Increasing demand for alternative investments is putting pressure on asset managers, and turnkey asset management platforms like Envestnet Inc., to offer alternatives to a wider range of advisers and investors.
Envestnet announced Tuesday partnerships with UBS Group AG and iCapital Network Inc. to launch what the firm is calling an Alternatives Exchange, designed to provide curated UBS and iCapital alternative investment products to the 106,000 advisers on Envestnet’s platform, according to the announcement.
The popularity of alternative assets is on the rise with research showing alternative assets under management are expected to hit $11.8 trillion this year and increase to $17.2 trillion by 2025, according to data by Preqin. As a result, asset managers that are able to provide easy access to alternative investments increasingly represent a competitive differentiator for financial advisers, said Javelin Strategy's head of wealth management William Trout.
However, significant operational friction is often involved in onboarding these instruments, Trout said. “Platforms like iCapital may help reduce this friction by streamlining administrative requirements, while the exchange concept provides a ready menu for product selection,” he said.
“The extent to which UBS and Envestnet are helping to curate this platform speaks to the increasing democratization of investment management, whereby asset classes once the purview of the very rich are now available to affluent investors via the financial adviser,” Trout said.
Envestnet’s Alternatives Exchange will be made available during the third quarter directly through a single sign-on integration, according to the announcement. Envestnet's portfolio consulting group, Envestnet PMC, will provide oversight of the Alternatives Exchange. The offering will be used by Envestnet's new Private Wealth Consulting service for advisers of high-net-worth clients, providing access to private investments and hedge fund strategies through UBS and iCapital.
"UBS has a long history of partnering with leading technology companies, like Envestnet and iCapital, to help broaden the firm's distribution network of its products and services," said Tom Naratil, president of the Americas at UBS, in a statement. "This strategic relationship will enable us to scale our product offering for investors and strengthen our position in the alternative investments sector."
UBS has even created a dedicated group to service this initiative, which will provide access to investment solutions and custody services, according to the announcement. Advisers on Envestnet's platform will continue to be the primary contact for their clients.
Envestnet’s Alternatives Exchange will provide access to alternative assets like hedge funds, private equity, private credit, venture capital and real estate, but Envestnet is also seeing demand for interval funds and structured products, said Dana D'Auria, co-chief investment officer of Envestnet.
“The digitization of access to any type of product has had a big influence on this,” D’Auria said. “Advisers looking for non-correlated assets, hedge funds, in particular, really came to the fore last year.”
Newer investors also have an increased expectation that they will be able to access different areas of the market, D’Auria said.
"As advisors seek to navigate challenges presented by a low-yield environment and better diversify traditional equity and fixed-income portfolios, we believe alternative solutions can be another option used to enhance client investment outcomes," she said.
This isn’t the first time the industry’s largest TAMP by assets launched an exchange to expand its product offerings. In February, Envestnet launched its Trust Services Exchange designed to let advisers facilitate the transfer of wealth from generation to generation without dealing with external attorneys or trust administrators.
Envestnet also partnered with insurance marketplace Fiduciary Exchange, a company that connects wealth management firms with insurance providers, to launch its own Insurance Exchange in 2019.
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