Arena Private Wealth, a $600 million-asset registered investment advisor firm founded two years ago, isn't the sort of business you would expect to lead venture capital deals or launch an exchange-traded fund. But founder and principal Mitch Stein says having private- and capital-markets businesses alongside traditional wealth management is more than a way to differentiate the firm. "If traditional fee-for-advice is under attack -- and who knows what Claude's ability to run model portfolios and build financial plans will be in the very near future -- I want to find ways for our business to be relevant a decade from now," says Stein, whose firm is based in Chicago. "I want to diversify in as many ways as I can, and part of that is ownership of product and solutions."
Speaking with Barron's Advisor, Stein -- who met Arena co-founders Jason Tosh and Ryan Watt while they were financial advisors at Fifth Third Bancorp -- explains why the team is helping launch an ETF and how they networked their way onto the VC map. And he reveals how its first big direct-investment deal, in inference chip maker Positron AI, led to its next one, a bet on harnessing the power of the Southern Oceans.
Arena has three verticals -- wealth management, capital markets and alternatives. You could have built a plain-vanilla financial planning shop and just grown it and prospered and lived happily ever after. That was the original goal, but so much of your core wealth and planning is becoming commoditized. A lot of the platforms and solutions that clients get are table stakes. We found that doing unique, differentiated, and just compelling stuff was worthy of more ambitious pursuit. We have three integrated verticals: wealth, capital markets, and alternatives. We'd like to think that we do the boring stuff really well. I think a lot of firms are doing a fine job bridging the gap between private wealth and private markets. Our focus is on closing that gap. We believe that the venture-capital firms on the coasts and institutional investors shouldn't have a monopoly on access to all of these great opportunities. In the capital-markets space, we're launching our first ETF in the coming weeks. It's going to be a co-branded vehicle with a large asset manager that focuses on a high-yield income strategy we've run for almost two decades.
Has the regulatory burden of this more complex business been about what you expected? We're fortunate to have great infrastructure in place that is streamlining the implementation of this for us and takes a lot of that burden off our plate. We have a legal staff, a three-person compliance team, and a third-party platform partner in [wealthtech platform] Gridline that helps us with the subscription-document drafting, entity formation, and legal counseling. So we've been able to build the right team around us, outsourcing much of that, to make sure we're protecting our clients and protecting the business and pursuing these endeavors with as little friction as possible.
What other special human resources are needed? For instance, I'm thinking of sourcing deals. Part of our pursuit of this private markets vertical was a network of family offices and institutions that we had great relationships with. The problem when we were just a traditional RIA is that we never had anything compelling or interesting on the business side to talk to these folks about. So it was: What can we be doing to deepen these wonderful relationships? And beyond that, how can we leverage those relationships to open up opportunities and access?
Our client base has become bifurcated. We have our core wealth clients, where we do portfolio management planning and work with them just like most RIAs work with their clients. Those are typically mass-affluent and high-net-worth households, and they do participate in our alternative investment opportunities. They maybe represent 15% to 20% percent of the funding. We're glad to have them participate, as it gives them unique access, it diversifies the portfolios, and they really like this aspect of our business. But now we've developed [a limited partner] base that is represented by ultrahigh-net-worth family offices, institutions, even a sovereign-wealth fund. That network is expanding rapidly.
And with every new deal we execute, complete, or pursue, we get access to new cap-table partners in the form of VC firms. We have fellow board members who are wonderful to have as part of our network. We have a relationship with a new founder, and that opens this door to a founders network. So there's this multiplying effect with every deal that we do, or even look at, where our story is getting out there. We now have a seat at the table in a world that once seemed foreign and distant to us, to the point where there's now inbound interest. We get outreach from founders and VCs who've heard about our value proposition as a diversifying and alternative capital partner.
So the actual VCs themselves are becoming some of our most valuable relationships. We're not here to replace VC; we're here to complement it. We want to do two to six high-conviction deals a year. The relationship we have with VC firms is great because we effectively follow and cherry pick their winners. We want to be one of their first calls when they have a company that grows out of seed or Series A and has had some de-risking event and maybe is on the precipice of revenue or commercial traction. That's when we want to introduce Arena as a capital partner. We're getting all sorts of introductions from VC funds that we've sat on cap tables with, with opportunities they have that have now graduated to a point where Arena would be interested.
It sounds like your network is one of your most valuable business assets. How do you approach networking? We're really leaning in to the idea of being active participants and not passive allocators. We're not here to just order off a menu -- we actually want to create the dish. And in doing so, we earn the right to have conversations with these high-net-worth investors, with these family offices. What's critically important for us is deal flow and sourcing and building the most unique, interesting, and exclusive network we can.
Because then the [assets under management], the inbound interest, the outcomes, and everything else will follow as a byproduct of that access. It has taken me all over the world. In the past year I've been to Doha, I've been to Iceland, I've been all over this country, trying to insert myself into the right rooms, with the right networks, with the right founders, with the right investors, to tell our story, to cultivate this network and to earn a seat at the table.
Arena recently co-led a funding round for a start-up called Panthalassa, which is developing offshore wave-energy nodes designed to power AI data centers and clean-fuel production. How did the deal come about? Our watershed direct deal was Positron. We were in Doha with the CEO of that business, Matesh Agarwal, and a fellow board member, as part of the Web Summit Qatar meeting with the Qatar Investment Authority where we announced our Series B round. On our last night in Doha, over a conversation with a fellow board member at Positron, we learned about Panthalassa. This board member said, "Fellas, I've got your next investment. What do you know about Panthalassa?"
Tell our readers what the company does. Panthalassa [The word refers to the vast super-ocean that surrounded the supercontinent Pangaea roughly 250 million years ago.] is revolutionizing the way compute is delivered. Terrestrial data centers face a lot of headwinds. They're tremendously expensive. The future, we believe, is in ocean and space. Panthalassa, in simple terms, is a floating AI inference data center. Picture an untethered hydroelectric dam that is harvesting wave energy. Floating nodes are packed with inference chips, which generate tokens, communicate with low-orbit satellite providers, and then transmit that compute back to Earth. The punchline is, what if the cleanest, most abundant source of energy we have on planet Earth is also the cheapest? These nodes are designed to exist in the Southern Ocean, the roughest, windiest parts of the Earth. They can be autonomously serviced, repaired, monitored, and managed. Our hope is that in the next decade you will see fleets of these floating data centers.
It would be nice if we could innovate our way out of the ecological harms associated with these land-based data centers. Yes, which are expensive, which put strains on communities. There are better paths, and we think both space and ocean make a lot more sense.
Arena is developing a structured-income ETF. Why be in the manufacturing business with all its regulatory burdens? The ETF is a different type of high-yield income strategy. It's a hybrid vehicle that is designed to complement or replace other types of high-yielding strategies like private credit, real estate, and traditional high-yield. It's a strategy we've run for almost two decades with individual securities, and we figured out a way to do it in an ETF wrapper.
This has been about a year in the works. The mission was to deliver the solution to our clients as a more tax-efficient, liquid solution. Again, it's the idea of active participation: If we don't see what we like out there, let's go build it. As we went down this path and recruited an asset-management collaborator that is also interested in this space, we recognized that this could be a more scalable product.
We're always thinking about ways to AI and future-proof this business. It gets into my thesis about building an RIA firm that nobody would ever leave. If traditional fee-for-advice is under attack -- and who knows what Claude's ability to run model portfolios and build financial plans will be in the very near future -- I want to find ways for our business to be relevant a decade from now. I want to diversify in as many ways as I can, and part of that is ownership of product and solutions.
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