As the institutional market is saturated, asset managers are pursuing other businesses. Selling so-called alternative investments to wealthy individual investors.
Alternatives move outside the mainstream portfolios of equities and bonds and into asset classes such as credit, private equity and real estate. Difficult to trade and often walled off by certification requirements, it has historically been the domain of large investors such as pension funds and endowments.
McKinsey research shows that financial institutions typically invest 30-50% of their assets in alternatives. According to the same survey, the average individual investor has alternative investments, only 2% of them.
McKinsey predicted that its retail share could more than double to 5% over the next three years. The increase could increase new capital to alternatives by $500 billion to $1.3 trillion, according to consulting firm estimates.
Asset managers are turning to wealthy retail investors for new business as institutional investors impose self-imposed limits on allocations to alternatives, also known in the industry as ‘alts’. A business that combines wealth management with financial planning and advice, he is expected to balloon from $137 trillion in 2021 to about $230 trillion by 2030, according to consulting firm Bain.
“The bottom line is that given the size of the market, high net worth is just as big as institutional wealth. Joan Soloter, Head of Private Wealth Solutions, said:
Until recently, there were only a handful of institutional products available to individual investors, including Blackstone’s flagship Real Estate Investment Trust, its private fund known as Breit, and its private credit fund, Bcred.
However, offerings designed for individual investors will increase.
“Within the next nine months, there will be at least 15 to 20 new products on the market with different strategies from different big managers.
Earlier this month, Sun Life Financial, a $1 trillion Canadian alternatives manager, announced the acquisition of Advisors Asset Management, a US-based retailer that works with investment managers. The acquisition was the final part of Sun Life’s nearly decade-long effort to offer alternative products to its retail customers.
Sun Life President Steve Peacher said: He added that consolidation in the field is enthusiastic. [alternatives for retail] In the next 18-24 months it will be too late. “
KKR, a private equity pioneer that has expanded into other options, has won $6 billion from wealth management clients on so-called democratized products. The New York-based group said it would raise 30% to 50% of its newly raised capital from wealthy individuals.
Asset managers’ efforts to bring new alternative products to market are part of a response to demand from asset managers desperate to protect their clients from bear market swings and rising interest rates. said.
Matt Brown, founder and CEO of alternative investment marketplace CAIS, said: A “traditional” asset allocation for individuals, such as 60% stocks and 40% bonds, feels outdated in a world where most institutions invest half of their capital in alternatives, he said.
“Wealth advisors who do not use alternatives in the next few years will be at risk of not having a practice,” Brown said.
Fintech platforms such as Moonfare and iCapital have made moves in recent years to tap into the private market. Like most retail-focused alternative investment products, Moonfare is only available to accredited investors. Usually someone who has enough knowledge and money to withstand a large loss, or someone who works in finance. The minimum investment in these platforms is still around $75,000.
Managers said the product is not ready to offer to less wealthy investors who need to be able to buy and sell their investments more easily. The products we offer to offer monthly or quarterly redemption options only.
For asset managers, wealthy retail investors represent an important new source of corporate capital as institutional funding dries up.
said Michael Patterson, partner at HPS Partners, alternative manager specializing in credit.
However, the appetite for alternative investments may wane if they fail to perform in a volatile market. A volatile second quarter of 2022 will see unexpected amounts of money drawn from Blackstone retail products such as Breit, suggesting that retail investors are not immune to a ‘volatile market’. was shown. Investors have sold about $2.6 billion of his Breit stake. That’s more than triple his $700 million redemption last quarter.
“We haven’t really seen the other side of it yet,” Patterson said.