With global alternative investments under management on pace to surpass $30 trillion in 2030, it’s no longer a question of whether individual investors will adopt alternatives. Rather, the question is: How?
Investors are increasingly viewing the asset class through a lens of personal goals, liquidity needs and portfolio objectives. For advisors, understanding how clients view alternatives, what actions might prompt them to move forward with an investment and helping them think about how alternatives fit within their broader portfolio strategy are critical steps to expanding alternative use.
A survey conducted by Brookfield’s Alts Institute revealed that the majority of alternatives users believe that having an alts allocation will drive stronger long-term outcomes than a traditional portfolio. Informed by dialogue with clients and proprietary research, Brookfield took a deeper dive into what motivates individual investors to increase their alternatives exposure.
The driving force? Advice from their advisors to lead the way in accessing, understanding and using a growing array of alternatives. In fact, both alternatives users and investors not using alts said that they would invest more in alts if their advisor recommended doing so.
As to which strategies would prompt them to move forward with an investment in alternatives, investors cite focusing on the overall benefit to their portfolio, with their advisor as the guide in explaining alternative strategies in depth and showing how these strategies fit with their personal goals.
It’s clear that investors are shifting their mindset from thinking about alternatives as a collection of individual categories to focusing on how a strategic allocation to alternatives can help achieve their broader portfolio objectives.
Demonstrating the Power of Alternatives
Understanding this emerging need, Brookfield partnered with iCapital to provide a portfolio comparison tool to demonstrate the strengths of alternatives. The Alts Allocator is built upon three proprietary investor profiles informed by high-net-worth investor research.
Alts Champions are actively seeking to maximize their exposure to alternatives and would consider increasing their alts allocation up to 30%. Alts Champions tend to have a relatively higher risk tolerance and focus more on the upside potential than the downside risk. While Alts Champions appreciate the benefits of alternatives, they often turn to their advisors for knowledge and education around different alternative investing opportunities.
Emerging Adopters are interested in investing more in alternatives with many willing to allocate up to 20%. Emerging Adopters say they are comfortable with illiquid investments as long as they can redeem within a reasonable timeframe. This investor segment typically looks to advisors for more in-depth education about the asset class and to bring to them alts opportunities that align with their interests.
Traditionalists are open to using alternatives or looking to build on their limited exposure to the asset class. Nearly two-thirds of non-users in this cohort would start investing in alternatives if their advisor recommended it, and Traditionalists are open to an allocation of up to 10%.
By using these investor profiles, advisors can have more constructive conversations on client motivation, attitudes and goals around alternative investing.
Moving Beyond a One-Size-Fits-All Approach
Education is a key driver in transforming interest in alternatives into action. For investors not using alts, nearly three-quarters say that they would begin investing in alternatives if they better understood the available options and 82% say they trust their advisor to make the right decisions on alts but want to understand what they are invested in.
For their part, advisors believe that their clients’ reservations around liquidity and complexity are allayed through education and 91% agree that building a strong working knowledge of alternatives is a commitment worth making.
In this new era of alternative investing, there is a growing opportunity for advisors to harness investors’ interest and enthusiasm for alternatives by meeting them where they are and using educational resources and innovative tools to help investors grasp the true power of alternatives.
John Sweeney is CEO of Brookfield Oaktree Wealth Solutions, which offers real asset and credit strategies across private and public markets.
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