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Nearly 40% of US Advisors Are Using Alternative Investments: Cerulli

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Interest in alternative investments is on the rise.

According to a new report from global research and consulting firm Cerulli Associates, U.S. advisors’ mean allocations in 2017 to alternatives represented 7.2% of their total assets under management, compared to 5.7% the year prior.

The report, U.S. Alternative Investments 2018: Accessing Evolving Alternative Platforms, focuses on the U.S. retail and institutional alternative product landscape and distribution and product development trends in the U.S. alternative asset market.

“This past year, the global alternative investments industry benefited from two main drivers,” Michele Giuditta, director at Cerulli, said in a statement. “Strong economic growth across North America, Europe and Asia, and the growing attraction institutional investors have for alternatives assets in these markets.”

According to Giuditta, worldwide alternative assets were approaching $9 trillion as of year-end 2017 and private capital investments accounted for nearly $5 trillion of that AUM.

Hedge funds and liquid alternatives also rebounded after experiencing a tough year in 2016, when “performance declined, and redemptions outpaced new allocations,” according to Giuditta.

“Advisors have played an increasingly important role in the spread and adoption of alternative investment products across different channels,” explains Giuditta.

Cerulli’s latest survey revealed that nearly 40% of advisors report using alternatives (excluding liquid alternatives) and just more than 37% report using liquid alternative mutual funds.

Use of alternatives is particularly strong within wirehouses (57%), hybrid RIAs (43%) and retail bank broker-dealers (64%). RIAs continue to be the leading channel alternative asset managers target for their investment products, according to Cerulli.

Cerulli defines alternative asset classes to include real estate investment trusts; other private investments like debt, natural resources and infrastructure; hedge funds; private equity; real estate; and “other.”

The report looks at what advisors actual distribution of these particular alternative assets were in 2017, and then what their distributions are expected to be in 2020.

In 2017, private investments — including other private investments, private equity and real estate — together accounted for nearly 40% of advisors’ alternative asset distributions. This share is expected to reach almost 42% in 2020, according to Cerulli.

The distribution to hedge funds is predicted to increase from 17.9% to 18.4% in 2020.

Real estate investment trusts (REITs), which in 2017 was the alternative class with the highest distribution, is predicted to see a negative change of 3.7 percentage points in 2020 but still remain the highest distribution.

Meanwhile, Cerulli reports that private equity is expected to continue on its growth path. Having exhibited a greater than three-percentage-point increase from 2016, private equity distribution is expected to grow another 2.7 points by 2020, according to Cerulli.

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