A new report demonstrates the important role of advisors in the growing alternative investments market, according to InvestmentNews.
The report by FUSE Research Network finds that alternatives have become more commonplace as a wealth management strategy. The category, which currently amounts to about $1.4 trillion in alternative assets, is expected to grow by 17% each year to over $3 trillion by 2029.
Alternatives are assets that are not among the conventional investment categories such as stocks, bonds or cash, but can include such areas as cryptocurrencies, venture capital, hedge funds, commodities, art or real estate. Private equity and venture capital investments are expected to remain the most popular alternative asset categories in wealth management.
The Fuse report finds that traditional asset managers are selling more of these alternative products to affluent investors. The largest jump in adoption among advisors is for cryptocurrency/digital assets, which just 21% of advisors use today and 48% plan to use over the next two years.
“Advisors are aggressively planning to increase their use of alternatives, especially in the illiquid and semiliquid space. This will take time as underlying issues will complicate its implementation,” said Mike Evans, Director of BenchMark Research at FUSE Research. “Liquidity concerns, limited accessibility beyond wirehouse advisors and advisors with large books of business, client suitability as well as operational and compliance challenges will all hinder the speed of adoption across the broader retail investor market.”
Loren Fox, director of research at FUSE Research Network, told InvestmentNews that about 30 to 40 percent of semi-liquid alts are sold through advisors. Semi-liquid investments require investors to be comfortable with less liquidity to access their initial investment over some period of time.
“That area is growing very quickly. That’s where you’re seeing a lot of the traditional fund managers having interest. It looks like a mutual fund, so it’s not as big of a leap” compared with illiquid alternatives, he said.
Fox notes that advisors sell most of the liquid alts, including mutual funds and ETS, while only about 7% of illiquid assets such as hedge funds are sold through advisors.
FUSE expects seven firms in particular to expand their alts business with wealth management advisors: BlackRock, Fidelity, Franklin Templeton, JPMorgan, Pimco, Nuveen, and Calamos.
“Having greater distribution resources helps improve advisor engagement, as FUSE sees from the firms that advisors named as among the top 10 alts brands,” said Fox. “But scale isn’t everything. Wealth-channel alternatives are still a relatively new development, and the ‘firms to watch’ list will undoubtedly change in coming years.”
The FUSE report said a key factor driving the growth in alts is that investment gains have allowed more wealth management clients to hit the $1 million in net worth required to qualify for accredited investor status. That status allows investors to participate in more funds focused on alternative assets.
“Traditional managers start with more advisor relationships in wealth channels, and 42% of asset managers surveyed by FUSE employ ‘alternatives specialists’ who supplement salespeople with in depth knowledge and education,” Fox said.
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