ALTERNATIVE INVESTMENTS

Demand for alternative strategies is growing as advisors seek to differentiate in an increasingly competitive market and investors look to maintain returns in a changing environment. Today, the traditional 60/40 portfolio comprised of public equities and fixed income is forecasted to generate about half of what it has historically, with significantly more volatility1, creating a pressing need for new sources of diversification and growth in high-net-worth portfolios.

Simultaneously, alternative investments such as specialty hedge funds, similar to Tri-Party Venture Funds®, private equity funds, other fund products, as well as direct private deals are becoming more mainstream. An October 2017 PwC industry report forecasts that alternative investments will surpass $21 trillion in assets by 2025, more than doubling in size in eight years and reaching 15% of all global assets under management2.

Much of this growth has been enabled by the rise of new technologies and platforms that have made it possible to efficiently aggregate thousands of individual high-net-worth investor commitments, thereby opening access to opportunities that previously were only available to large institutions. Advisors are increasingly taking advantage of these choices to offer a diverse range of alternative investments to their clients. However, certain obstacles to high-net-worth investment in alternatives identified in prior CAPQ research, such as illiquidity, high minimums, and access to high-quality offerings, still exist. Varying levels of obstructions with legacy institutional structures also create challenges in ease of access to alternative investments across traditional wirehouses, brokerages and asset management companies who support traditional and independent advisory firms.

What is clear is that all types of advisors are increasingly interested in alternatives and looking for ways to incorporate new exposures and strategies, particularly specialty hedge funds, into client portfolios. As increasing private wealth and an evolving alternative investment landscape continue to stoke advisor demand for these asset classes, we expect that innovations in technology and product offerings will further democratize alternatives for the high-net-worth market and serve advisors with more accessible solutions.

1. Can a 60/40 Portfolio Still Produce Solid Returns?, Financial Advisor IQ, July 5, 2017
2. Asset & Wealth Management Revolution: Embracing Exponential Change, PwC, October 2017; https://www.pwc.com/gx/en/asset-management/asset-management-insights/assets/ awm-revolution-full-report-final.pdf

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