In 2022, market conditions posed significant obstacles to “traditional” 60/40 portfolios, highlighting the potential benefits of less conventional return-enhancing asset classes like alternative assets. Conversations with advisors and investors are turning from the case for investing in alternatives to how to invest in alternatives. 

We asked Glenn Spencer, CEO Prime Capital Investment Advisors and one of the panelists for Alternative Assets Fundraising: Steering Through Rough Terrain at Connect Money’s inaugural Alternative Assets Conference on June 14 in Chicago about his investment thesis for the sector. Spencer discussed allocation sizes, objectives, opportunities and his approach to educating his team and investors about alternative investments. 

In the current uncertain market environment, where traditional investing playbooks may be less effective than previously, alternative investments can play an important strategic role in certain portfolios.  

Connect Money: From a wealth manager’s perspective, what investments are you seeking? Are asset managers making the internal changes required to capture opportunities in the mainstreaming of alternatives? 

Glenn Spencer: We’ve been a believer in alternative assets as a class for a long time. If you look at the smartest, most patient money in the world its pension funds, large endowments, ultra-high-net-worth families, private offices. They allocate 20%, up to 40% of their investments in alternatives. The reason is, in short, you get a liquidity premium. Those organizations don’t need liquidity. The more high-net-worth you are the more should go towards those investments. We believe we get the best results for our clients when we allocate towards alternatives 

It’s a differentiator for us because a lot of the smaller RIAs don’t have the capabilities to do due diligence, monitor the investments and execute on the operational logistics of having your clients in alternatives. 

Further fueling the mainstreaming of alternative assets is the convergence of traditional and alternative investment managers and products.  

Connect Money: How is this convergence reflected in your portfolios?    

Glenn Spencer: Overall, if we looked at our wealth management clients, our allocation (for alternatives) is right around 10%; however, the higher net-worth you are the greater the percentage of alternatives we’ll utilize for our clients. If you have a $1 million net-worth, you’re not going to tie up one-third of it in something that may not be liquid for 6, 7, 8, maybe 10 years. Our guidelines are around overall net-worth, liquidity needs, which leads you to your higher-net-worth clients. 

Many expect alternatives will grow faster than traditional asset management products. The higher revenue yield and resulting faster-paced revenue growth make the opportunity particularly attractive for asset managers.  

Connect Money: Are you making alternative investments a priority and are these uncorrelated sources of return in clients’ traditional stock/bond portfolios? 

Glenn Spencer: We see this trend continuing. The high-net-worth clients are more interested because it’s differentiated. We see a lot of great private companies out there, and in terms of the types of assets we invest our clients in venture capital, private equity, hedge funds, real estate, private credit, private debt. It’s across the board.   

In an asset class where manager and strategy selection are paramount, financial advisors need quality educational content to make smart, strategic decisions for their clients.  

Connect Money: How do you approach educating your team? 

Glenn Spencer: That’s a great question. The one thing I would say is about your opening comment about the lack of transparency. If it’s super opaque, we’re not going to put our clients in it. We need transparency. We don’t need public company transparency, but we do need enough in order for us to do due diligence to be able to recommend it to our clients. On the other side, we have clients who are willing to take more risk. As a category investor we are going to be a little more conservative because we’re a fiduciary and we’re representing thousands of potential investors. 

Hear from industry leaders in alternative assets like Prime Capital Investment Advisors CEO Glenn Spencer. Connect with top executives in private credit, real estate and more at the Connect Money: Alternative Assets Conference in Chicago on June 14 at the W City Center.