Alternative investing is gaining momentum among high-net-worth (HNW) investors, whose portfolios in 2022 have an average of 9.1% of their assets allocated to alternative investing options, up from 7.7% of client portfolios in 2020, and advisers expect this to increase to 9.6% by 2024, according to a recent report.
There are numerous reasons advisers are adding alternative investments to client allocations, states the report by Cerulli Associates on HNW markets, among the top ones cited are portfolio diversification to help reduce volatility (50%) and new growth opportunities (50%).
Moving forward, HNW practices report strong intentions to increase alternative investments in almost all strategies over the next two years. Private equity leads the way, with 50% of advisers and executives planning to increase their allocations, followed by private real estate (45%) and direct investments/co-investing (32%). A vast majority (94% or more) of surveyed HNW practices expect to maintain or grow their positions in all types of alternative investment opportunities, outside of hedge funds.
HNW practices are also increasing offerings, such as alternative manager search and selection as a primary service, growing from 50% in 2016 to 67% in 2022. This trend among HNW practices is expected to persist as private markets continue to mature and prospects for additional tailwinds in the space proliferate.
“Advisers – disappointed in public equity and fixed-income returns – are allocating more to private capital exposures,” says Chayce Horton, a Cerulli research analyst. “By expanding opportunities into private asset and credit markets, affluent and HNW investors are better equipped to properly diversify their portfolios.”
“Practices competing in the HNW advisory space should consider making these types of alternative investment consulting and implementation services a core part of their offering,” Horton adds. “Access to alternative opportunities is a beneficial aspect of advisers’ service offerings that has proven to both attract and retain HNW clients over time.”