What's Driving the Alts Market?

Participants at Nicsa’s 2023 General Membership Meeting explored what’s driving the diverse landscape of alternative assets, from private equity to venture capital, hedge funds, and beyond.

The session, What’s Driving the Alts Landscape, took a deep dive into the untapped opportunities that alts can offer. York Lo, Head of Alternative Product and LLCs, John Hancock Investment Management moderated the panel which comprised Brendan Cuddihy, Chief Operating Office, CAIS; Kenny King, Head of Alternatives, Asset Servicing, BNY Mellon; and Meisan Lim, Investment Managing Director, Hedge Funds, Cambridge Associates

Alternative investments have emerged as a diverse array of strategies, gaining significant attention in recent years. Key periods that have buoyed this strong interest include the post-dotcom bubble in the early 2000s, after the Global Financial Crisis (GFC) in 2009, and notably post-2022 where bonds failed to provide the anticipated protection for investors. Nicsa GMM attendees benefited from a candid discussion around the opportunities and hurdles facing the ever evolving alts landscape.

Here are the key takeaways:

1. Challenges arise in reconsidering the traditional 60/40 allocation, prompting a paradigm shift towards more substantial and enduring allocations to alternative strategies.
2. Despite the potential advantages, the wealth channel remains under-allocated to portfolio alternatives, spurring various firms to address this disparity.
3. Semi-liquid products have witnessed remarkable growth, offering increased access to private assets.
4. Convergence between alternative and traditional managers, including mergers and acquisitions, is a prevailing trend.
5. Financial advisors are becoming better equipped, and technology is transforming the game, although immediate flows may lag behind heightened interest.
6. The subscription process proves cumbersome, propelling firms to address challenges through digital transformation, especially in the realm of alternatives and trading.
7. Post-allocation to alternatives, the focus shifts to data, reporting, and cycles, ensuring comfort in approaching clients with comprehensive portfolio insights.
8. Client concerns regarding liquidity vary, challenging the conventional notion of maintaining 100% liquid assets. The recognition of the illiquidity premium has prompted asset managers to create structures that are more conducive to wealth building.
9. In spite of being part of a higher-margin and fee industry, fee compression is observed, prompting nuanced considerations about paying for alpha versus beta. Bargaining power and early engagements with managers may influence fee structures.
10. The industry is poised for a transformation, with a projected dominance of 20 to 30 product providers. Private wealth firms are expanding rapidly, propelled by a perceived $10 trillion opportunity.
11. Successfully navigating this landscape involves careful consideration of alpha performance relative to benchmarks. 

In summary, alternative investments present a dynamic landscape where historical trends, evolving strategies, and technological advancements shape portfolio decisions. Balancing liquidity, navigating fee structures, and adapting to industry shifts are crucial for success in this evolving market.

Personal views and observations of individuals contained herein are as of the date of the live event or written material and do not necessarily reflect the views of Nicsa or its member organizations. May contain forward-looking statements subject to various uncertainties. Nothing herein is intended to be or should be construed as legal advice. Contact your own counsel in order to obtain legal advice regarding these or any other matters. The information contained herein is for informational purposes only and does not constitute a recommendation of best practices.

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