Alternative investments are moving downmarket, said Boston-based Cerulli Associates, a global research firm, in a release on Monday.
In the U.S., the move comes as the retail channel’s assets continue to grow at a faster pace than those of the institutional channel.
In 2007, retail client channels accounted for 37% of total addressable assets in the U.S. market, said Daniil Shapiro, associate director at Cerulli, in the release. By the end of 2017, that figure had climbed to 48%.
At the same time, the importance of risk protection and diversification to retail channels can’t be overstated. U.S. advisors are most focused on “providing their clients with downside risk protection (57%) and portfolio diversification (55%) — objectives in which alternative investments can play an important role,” Shapiro said.
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While opportunity for diversification and the growth in the retail channel help enhance the appeal to asset managers of distributing alternatives beyond high-net-worh investors and institutions, uptake among U.S. advisors has been low.
Cerulli said that 45% of U.S. advisors report using alternative investments, but the average allocations across channels is below 5%.
To improve uptake, asset managers can bridge the gap between private capital and liquid public markets with product development and alternative platforms, the release said. An example is liquid alternatives, which became available in Canada at the beginning of this year. These also offer a distinct advantage to managers.
“Unlike more commoditized equity and fixed-income products, liquid alternative strategies are able to command heftier fees to the extent that they bridge the gap between expensive hedge fund exposures and increasingly inexpensive public market exposure,” Shapiro said.
More education about alternatives — for both advisors and clients — will help with adoption. Cerulli said education should include the various strategies of alternatives and what to expect from them. As diversifiers, many of the strategies aren’t meant to outperform traditional markets, it added.
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