for private shareholders.

But what if you could have gotten an allocation in Stripe’s $3.4B Series C 9 years ago? Well, that’s a different story.

3) The Great Wealth Transfer

It is estimated that $68T will be passed down from baby boomers to their children in the coming years – the largest intergenerational wealth transfer in history.

Much of this wealth comes from private businesses owned by older entrepreneurs, but not all of their children are going to want to take over the companies. If you are a baby boomer looking to retire, and your heirs don’t want to take over the business, you’ll have to sell it.

If an entire generation is forced to sell their businesses around the same time, there will be opportunities for private equity investors to acquire profitable companies at favorable prices from these forced sellers.

And the generation that inherits this $68T of wealth? They are going to invest it somewhere, and many of these inheritance millionaires will look to venture outside of the public markets.

So now that we know why private market investing will be important in the coming years, let’s get back on track and answer an important question: How does Gridline help you access these markets?

What Asset Classes Does Gridline Support?

Investors have different objectives when selecting asset classes, and this graphic shows how those goals are met by three major asset classes:

Right now, Gridline is the only platform that enables you to invest with top-tier fund managers across:

• Venture Capital

• Private Equity

• Private Credit

• Real Assets - with a focus today on farmland via an alliance with AcreTrader

Now let’s break this chart down sector by sector, starting with Venture Capital and Private Equity:

1) Venture Capital and Private Equity

For investors with longer time horizons and higher risk tolerances, venture capital and private equity investments provide a non-public market alternative that still achieves higher absolute and risk-adjusted returns over extended time frames.

Objectives for Investing:

• High Absolute Returns

• High Risk-Adjusted Returns

• Diversification

Let’s take a look at a snapshot of benchmark statistics for 2016 vintage funds:

Here we can see how risk and investment levels vary through company maturity stages, from earlier, Venture Capital stages, through later Buyout stages.

2) Private Credit

For investors seeking additional fixed-income investments, private credit offers a valuable alternative to publicly-issued bonds and debt.

Objectives for Investing:

• Reliable income stream

• Low correlation to other asset classes

• Diversification

Let’s take a look at a snapshot of benchmark statistics for 2016 vintage funds:

In today’s inflationary environment, an opportunity has arisen for private credit funds to fill the gap in the market with better terms and a higher yield, all while sitting higher up in the capital structure, making them well poised to outperform their previous vintages.

There are a wide variety of private credit strategies, from middle-market lending to specialty finance and asset-backed lending.

Innovative Products Designed for Each Investing Goal

Gridline lets its clients invest in best-in-class fund managers across these asset classes through two different investment vehicles: Thematic Portfolios and Access Funds.

Thematic Portfolios

Thematic Portfolios are Gridline’s “funds of funds.” You can think of them like index funds in that they reduce the risk associated with investing in individual funds by allocating capital across multiple fund managers. These funds offer diversified exposure across a specific theme, picking the best managers from an array of geographies and industry focus areas to index the top two quartiles of the market. Today, Gridline offers thematic portfolios across venture capital, private equity, and private credit.

These portfolios are open to accredited investors and are a great way for investors to start to build exposure to private markets, or expand to asset classes they don’t have exposure to yet.

Access Funds

If Thematic Portfolios are index funds, then Access Funds are closer to stock picking in public markets. These Access Funds give investors the ability to make concentrated investments in top-tier funds of their choice, and at more palatable bite sizes than going direct. Are you bullish on a particular venture capital firm’s prospects over the next five years? You can invest accordingly.

Interested in investing with Gridline? Get started by clicking the button below!

How Does Gridline Work?

The irony in Gridline’s service is that the tech itself isn’t novel. At this point, centralized dashboards for data tracking are the norm across most SaaS and fintech services. But private market investing is an antiquated process and opportunities are isolated, leaving investors stuck with unnecessary legwork if they want to track and manage their investments.

Gridline’s biggest advantage over current platforms is how it has enabled simplicity. You no longer have to spend hundreds of hours networking for opportunities, manually completing hundreds of forms, and managing your own investments in Excel, because Gridline has consolidated the entire investment process in easy-to-follow dashboards as shown below:

Discover: Curated access to top-tier managers across the alternatives universe; Gridline performs and delivers extensive due diligence to help make an informed investment decision.

Deploy: Complete an investor profile once which is used across all investments for easy and fast closing, including auto-populated subscription agreements and digital signing.

Manage: Investments are centralized in a unified dashboard that provides accurate performance reporting, treasury and tax management over the funds’ lifecycle.

Gridline’s founder, Logan Henderson, provided some more color on how Gridline improves the entire private market investing process:

“By offering our services at a fraction of the cost of competing offerings and using industry-leading technology to provide transparency, accountability, and efficiency, Gridline has been able to engage with investors at all levels – from new entrants to sophisticated institutions – and provide them with access to some of the most promising opportunities across the alternatives landscape.

The private market investing process — even in 2023 — is typically pretty old school. You hit up your network to try to see what opportunities are out there. Once you’ve picked one, it’s time to go through the litany of paper forms.

Reporting is typically non-standard and all over the place, with erratic capital call frequencies. It can be nearly impossible to track unfunded commitments, with your best bet being a spreadsheet you have to manually update. There’s no way to accurately and comprehensively view your portfolio of alts.

If you think about our platform as the on-ramp to alternatives, the technology that digitizes a previously manual process serves as the rails. From filling out your investor profile to signing legal documents to getting a dashboard view of your alternative investments, we’re making the whole process quick and seamless.

The trend is bringing the features and functionality you expect in consumer-grade investing apps to the private markets. There’s no reason accredited investors can’t have the research, digital signing, and easy transfer setup that millions of public market investors already have.”

If you’re an accredited investor, there’s no reason that you shouldn’t be able to quickly review your investments, browse capital raises across different alternative markets, and expedite your administrative work.

When new investors sign up for Gridline, the platform handles the KYC & AML checks, and all investor information gets stored in their database for easy auto-fill later. Gridline has integrated treasury management as well, so wires and direct debits can be handled on-platform, and you can even create and fund an IRA without leaving the site.

Most importantly, you can review your cumulative portfolio’s performance on Gridline, because they have built their own real-time proprietary ledger technology. RIAs (we’ll discuss “who” Gridline works with in the next section) can even view their total book of business client-by-client on-site, ensuring accurate bookkeeping.

As far as the granular details, Gridline is free to join, and registered users have immediate access to all fund details on their site. There is no commitment to creating an account, and investors are charged one low, fully-loaded transparent fee of 50 - 100 bps annually on committed capital to invest. The following graphic breaks down the differences between Gridline and other alternative investment services:

While all of these tools are great, none of it matters if your performance is lackluster. The most important factor impacting returns? Manager selection.

The Number One Driver of Returns Is Manager Selection

Gridline reviews thousands of fund managers annually, studying everything from portfolio construction to operational practices, before arriving at a list of ~50 competitive managers for their offerings. They continue vetting new opportunities to find emerging managers and catch new fundraises of established managers regularly.

Who Does Gridline Work with Today?

Gridline has four primary client types:

• Individual investors just beginning to dip their toes in the world of alternatives (the thematic portfolio products are perfect for them, providing instant diversification across top fund managers for a low fee).

• Veteran individual investors already invested in private markets that want to expand across asset classes or add unique targeted strategies. (While these investors may find thematic portfolios useful, they benefit most from direct access to their preferred funds).

• Independent advisors who want to offer these strategies to their clients without needing to build an extensive private market research team and/or manage a cumbersome fund of funds.

• Family offices that, like RIAs, want to expand their reach into private markets, but want to scale their expansion efficiently. Gridline provides these clients the opportunity to experiment with different strategies and funds, where they can later double down on investments that met their expectations.

The following graphic shows how two different clients have used Gridline to meet their individual needs.

Final Thoughts

Now let’s tie this whole thing together.

Private market investing is an antiquated industry ripe for much-needed disruption. Private markets are primed to play an important role in investors’ portfolios for years to come. Private markets are notoriously difficult to both access and navigate. But private markets don’t have to be difficult, and investors should not sit on the sidelines when the market is hot.

Gridline is solving this issue by streamlining time-consuming research, networking, and administrative tasks.

If you found this deep dive interesting and want to get started investing with Gridline, check them out here!

Gridline does not give investment advice, endorsement, analysis or recommendations with respect to any securities. Nothing on this page shall constitute an offer to sell or a solicitation of an offer to buy an interest in any investment partnership or other security

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