Access to Alternative Investments Is Opening Up. Do Clients Care?

While private markets aren’t just for the largest investors anymore, not everyone is ready to put their money into the more opaque products offered there.

Alternative investments are expected to reach $30 trillion in assets by 2030, up from $10 trillion a decade ago, per data from BlackRock. At the same time, companies are staying private longer, according to S&P Capital IQ, with 84% of those generating $100 million in revenue remaining private. Such trends are increasing interest in opportunities beyond public markets, resulting in a wave of product announcements from big wirehouse firms and breakaway RIA platforms alike. Morgan Stanley Wealth Management opened its private markets fund to a wider pool of investors last week, by removing the accredited investor requirement and lowering investment minimums.

Advisors need to educate themselves (and their clients) about the unique risk and return opportunities that alternatives bring to the table before adoption will really pick up, but all signs are that the alternatives party may just be getting started. “Alternative investments are no longer a nice-to-have or a niche offering,” said Ed Swenson, president of RFG Advisory. “Wealthy investors are demanding them.”

A Supply Side Story

Financial advisors on the ground are telling more of a mixed story about alternatives, with most seeing more “supply side activity” than organic client demand. Vincent DeCrow, advisor at Rise Investments, is not experiencing much client demand for private equity or more traditional private credit, such as direct private commercial lending. “There have been a series of valuation and related concerns in those two categories that have been keeping a lot of potential new investors on the sidelines for the time being,” he said. 

That doesn’t mean alternatives aren’t important, most agreed, but they require careful consideration. “The doors have opened on alternatives and I am welcoming my clients in,” said Mitzie Wilson, wealth advisor at Farther. “The 60/40 model now has competition and is changing to 50/30/20, with the goal reaching 20% alternatives over time.”

Benjamin Bolen, head of wealth management for University Investment Services, agreed, noting customers aren’t asking for alts, but they are asking for what alts can provide. “2022 broke standard rules about stocks and bond correlation, because both went down, which isn’t supposed to happen,” Bolen said. “Investors are looking for greater stability and lower correlation. Alts provide this, and now they’re accessible to retail investors.”

Open Up. Earlier this month, RFG partnered with iCapital to give its advisors access to vetted alternatives managers across private equity, private credit, hedge funds and structured investments. “The vetted funds are important, but iCapital also brings solid educational tools that are going to be an important part of expanding the use of alternatives,” Swenson said. “Today, this is very much an 80-20 issue, where 20% of advisors and clients are doing 80% of the investing into alts.” 

Swenson expects that dynamic to change as firms make vetted alternatives easier to access and advisors educate their clients.

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