Alternative investment sales skyrocket in 2021

Sales of alternative investments, including nontraded real estate investment trusts and business development companies, by financial adviser and brokers have skyrocketed so far in 2021, reaching $31.7 billion over the first half of the year and are on pace to reach nearly double that amount by the end of year, according to research by Robert A. Stanger & Co. Inc., an investment bank and research firm.

Sales of such alternative investments, which also include interval funds and Delaware statutory trusts, are so strong, they have already surpassed last year's total of close to $27 billion, according to Stanger.

While some financial advisers have historically embraced such alternative investments as a piece of a client's portfolio that is not correlated to the stock market, other advisers have avoided them because of their illiquidity and high fees and commissions, which creates a potential hurdle for an investor to recoup the initial investment.

Products for the past several years have been changing, however, with lower upfront charges and major institutional money managers that long shunned the retail marketplace, such as Blackstone, have seen a deluge of investor money. The Blackstone Real Estate Income Trust alone raised more than $2.5 billion last month, according to Stanger.

Kevin Gannon, CEO of Stanger, points to a handful of reasons why sales of alternative investment have boomed this year. Investment performance has been strong, and likewise investors have seen sponsors produce strong distributions, which are akin to dividends, he said. Pricing for real estate assets has also improved with the recovery from the Covid-19 pandemic, he added.

He used the Blackstone REIT as an example. Its net asset value per share, or NAV, at the end of last year was $11.38, while at the end of June it was $12.43, while its distribution to clients over the first half of the year was slightly less than 32 cents per share. That translates into a total return for the first half of the year of 11.7% for the Blackstone REIT, according to Gannon.

"Real estate continues to be a sound solution to the needs of the investment community today," he said.

Blackstone Group leads 2021 nontraded REIT sales with $10 billion and followed by Starwood Capital with close to $2.4 billion, according to Stanger.

Black Creek Group has raised $789 million in REIT sales, followed by Nuveen, $257 million, FS Investments, $233 million, and Hines Interest, $222 million.