Advisors Wading Deeper Into Liquid Alts

While liquid alternatives are used by virtually all advisors, many advisors do not have significant assets invested in liquid alternatives, according to a recent Practical Perspectives report.

Practical Perspectives, a Boston-based consulting and research firm, released this week its annual study on advisors’ liquid alt use, “Financial Advisors and Liquid Alternatives 2015 – Insights and Opportunities.”

The report finds that, for nearly 3 in 4 advisors, liquid alternatives represent just 10% or less of the total assets they currently manage.

“While virtually all advisors now have some assets invested in liquid alternatives, only a limited number of advisors have fully integrated liquid alternatives into their practices,” said Howard Schneider, president of Practical Perspectives and author of the report, in a statement. “A large number of advisors that use liquid alternatives have minimal assets invested or use these solutions for only a portion of their client base.”

More specifically, according to the report, roughly 1 in 4 advisors using liquid alternatives have less than $5 million invested in liquid alt vehicles, and the large majority of liquid alternative assets are held by the roughly 1 in 5 advisors who have at least $100 million in these solutions.

However, the report shows that more and more advisors are holding more of their assets in liquid alts.

According to Practical Perspectives, the advisors with more than $100 million in assets in liquid alternatives represent 19% of advisors today, compared with 12% in 2014. And advisors with $25 million to $100 million in liquid alternatives represent 36% of advisors, up from 24% in 2014.

Consequently, advisors who have $5 million to $25 million in liquid alternatives represent 19% of advisors, compared with 29% in 2014. And advisors with less than $5 million in liquid alternatives represent 26% of advisors, compared with 35% in 2014.

“Liquid alternatives are increasingly important to advisors in serving retail investors. This growth has been spurred by the evolving capital markets environment and the expanded availability of these strategies in mutual fund, ETF and VA vehicles,” Schneider said in a statement.

Advisors themselves anticipate continued growth in their use of liquid alternatives during the next 12 months, the report finds.