Evening Brief – 12.06.23
Advisor Demand Rising for Alts
Most independent financial advisors anticipate increasing their allocations to one or more alternative asset classes in 2024, according to a survey by alternatives investment platform CAIS and consultant Mercer.
Approximately 260 advisors participated in CAIS’ second Alternative Investment Summit this month, providing insight on the current investing landscape, with 83% of advisors viewing alternatives as providing a competitive edge, indicating access to alternatives differentiates their practice from their peers.
Over the coming year, 85% anticipate raising their allocations to one or more alternative asset groups. According to the report, private equity and/or private debt will dominate new allocations, with 68% of advisors aiming to increase them.
“The transition to a three-dimensional portfolio including alternative investments is accelerating rapidly. Our latest data suggests that alts are also helping independent advisors differentiate from competitors and build their practices,” said Matt Brown, Founder and CEO of CAIS.
One-quarter (23%) indicated they would be increasing their hedge fund allocations, while 27% said they would increase their commitments to structured notes.
In 2025, over half (51%) of advisors stated they will allocate more than 15% of their client portfolios to alternatives.
Meanwhile, 53% of respondents responded that meeting total return targets is the most difficult goal for the future. A little more than half of those polled said that generating enough real income will be a moderate issue in the future.
Most advisors (62%) indicated they invest between 6% and 25% of their clients’ portfolios in alternative strategies, relying on alts access to drive new client wins (59%), or gain wallet share (51%).
“As the wealth channel continues to embrace alternative investments, these findings underscore the independent advisor’s need for strategic partners that can help them streamline alts adoption,” said Gregg Sommer, Mercer partner and US financial intermediaries leader.
According to last year’s joint survey, more than half of the 97 financial advisors polled (53%) were thinking about increasing their alternative asset allocations to more than 15% over the following two years.
Private debt, real estate, private equity, and structured notes make up the majority of existing client portfolios.
Private debt received the most interest, with 45% of advisors investing between 6% and 20% of their portfolio to the asset class. Fewer (41%) said the same about real estate, 33% said the same about private equity, and 26% said the same about structured notes.
Natural resources, infrastructure, hedge funds, and digital assets all had considerably lower current allocations, with most advisors allocating between 0% and 5% or not allocating at all.
Each asset class has its own objective in the client portfolio. For instance, 65% said private equity’s role is to enhance returns, while most (41%) said private debt is to supplement income. Real estate is seen by 34% as diversifying risk, while hedge funds (51%) and infrastructure (48%) were seen as playing that same role.