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Alternative Investment

Most asset managers consider distribution of alternatives a major challenge, but still optimistic

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Now that a wave of acquisitions has occurred in the investment management space, managers are seeking the best ways to integrate alternative investment capabilities into their distribution channels.

That’s according to a Cerulli Associates report, U.S. Alternative Investments 2022: Delivering Capabilities to Retail Investors, which states that 68% of managers rate the distribution of alternatives as a major or moderate challenge.

The Cerulli report is optimistic that there is a role for alternative investments within client portfolios (69% of advisors cite using alternatives to reduce exposure to public markets and 66% for volatility dampening). Still, adoption of alternative investments remains relatively low. Many advisors avoid alternative and commodities with 40% of advisors using neither one.

“Alternatives distribution is exceptionally complex given the tremendous education requirement for advisors to become comfortable with the more expensive exposures that wholesalers will need to be heftily compensated to sell,” notes Cerulli Director, Daniil Shaprio. “Managers will also be faced with a talent war as a range of firms looks to staff up to distribute product,” he adds.

Cerulli says that managers will need to re-evaluate their distribution and product positioning if they want to overcome advisor inertia and increase the alternative investment landscape.

Improving those alternative investment capabilities means having a well-staffed and knowledgeable distribution team. Also, asset managers should position alternative investment products to advisors based on the specific outcomes they are aiming to achieve, the attributes of those products, and the advantages/importance of private markets without being critical of public market exposures. Cerulli also believes that a key trend for managers is the acquisition of alternative investments capabilities as well as the continued build-out of intermittent liquidity products to deliver such exposures to a retail client base.

“Managers looking to distribute alternative investment exposures will face steep competition from brand managers that advisors choose to trust,” says Shapiro. “Firms will need to explain why their teams specifically should be entrusted with access to specific exposure.”

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