The following is an excerpt from a new research paper, “Alternatives in the mainstream,” that was co-developed by InvestmentNews Research and Blackstone.
Several current indicators point to potentially greater use of alternative investments over the next three years: Historically rich valuations for equities, a possible bottoming out of interest rates if not a change in their direction, as well as investor willingness to explore new investment approaches.
Perhaps most important, say advisers, is that investors — often unprompted by advisers — are expressing more interest in alternatives. According to findings from recent research conducted by InvestmentNews, 83% of clients have expressed some level of interest in alternative investments.
Because of this increase in client interest, advisers believe that the use of alternative investments will increase over the medium term. Advisers who manage up to $250 million in assets say that the percentage of clients who have alternatives in their portfolios will increase from roughly a quarter to about a third over the next three years.
Those advisers also noted that portfolio allocations to alternatives should rise to roughly 12% from about 9%, while advisers who personally manage more than $250 million in assets say that client allocations to alternatives should rise slightly more. This is in line with targets for alternative allocations being set by advisers, who plan to increase their portfolio allocations by about three percentage points over the next three years.
Trying to take the measure of this expected shift to alternatives, we looked at the dollar impact. The typical firm in our survey manages $130M in assets and allocates approximately 9.8% of a typical client portfolio to alternatives. On average, the typical adviser anticipates that allocation will rise to 13.8% in three years.
Assuming that our sample of independent firms is a reasonable proxy for the population of independent advisers, that four percentage point expansion represents a $149 billion projected increase in alternative investments in the independent advisory channel over the next three years.
Download the full research brief, “Alternatives in the mainstream now.
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