Private equity and other alternative asset management firms are moving down market to support the retail marketplace, according to a new report from Cerulli Associates.
So far, these firms have raised a relatively small amount of total retail assets, Cerulli said in a statement. But as these firms’ product lineups expand, they will widen their appeal beyond institutional investors and grow their share of retail assets.
“Private investment managers, following in the tracks of hedge-fund-focused alternative firms and traditional long-only managers, are tapping the public markets,” Michele Giuditta, associate director at Cerulli Associates, said in the statement.
“These firms have been hard at work identifying ways to make illiquid private investments more mainstream and allow smaller investors into their funds.”
Demand for alternative assets across institutional and retail channels remains high, Cerulli reported, continuing a trend it identified a year ago.
Fifty-seven percent of asset managers surveyed cited requests from institutional investors and 52% from financial advisors.
At the same time, 55% said interest from distributors/platforms was gaining importance as a key driver of demand.
The number of asset managers offering alternative products has grown along with allocations to alternative assets.
Alternative managers are expanding strategy offerings to institutional investors, and moving down market to diversify their client base and product lineup by manufacturing liquid alternative mutual funds.
In addition, some traditional asset managers are seeking growth opportunities by diversifying their product roster to include alternative investments.
Cerulli found that 69% of asset managers looking to grow their alternatives capabilities choose to build their business internally in order to maintain control over product development and distribution.
However, demand for alternatives is so intense that many are finding the quickest way to put product into distribution is by hiring either an experienced portfolio management team or a subadvisor or by acquiring a specialty shop.
In the near term, the interest in alternatives remains robust. Cerulli said it expected interest in alternatives to remain robust in the near term, citing data from Preqin, an alternative investments data provider.
At the end of 2013, Preqin said the majority of institutional investors planned either to increase or maintain their allocations to the major alternative asset classes over the next 12 months.
Another Preqin study found that the vast majority of hedge fund investors were satisfied with 2013 performance.
Mutual fund alternative assets are also expected to grow, with asset managers polled by Cerulli expecting to double their share of total mutual fund assets in just two years.