Alternatives allocations may be on the up-and-up next year, at least if advisors are able to justify the risk.
Following a survey of more than 800 RIAs, private wealth firms, and broker-dealers across 15 countries engaged in alternative investing, their activity in the space looks likely to increase in the next 12 months.
A whopping 89% of advisors want to maintain or up allocations in alternative funds. 39% are expected to increase them outright; a far cry from the small 14% that expressed this interest last year. Likewise, 84% advisors claim that client interest is level with the past two years, or has grown, despite evidence of a more cautious macro backdrop.
Against all the fervour, there is still a caveat on the advisors’ side. The same research discovered that over half struggle to assess liquidity and risk across asset classes. Another 53% find it difficult to completely articulate how they construct portfolios.
This indicates a change in the tide for the advisory practice. There has been a long-running trend where pitching has relied on access, education and even some persuasion. Now, technological and operational support is cited as a major priority for advisors, to demonstrate knowledge of implementations, portfolio construction tools, reporting infrastructure and risk assessment.
Effectively, excessive demand is outpacing advisors’ comprehension; a rapid trend that could see the ‘wheels falling off’ if not reigned in.
So, what does this mean for fund marketers?
A Galileo Eureka moment may be to think towards “advisor enablement” content, rather than another generic case for why advisors need to talk about alternatives in the first place.
This audience is looking for confidence in explaining drawdown risk and fee structures to their clients, as well as which technologies can improve reporting and onboarding without operational hurdles.
For funds, this means centring any alternatives content around plain-language liquidity and risk education, report transparency, and evidential case studies around how funds can integrate with an advisor’s existing tech stack.
The research also suggests that the two major frictions – risk in asset classes, and portfolio-level impact – should be ingrained into DDQs and RFP responses proactively, before an advisor asks for such information.
This may require better coordination between marketing and operations teams to improve outreach beyond mere messaging quality. But adding substance to advisor-led materials will pertain to a growing industry need, promoting alternatives well in this potential time of popularity!
Sources
iCapital, “iCapital Survey Finds Advisor Demand for Alternatives Continues to Grow as Industry Focus Shifts to Implementation and Scale” and “The Next Phase of Alternatives Growth”
