A Smarter Approach to Private Markets with Ryan VanGorder

So what's driving this shift and how do you see it reshaping the advisory industry over the next few years?

[00:00:33] Ryan VanGorder: Yeah, well maybe at its foundation, there's this ideology discussed and known as modern portfolio theory. And it sort of talks about the efficient frontier of investing. And what gets distilled out of there is this barbelled approach to investing where people buy cheap beta. That is your ETFs, your direct indexing, and you go and you pay for your alpha.

I believe, vis-a-vis the feedback I've received, fiduciaries, advisors, investors, allocators, know that they need to have that allocation into private markets. And it's different for everybody. Most of them have had some sort of experience in either wading into the water or the private markets, or they've doven straight in.

And, I think I've been talking about it, you know, throughout my career since probably around 2010. And, it feels like that sort of glacial movement where we see the glacier calving into the sea of, Investors, allocators, advisors started diving in. And now we're at this point of inflection where we have critical mass. People are in, they know what it is, and there's a big need and desire for it to get easier and more scalable, and really just better around the overall experience and transparency into what's happening.

[00:02:00] Doug Heikkinen: Many advisors still view private markets as complex or inaccessible. So are there barriers that are coming down, and if so, how is Opto helping fiduciaries bridge that gap?

[00:02:12] Ryan VanGorder: Yeah, so there's this sort of perpetual barrier that's going to be the regulator saying who can and can't invest in the private markets.

And we deal with that through structure. The market deals with it through structure, as you think about classification of clients and who's allowed to get in. I would say in the early 2000s we went from, as an industry, we went from zero to one in the access story. So we used to hear a lot about democratization of the private markets or access.

And we're really in this space where we've moved well beyond one. There's access on your phone, in D2C apps, from your neighbor, your friends, your jobs maybe if you're working in the private markets. And plenty of platforms out there. And now what we're doing is moving from, off of one and pointed towards a hundred.

And we're trying to move to a space where the general public and qualified investors, people that the regulator sort of allows into the space, and people who should be investing in the privates are getting into privates and we're trying to make it a better experience and add some confidence and conviction around what people are doing.

We tend to think that we're trying to move towards a space where we're supporting fiduciaries in their effort to say, should privates be in my portfolio? We like to look at the fiduciary as the arbiter of working with their clients and saying, some clients, but not all, should have this in their portfolio for different reasons.

Usually liquidity. And then the next step is to say, is this good or is this bad? And take it from there.

[00:03:57] Doug Heikkinen: How important is having conflict free private market partners, and what distinguishes an aligned partnership for one that poses hidden conflicts of interest?

[00:04:07] Ryan VanGorder: Yeah. I love personally to follow the bouncing ball of who touches money along a workflow, and try to figure out sort of what that drives in the form of behavior. And we are built as a firm on the idea of alignment. It's a principle that we follow. We're partnering with clients, but beyond that, more specifically to your question, when we went from zero to one in the industry, into getting access to private markets for more people, the access that was ascertained was from people who were paid to provide product.

The hard to access vehicles weren't distributing their product because they had plenty of people lined at the door to come in. And the alignment that's so dramatically important to investors today, means that they shouldn't be getting products stuffed into their client's portfolios. It means that they should be selective about what they're out in market looking for and what they're bringing to their clients.

Alignment is, simple to say, it's also something that you can find out whether or not it exists. And you can always just ask people, "are you getting paid to provide me this product?" And once you understand that, you might have a different perspective on what adverse selection bias looks and feels like, because you'll be staring it in the face.

[00:05:29] Doug Heikkinen: Market opportunities traditionally come with high or came with a high due diligence burden. Is AI changing the way advisors evaluate managers, strategies, and risk?

[00:05:42] Ryan VanGorder: Hands down, AI is a game changer. So if you get your favorite instance of a foundational model like Claude, ChatGPT, Grok, take your pick.

You get a deck, you can throw it in there. You could ask it, "is this good or bad?" I'm sure it'll give you an opinion and it'll also ask you some questions like, "is it good relative to what? Does it fit your portfolio?" All the questions. AI is allowing us to normalize a lot of un-normal data or unstructured data, and it's really allowing people to get a lot smarter, a lot faster, with what's out there.

Now, if you're using a foundational model, you're using public data. It could be right, could be wrong. And you might get hallucinations along the way and you might be told something that's a little bit off. But, we love the idea of the use of AI and we're actually building with it. So we're, one of the things we're bringing to market is a diligence framework. And we're using AI to do the same thing everyone else would in a cottage industry of throwing a maybe a deck into a foundational model.

But we use it in an entitled fashion. And really we consider it a walled garden to help our clients keep their data to themselves. We use AI to extract that unstructured data. Everyone can be doing that with or without a tool. And what we do is we create a corpus schema or database.

We put that data in the database. We use complex workflows and math to arrive at some really nice looks at the data. And people can do that on their own. The real question is if you want to partner to help guide you into a space where you can do it repeatably over time, you can do it with these complex workflows that sort of steer you clear of hallucinations.

But AI undoubtedly is going to give everybody a lift into diligence. If you're using an app or paying for some data, chances are, pieces of that are out on the web or in a space where your AI assistant is going to help you at least have an opinion on it. So we're getting excited about it.

We're not competing with AI. We are partnering with AI. We're sitting right next to it. And it's going to change so fast. If you're not neck deep in it, it's going to pass you by really fast.

[00:07:54] Doug Heikkinen: In your view, is there a next frontier for technology's role in private market access and transparency?

[00:08:02] Ryan VanGorder: Without a doubt. I believe technology's role in private market transparency lies within the data. And it can be small data sets or large data sets. There's some big data providers out there. There's small data providers, there's government, the regulator who's got a lot of data. Then if you're an investor in an allocator, you also have access to a lot of data.

So if you're a fiduciary who's investing on behalf of your clients, you have GPs who are constantly giving you their decks and their information, it's their IP. And we like to think that that's probably the most rich data you'll ever have. And as soon as you can take all the public data, all data sets you choose to buy, and that rich IP that your potential general partners, that you might invest next to as a limited partner, are giving you, you can put all of that together in the form of the most robust and rich data you'll ever have.

Then you could start thinking about these private market investments more like a public market trade, where you're building confidence around your analytics. You know how it fits in your portfolio. You have expectations on cash flows and return profiles. You basically are driving down your anxiety and uncertainty by having more of that data, at your hands.

Can you tell I'm all in on data?

[00:09:22] Doug Heikkinen: I can tell. You've had two kind of interesting lives. You've led teams in both competitive racing and high performance investment settings. So what parallels do you see between adventure racing and running a company like Opto?

[00:09:39] Ryan VanGorder: There are so many parallels. Maybe I'll just pick one. I'll pick teamwork. So the sport that I competed in internationally was, it's called adventure racing, and it's a endurance multi-sport team sport where you stay together as a team and you can only travel as fast as your slowest teammate. Usually we're racing multiple days, no set course, map and compass.

Sounds a little bit like business, running a business, in that regard. You could only go as fast as your slowest teammate and the teammates that would act in sort of a lone wolf fashion, didn't work for an extended period of time or exist in a team format because it just didn't work. You needed everybody to check their ego at their door.

You needed everybody to ask for help when they were the slowest, because everybody took turn being the slowest. And that's tough, to check your ego at the door. But when when you step out of the race course in the wilderness and into the office, we know, and expect, that everybody has special skills and moves fast.

And at times some people need a little bit of help, and we're looking around for like, what is our governor or what's keeping us from moving faster and how do we help lift those, whether they're teammates or functions or steps in processes across the team, to be better. It allows us to move faster as a team.

And, I would say I can reach out and touch teamwork when I see it. And being the part of a group and a team that I would basically trust physically and literally trust my life with, you can't get any closer to what teamwork looks like, and that's what we try to drive and in terms of the team we're building, and how we rely on each other and, how we can really lift each other up.

So teamwork makes the dream work.

[00:11:39] Doug Heikkinen: I think you had 30 adventure races around the world, including one that left you hospitalized. So you've clearly embraced challenge. How has that experience shaped your views on risk and resilience, and how do you coach your team to follow that?

[00:11:56] Ryan VanGorder: Yeah, I think, you know, one of the things I talk about a lot is, winning long term through risk management. And, what I mean when I say that, because that can be a big, bold, ambiguous statement, is that you have to know when you're going to take the risk and why you're going to take it. It's tough to turn around from the peak when you're close to it. Everyone gets Summit fever.

You want to get up there and get the thing. Or if, in racing for us, sometimes the shortest line to a checkpoint had some undue risk in there, and we had to be smart enough to say like, let's go around this feature. And, as it relates to business, really it's no different. We need to make considerations on a daily, weekly, monthly basis, whether they're strategic or tactical, about where and how we take risks.

Just came out of a conversation talking to one of my lead engineers about where it's okay for us to take risk with generative AI base code, where we can have like massive feature release and get out and get in front of it. And there's spaces in our business, because we work with fiduciaries and their money and their client's money, that we don't take risks.

Because it's very important for us to get performance calculations right, our clients know and understand what their nav balances are, what portfolios look like, and that there's a steady set of hands on them, but that there's features and information and qualitative type information that we can build around that has our platform growing at a rapid pace.

And that's a pretty good example of where and how we consider risk in the workplace.

[00:13:43] Doug Heikkinen: Last one for you. If you could share one insight with advisors navigating the evolving investment landscape, blending human judgment, technology, and alternative access, what would that be?

[00:13:58] Ryan VanGorder: Great question. I would say just take things one step at a time. Make sure and slow down and understand everything you're doing, because there's no rocket science going on here. It's actually, everything we're doing is linear in the private markets. The faster people talk or the more complicated people make things, typically are a red flag in the space for me to say, if you're going into this, just slow down and ask questions.

How do you get paid? Why should I make this investment? How does this fit? Where is there conflict? Where is there not conflict? And I think there should be confidence in moving, perhaps like in your last foot race, one step at a time towards that goal. That's how you get there. Nobody needs to sprint. You need to make good decisions, and hopefully that sets people off in the right direction as they weighed into the private markets.

[00:14:58] Doug Heikkinen: That's a great place to end. Ryan, it's been a pleasure. Great meeting you. And thank you so much for being with us.

[00:15:04] Ryan VanGorder: Likewise. Thanks for having me, Doug.

[00:15:07] Doug Heikkinen: To learn more about Opto investments, please visit optoinvest.com. That's  optoinvest.com. Thanks for being with us today. For our producer Tory Miller. I'm Doug Heikkinen