Unlocking Wealth: The Rise and Revolution of Alternative Investments
In the most recent episode of our Alternative Allocations podcast, I had the pleasure of chatting with the insightful Daniil Shapiro from Cerulli Associates. Our conversation dove deep into Cerulli’s groundbreaking research on alternative investments, spotlighting how advisors are adopting these opportunities and how the industry is evolving to meet demand. The spotlight was on the significant surge in private market funds, which are causing quite a buzz in the investment community. The current landscape is unique—asset managers are rolling out products that are not just sought after by advisors and investors but are also structured to align everyone’s interests.
During our discussion, we tackled some of the hurdles faced by advisors, such as the need for better alternatives education, the challenges of illiquidity, and operational complexities. Daniil and I explored how we can elevate the current industry average of approximately 6% allocation to alternatives up to a more impactful 15% to 20%, tailored to each client’s unique goals and timelines. As Daniil aptly put it, “It comes down to the enhanced liquidity products that are increasingly being rolled out. Platforms like iCapital and CAIS are essential for providing streamlined access to alternative investment opportunities.”
We emphasized the critical need for robust alternative education and thought leadership to empower both advisors and investors. Daniil highlighted that dedicated resources are vital for educating, selling, and supporting alternative investment offerings. Numerous industry studies, including Cerulli’s, show that advisors not only recognize the immense value of private markets but are also eager to increase their exposure to them.
Daniil also shared what types of educational resources would benefit advisors the most. They are on the hunt for asset-class education, guidance on portfolio construction, and strategies for effectively communicating the merits of alternatives to their clients, as well as understanding the tradeoffs present in various structures.
Given Cerulli’s unique insight into the market, I was curious about Daniil’s vision for the industry’s future over the next decade. He confidently stated that “advisors will be increasing their allocations to alternative investments, particularly those high-quality products.” He anticipates that trillions of dollars will flow into the U.S. wealth channel, transforming the landscape.
However, he noted that this shift will not be uniform, leading to winners and losers in the space. He predicts that more flexible structures, like interval and tender-offer funds, will gain traction among advisors due to their appealing features and accessibility.
Despite the evident enthusiasm surrounding the growth of alternatives, the allocation percentage has stubbornly hovered around 6% over the past decade. Advisors are well aware of the advantages of boosting their allocations, yet the adoption rate remains low.
We believe that the upcoming growth and adoption in this sector will be fueled by a market that demands diverse tools, innovative products that make private markets more accessible, and opportunities to work with institutional-quality managers.
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WHAT ARE THE RISKS?
All investments come with risks, including the potential loss of principal.
Investments in many alternative investment strategies are intricate and speculative, entail significant risk, and should not be viewed as a complete investment program. Depending on the product, alternative strategies may offer only limited liquidity and are best suited for individuals who can afford to lose their entire investment. Strategies focusing on privately held companies present unique challenges and risks compared to public companies, including issues related to limited information and liquidity. Diversification does not guarantee profit or protect against loss.
Investing in private securities (like private equity or private credit) or vehicles that invest in them should be considered illiquid and may require a long-term commitment without certainty of return. The value and return on these investments may fluctuate due to multiple factors, including changes in interest rates, economic conditions, and the financial condition of the issuers. Furthermore, there is no assurance that companies will eventually list their securities publicly, leading to an absence of a liquid secondary market for some investments, which can negatively impact their market value and your ability to sell them at an optimal time or price. Past performance is not indicative of future results.
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The insights expressed in this material are those of the investment manager and reflect their views at the time of publication, which may change without notice. The underlying assumptions and views are subject to market conditions and may differ from those of other portfolio managers or the firm as a whole. The information provided does not constitute a complete analysis of every material fact regarding any country, region, or market. No prediction, projection, or forecast regarding the economy or markets can be guaranteed. The value of investments and the income they generate can fluctuate, and you may not recover the amount originally invested. Past performance does not guarantee future results.
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