As buzz continues to build around using alternative assets in investment portfolios, there is no shortage of products. Every day, asset managers seem to roll out new vehicles aimed at the wealth channel, ranging from spot bitcoin ETFs to infrastructure interval funds to non-traded REITs to strategies focused on private credit and private equity. However, it’s ultimately up to the RIAs to determine which options make the most sense in the current market and whether alternatives support their client’s objectives. WealthManagement.com reached out to executives at seven RIA firms to find out how advisors are approaching this task to find out which alternative investments they consider the most attractive and how they might play into future allocations.
There are a few guiding principles most seem to follow. The first is that alternatives should be viewed through the prism of their role within clients’ overall portfolios rather than “return chasers,” according to Derek Newcomer, director, investment research, with independent advisory firm Beacon Pointe. The second is that alternatives are long-term investment plays and explaining to clients that they will give up liquidity for up to seven to 10 years is critical.
“In our discussions with clients, the education piece is almost a necessary hold-up to the investment in that we want them to be fully clear and understand the risks they are taking. You can say the words ‘private equity,’ but that could mean 18 different things to 18 different people, and we want to be very clear with our clients exactly what strategy they are going to be investing in and how does it work,” said Christopher Burrows, partner with independent wealth management firm Cerity Partners. Burrows added that Cerity’s advisors try to get clients comfortable with illiquid or limited liquidity investment options by gradually increasing their allocations to such vehicles.
While the comfort level with alternative allocations varies from client to client, advisors have noticed a general uptick in interest. Given higher interest rates, more often than not, clients are looking to enhance their investment returns.
“The comments about where to find yield have dropped off from three-four years ago,” said Joe Raieta, partner and managing director with Snowden Lane Partners, a New York City-based independent wealth advisory firm. “We are looking for upside. We are looking for opportunities for outsized risk-adjusted returns.”
In the following slides, you can read about which alternative investment categories Raieta, Burrows and other advisors are paying the most attention to right now.