On an investment podcast, the host noted a shift from the traditional 60/40 portfolio to a 50/30/20 allocation that includes alternatives. Given this shift, how should RIAs build and implement an alternatives allocation strategy across their entire client base?
Assume that the alternative investments are private closed-end limited partnerships. One approach is to recommend alternative managers and have clients invest directly. However, this solution is less than ideal for a number of reasons. For example, some clients end up over-allocated to venture capital because they liked a particular fund pitch. Others might end up with excessive vintage year concentration. And many client portfolios will lack sufficient diversification. While a $100-200 million portfolio targeting 12% in alternatives can achieve sufficient diversification, a $10 million portfolio has only $1.2 million to deploy. With $5-10 million stated fund minimums, this client can access perhaps 1-2 funds, creating massive concentration risk.
Risk management becomes inconsistent for the RIA managing individual alternative allocations for an entire roster of clients. And the administrative burden of private markets is notorious. As assets scale, managing individual client allocations across dozens of funds with inconsistent access, pricing, and service becomes untenable. The operational complexity, regulatory risk, and economic inefficiency will eventually reduce the RIA’s margins in an already competitive low-fee environment. In a crowded Wealth Management marketplace, how can the RIA establish a powerful differentiator with alternatives?
The solution: create a custom fund-of-funds managed by the RIA.
With pooled capital, the custom fund-of-funds (custom fund) can hold positions in best-in-class managers across the spectrum of private closed-end funds. RIAs can build precise allocations: 40% private equity, 20% venture capital, 30% private credit, and 10% real assets. The RIA can methodically build positions across multiple vintage years (e.g., 2026, 2027, 2028, 2029). This approach smooths return patterns and reduces timing risk. Over time, the custom fund builds an audited track record. This track record becomes a powerful marketing asset with demonstrable, verifiable alpha.
With a custom fund approach, every client receives institutional-quality, professionally diversified exposure. This holds whether they invest $500,000 or $10 million. This democratization of access is a powerful value proposition that can increase client stickiness and facilitate new client acquisition. Clients can trust that the RIA’s economic interests are fully aligned with generating the best possible risk-adjusted returns. They don’t have to worry about being placed in accessible funds instead of optimal ones.
And while illiquidity is often presented as a drawback, it creates powerful retention. Clients with 12-15% of their portfolio in the fund-of-funds cannot easily move to another advisor without triggering significant transaction costs and tax consequences. Moreover, younger family members and next-generation wealth holders are particularly attracted to alternatives exposure. The custom fund facilitates wealth transfer while maintaining assets within the RIA.
Over time, the custom fund becomes the centerpiece of the RIA’s value proposition. This transforms the RIA from a commodity provider of financial planning and public markets access into a specialized institutional manager with differentiated capabilities. Clients transition from viewing the RIA as a service provider to viewing it as their institutional alternatives platform, which fundamentally changes the relationship dynamic. Satisfied custom fund investors become enthusiastic advocates, generating referrals from peers who want similar access to institutional alternatives. Moreover, RIAs with proprietary investment products may experience enhanced client retention due to increased switching costs and differentiated offerings.
Most importantly, the custom fund structure aligns perfectly with the long-term trajectory of the wealth management industry. As alternatives continue capturing share from traditional 60/40 portfolios (projected to represent 20-30% of client portfolios by 2030), RIAs must develop institutional-grade capabilities to access these markets effectively. The custom fund structure transforms alternatives from a service add-on into a core competency with sustainable competitive advantages. Rather than managing a multitude of separate alternative allocations with individualized reporting, capital call management, and tax preparation, the RIA manages one vehicle. This approach transforms alternatives from an operational burden and margin pressure into a strategic differentiator and profit center. It converts the RIA from a distributor of third-party products into an institutional investment manager with sustainable competitive advantages.
For forward-thinking RIAs, the proprietary custom fund represents the optimal path to delivering exceptional value to clients while building a more valuable, defensible, and profitable advisory business. The question is not whether to pursue this strategy, but how quickly it can be executed.
Douglas M Dougherty, CFA provides decades of investing experience and a network of top-tier private equity fund managers, peers from large single-family offices, and best-in-class service providers. Previously Chief Investment Officer of RFA Management Company, LLC, a large multi-billion single-family office, where he created investment Policies & Procedures and constructed a significant Private & Alternatives investment portfolio. Prior to joining RFA, Doug was Vice President, Equity Research and Senior Portfolio Manager for Cornercap Investment Counsel, and Atlanta-based Registered Investment Adviser. In this role, Mr. Dougherty oversaw the firm’s Private & Alternatives practice, led the Large-Mid-Cap Equity strategy, and was co-portfolio manager for a ’40 Act mutual fund.
A practical field guide for RIAs evaluating a custom private fund strategy.
In public markets, the experience is simple by design. You can implement an allocation quickly, see performance cleanly, and move money with minimal friction.
Private markets are not built that way. Whether you’re a novice or experienced in launching private market vehicles, the opaqueness remains either a barrier to entry or an impediment to scale. Advisors underscore this: more than two-thirds cite the inherent complexity of private markets as a key challenge in client discussions, especially around mechanics like pacing, liquidity, and performance reporting.
That complexity is not what draws RIAs to private funds in the first place. It is simply part of the terrain. The question is less whether complexity exists, and more whether it is understood and planned for ahead of time.
A “custom fund,” as we define it, is a closed-end drawdown vehicle containing private funds or individual investments designed to give dozens of underlying investors easy access to private market exposure into a single, firm-aligned allocation. One that reflects your philosophy, your manager preferences, and the client experience you want to deliver. Instead of asking clients to evaluate and subscribe to a new private fund every time an opportunity appears, a custom fund creates a repeatable structure you can build on over time.
These vehicles are not new. They have been around for decades and have long been part of how institutions and many sophisticated RIAs allocate to private markets. They may not be the most talked about structure today, with evergreen funds capturing much of the attention, but there is a reason closed-end drawdown vehicles continue to represent a meaningful share of private market allocations. When implemented well, they have historically delivered strong outcomes and allowed wealth managers to access the best private managers.
At the same time, custom funds still feel like a big step, especially in the wealth channel. And that hesitation is rational.
When I speak with advisors who are considering this path, the concerns tend to be consistent:
This field guide exists for one reason. To make the requirements, tradeoffs, and ongoing expectations visible before you commit, so you can avoid common pitfalls, learn from peers who’ve been through it, and approach a custom fund with a clearer plan and fewer surprises.
How to use this guide
This is not a checklist you need to complete before moving forward. In practice, very few RIAs hit all of these signals at launch, and many successful custom funds were built while firms were still working through one or more of them.
Instead, think of this as a maturity map. These signals reflect where firms tend to arrive over time as they gain conviction, experience, and infrastructure. Some will resonate immediately. Others may feel aspirational. That’s expected.
The goal of this field guide is not to tell you whether you’re “ready” or not. It’s to help you understand what becomes important, when, and what tradeoffs you’re implicitly making at each stage.
Before thinking about structure, vendors, or managers, most firms find it helpful to get clear internally on one foundational question. How much illiquidity clients can bear and want to bear. That decision influences pacing, client segmentation, and which private strategies make sense, whether venture, credit, real estate, or a mix.
Why it matters: This is not just an allocation question. It is strategy-defining. In practice, RIA firms that have not aligned on illiquidity often find themselves revisiting core decisions later in the process, debating whether venture belongs in the mix, how much cash flow matters, or how patient clients truly are.
What we see in practice: Firms that handle this well are not guessing. They have had explicit internal conversations about how different client segments experience illiquidity, and they accept that not every private strategy fits every client, even within a custom fund.
What it affects downstream: Illiquidity assumptions shape portfolio construction, capital call pacing, and client communication.
Signal of progress: You can articulate a target private allocation range for the right clients and explain why.
Closed-end drawdown funds do not behave like public market allocations. Capital is called over time. Distributions arrive unevenly. Early performance can look unintuitive. It is not bad. It is simply different.
Why it matters: If you’re not managing the liquidity operations around the purchase of sale of private companies, the fund you’re investing in is. Avoiding dealing with them purely for the sake of convenience usually means they show up in the form of lower returns down the road.
What we see in practice: Clients rarely ask for drawdown funds explicitly. They care about results. Advisors who struggle here are often trying to make private markets feel like public markets, rather than setting expectations for how private investments actually work.
What it affects downstream: Client education, performance conversations, and confidence during early quarters when capital has been called but results are not yet visible.
Signal of progress: You’re aligned on the results you’re trying to achieve for clients and comfortable setting client expectations for their experience with private markets.
A custom fund only works if the client base supports it. In most cases, that means meaningful accredited investor density and, ideally, a material base of qualified purchasers. Your ability to access differentiated opportunities is partially a function of size, and banding your clients together can offer each of them a better deal than going it alone.
Why it matters: Eligibility is not just a legal box to check. It determines whether the vehicle can be diversified properly and whether capital can be deployed at the intended pace.
What we see in practice: RIA firms that underestimate this often rely too heavily on a small number of clients to make the math work, which introduces fragility if even one large investor chooses not to participate.
What it affects downstream: Portfolio construction, concentration risk, deployment timing, and the long-term viability of the vehicle.
Signal of progress: You know the percentage of clients eligible to participate and have evaluated the client portfolio implications to reach your target fund size.
Across the custom fund launches I have been involved in, investment leadership not being aligned on whether private funds can produce above market returns is perhaps the largest impediment. This challenge does not always show up as open conflict.
Why it matters: Misalignment does not fail loudly. It fails quietly. Capital raises underperform expectations, conviction weakens, and timelines stretch.
What we see in practice: Instead of refining strategy and communicating clearly with clients, firms spend energy internally debating whether the approach is right at all.
What it affects downstream: Fundraising success, advisor confidence in client conversations, and speed to steady state.
Signal of progress: There is consensus on the why and the how with key stakeholders identified and engaged to support execution.
Multi-manager custom funds often feel hardest at launch because the work is front-loaded. Identity documents, accreditation verification, client education, and onboarding all happen at once.
Why it matters: The upfront effort is what creates leverage later. Without it, firms often end up repeating the same work fund after fund.
What we see in practice: Launch quarter friction is frequently misinterpreted as a structural flaw, often accompanied by a flurry of emails, calls, and internal questions, when it is actually the cost of building a repeatable system.
What it affects downstream: Operational drag, tax complexity, advisor time, and the ability to scale commitments with ease over time.
Signal of progress: You are willing to invest effort upfront to gain long-term efficiencies.
Most firms we work with don’t hit all of these signals before they begin, and still launch custom funds successfully. Yet, even when the signals are there, some firms still hesitate. Usually, because they have seen or heard about custom fund launches that went sideways.
In practice, the most common failure points when launching a custom fund are not investment ideas. They are tied to execution.
The patterns that show up most often:
How firms de-risk these issues in practice:
Even if you don’t check every box today, reading through these risks and patterns gives you insight from peers who have already been through it—context many firms don’t have going in. You don’t have to start perfect to start informed.
Private markets will always be more complex than public markets. Yet, if the goals and strategy are aligned with your firm’s ethos for both the near term and long-term, navigating to the “how” becomes manageable. More than that, it becomes an org-wide action plan.
When the responsibilities are clearly understood, and the right infrastructure is in place, a custom fund becomes a practical way to deliver differentiated exposure, scale your process, and create a client experience that feels institutional.
This is what it means to set a new standard.
Gridline is a turnkey alternatives management platform built to set a new standard for private market investing. We work with RIAs to make private markets as easy to operate as trading stock, without sacrificing rigor or control.
Through our Custom Funds, Gridline helps RIAs launch and manage closed-end drawdown funds by providing a single platform for fund formation support, subscriptions, capital calls, performance reporting, and ongoing operations. The goal is simple. Absorb the operational complexity so advisors can focus on investment decisions and client relationships.
For a closer look at how Gridline supports RIAs launching closed-end drawdown vehicles, you can view our Custom Funds one-pager here.
Charles Patton leads manager selection, portfolio construction, and General Partner (GP) relationships at Gridline as Investment Director. Prior to joining Gridline in November 2022, Charles worked on Wells Fargo’s Investment Portfolio team and previously served as a Summer Associate at the University of Virginia Investment Management Company (UVIMCO). While earning his MBA at the University of Virginia’s Darden School of Business, he was Chief Investment Officer of Darden Capital Management. Charles holds an undergraduate degree from the University of North Carolina and is a CFA charterholder.