A new survey from PPB Capital Partners (PPB) has found that 98 per cent of responding wealth advisers plan to increase or maintain client exposure to alternative investments in the coming year.
For those looking to add to their exposure, 85 per cent indicated that they plan to increase their allocation between 5 per cent-10 per cent over the next 12-months. This is a big difference from 2017, when PPB’s survey revealed that 7 per cent of respondents planned to decrease their clients’ alternatives allocations.
The survey results are based on the responses of 130 wealth advisers. Of those surveyed, 83 per cent were RIAs or Bank Wealth Groups, 9 per cent were Family Offices, and the remaining respondents were a combination of Institutions, Consultants, or High Net Worth Investors. About two-thirds of respondents manage over $1B in assets.
“These results are significant,” says PPB’s Founder and CEO Brendan Lake. “Almost 50 per cent of wealth advisers said over half of their clients own alternative investments. For 24 per cent of wealth advisers, the increased volatility seen in the markets during the Covid-19 pandemic has changed their view on the need for alternatives. But, implementing alternative investments can present operational challenges for wealth advisers and their clients.”
The majority of wealth advisers said that they use alternative strategies for diversification, risk management, and/or to enhance returns. Only 36 per cent said they use alternatives for income, and less than 15 per cent said they use alternatives to fulfil a client- or firm-driven initiative.
The strategies most likely to see an increase in allocation are real estate, private equity and/or private credit. advisers planning to decrease alternatives exposure indicated the reduction will likely come from hedge fund strategies.
The largest hurdle wealth advisers face in increasing their alternative allocations over the next 12-months is dedicating the team resources needed for proper manager due diligence, the survey found. Once a manager and strategy have been selected, firms are often overwhelmed by gathering the required client documentation and completing the lengthy subscription process. This remains true across the industry, despite 62 per cent of wealth advisers stating they use electronic subscription platforms.
“Some alternative investment platforms have chosen to make significant investments in technology to provide quick-fix, flashy, web-based tools,” says Lake. “While PPB uses technology to simplify and streamline the investment and operational processes, including electronic subscriptions, we believe that human connections matter. We prioritise personalised support to wealth advisers looking to allocate to alternative investments through our platform. This differentiates PPB from our tech-based competitors.
“PPB is committed to providing value-added solutions to wealth advisers as they look to provide the benefits of alternative investments to their clients. Our goal is to simplify the process, remove many of the operational burdens and provide exposure to strategies and services that are typically only available to large institutions.”