As market volatility spikes, investors plan to lift allocation to alternatives: Survey

Pensco study finds SEC's crowdfunding rule likely to draw investors to more private equity-like vehicles

Nov 25, 2015 @ 10:41 am

By Laura Sanicola

Self-directed IRA investors are becoming more acclimated to nontraded alternative assets, according to a new study from Pensco Trust Co.

An increase in market volatility this year is changing the way investors allocate their assets, with 62% of respondents reporting that they either plan to or already have increased their allocation of nontraded alternatives in response the markets.

Another quarter of the respondents plan to increase that allocation within five years.

Kelly Rodriques, chief executive officer of Pensco, said investors are more knowledgeable about nontraded alternatives than they were a year ago.

“Investors now experience fewer hurdles to investing in nontraded alternatives, and they possess a better understanding of how to use an IRA to invest in various alternative asset classes,” he said in a statement.

Twenty-seven percent of respondents sought to add nontraded alternatives to their individual retirement account portfolio to increase diversification and risk return characteristics. Another 26% said alternatives will give them the opportunity to invest in businesses and industries in which they have personal knowledge or expertise.

Sixteen percent said the potential to generate income for their retirement portfolio was the greatest benefit to them of adding alternatives.


Real estate and private equity were cited as the most popular asset classes. More than half of the survey's respondents said they will increase their allocation to real estate investments, which includes single-family investment property and nontraded REITs. Another quarter said they will increase their private equity allocation with investments in startups or funds.

The SEC recently approved crowdfunding rules via Title III of the JOBS Act, which Mr. Rodriques believes will make investors all the more interested in nontraded alternatives. Thirty percent of respondents reported having an understanding of how to invest in private equity through a crowdfunding platform.

“Starting next year, the general public will be able to buy shares of private companies that are issued on securities crowdfunding platforms, which means that the need for investor education on the topic is greater than ever before,” he said.

In turn, Mr. Rodriques also expects that companies trying to raise capital under Title III will do so through self-directed IRA investors.

“We expect capital raisers to tap self-directed IRA investors for funding through crowdfunding vehicles,” he said.


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