Financial Advisers Plan to Increase Alt Exposure in ’24

Financial advisers are likely to boost client portfolio exposure to alternative investments next year, though hurdles remain to the offerings, according to a second annual alt investment survey.

In a survey of 260 financial advisers, 85% said they expect to increase allocations to alternative asset classes in 2024, as measured by CAIS Capital LLC, a firm that connects advisers to alternative asset managers, and consultancy Mercer, a Marsh McLennan company.

That increase will come with 62% of that group of advisers already allocating between 6 and 25% of clients’ portfolios to alternatives, according to the study.

The survey was conducted, in part, at a CAIS alternative investment summit in October, perhaps showing a captive audience for alternatives. But flows into alternative assets have been rising. Global asset managers allocated $144 billion to alternative investments in 2022, up from $130 billion the year prior, according to the latest research by investment data services and consultancy Vidrio Financial LLC.

According to the CAIS and Mercer study, alternatives are popular among financial advisers in part to retain, as well as attract, clients. Among advisers surveyed, 83% advisers said offering alternatives helps differentiate them from their peers, and 78% said the investment strategy can help clients meet goals and objectives.

Furthermore, 59% of those surveyed said access to alternative investment opportunities helps win new clients, and 51% said it helps “gain wallet share” with existing clients.

Retirement Plan Obstacles

Advisers do have trepidation about adding alternative investments, according to the survey: 55% cited concern with high levels of administration and paperwork for offering alternatives in portfolios. Another 47% cited liquidity concerns of putting assets into the investment, and 35% noted due diligence and compliance concerns.

Those concerns, particularly liquidity, have been a barrier to adding alternative investments into retirement plans.

Neil Blundell, managing director and head of the CAIS investment team, says via email that the longer-term investing strategy of a defined contribution plan can be bolstered by “certain alternative investments.”

“Some strategies may offer the potential to enhance retirement objectives through enhanced growth, supplemental income, diversified risk and/ or the preservation of capital,” Blundell says.

Those vehicles can include registered fund structures such as a business development company, which offers a way to invest in small-and medium-sized companies; private real estate investment trusts; and interval funds and tender funds, which offer investments in company shares not traded on the secondary market.

“These structures can potentially offer access to quality alternative managers and their investment capabilities in product structures that may be better suited for the retirement community,“ Blundell says.

Real Estate Tops

Among the financial advisers in the survey, the most popular alternative allocation options were real estate (96%), private equity (93%) and private debt (91%).

The alternative options also vary according to need, with 65% of advisers indicating private equity is good for enhancing returns, 41% saying private debt is good to supplement income, and reasons to choose real estate split between diversifying risk (34%) and supplementing income (32%).

The CAIS and Mercer survey was conducted from September 12 through October 30, including at the CAIS Alternative Investment Summit in Los Angeles. The 260 respondents came from independent registered investment advisories, broker/dealer affiliates and family offices, among others.