Nicsa’s Asset & Wealth Management Summit examined the evolving landscape of alternative investments, including the niche firms, technology platforms, and service providers that are emerging to support the alts ecosystem.
Marty Griffin, Managing Director at Beacon Ridge Capital Management, moderated the panel of thought leaders including:
Andrew Barnum, Senior Vice President – Wealth Managers, iCapital
Nick Darsch, Managing Director, Ultimus Fund Solutions
York Lo, Global Head of Alternative Product Management, John Hancock
Justin Schwartz, Executive Director, Product Management, Wealth Management Services, DTCC
Following are key takeaways from this highly attended session, which provided insights into the factors fueling the growth of alternatives, challenges in their integration, and strategies to make alts more accessible for wealth managers and investors.
Key Takeaways
- Driving Forces Behind the Boom
- Increased demand for portfolio diversification and alternative income sources has spurred growth in alts, especially as traditional investments face market volatility. Wealth managers see alternatives as valuable tools for providing uncorrelated returns, inflation protection, and access to previously restricted asset classes like private credit, real estate, and infrastructure.
- Platforms such as iCapital and CASE are helping wealth managers access alternative investments more easily, acting as critical entry points for advisors new to these products. These platforms simplify integration by facilitating education, automating processes, and enhancing accessibility to multiple alternative vehicles.
- Education and Simplifying Complexity
- Education remains crucial for advisors who are often unfamiliar with the structure and risks of alternative investments. Unlike mutual funds, alternative vehicles may have complex liquidity terms, high entry requirements, and regulatory considerations. Sponsors and platforms are focused on equipping advisors with the tools to understand and communicate these aspects to clients.
- By making products like interval and tender offer funds more accessible, sponsors help advisors gain experience with less complex alts, easing them into the market. These vehicles also offer liquidity options more compatible with the shorter investment horizons of individual wealth clients, compared to the lengthy lock-up periods typical in institutional alternatives.
- Product Structures and Accessibility
- To accommodate a broader investor base, new structures are emerging, including interval funds, tender offer funds, non-traded BDCs, and REITs. These products are appealing because they offer controlled liquidity and fit more seamlessly into a typical advisor’s portfolio management toolkit.
- Interval funds, for example, allow investors periodic access to their capital, providing liquidity options on a quarterly basis, while tender offer funds, which are often used for less liquid assets like private equity, offer scheduled redemption opportunities. By tailoring the vehicle to the underlying asset’s liquidity, these products align better with retail investors’ needs while still providing alternative exposure.
- Operational Integration and Technology-Driven Solutions
- Integrating alternative investments into traditional advisory workflows poses logistical challenges. A lack of standardized processes for trading, reporting, and client servicing in alts can create friction. Solutions like the Alternative Investment Platform (AIP) have been developed to streamline processes and manage the operational complexity involved in handling alternatives.
- Through automated systems and partnerships with fintech platforms, the operational complexities tied to alts are minimized, reducing human error, lowering costs, and enhancing scalability. AIP, for instance, addresses challenges like post-trade reporting and fractional ownership, crucial for smooth transactions in alternatives.
- Institutionalization of Alternatives for Wealth Management
- There’s a shift from simply democratizing alternative investments to institutionalizing them within wealth management, as larger wealth managers create their own alts vehicles for distribution. By centralizing alternative options into a single allocation vehicle, wealth managers simplify access for clients and potentially gain access to unique investment opportunities.
- Institutionalizing alts also involves incorporating regulatory protections (e.g., under the 1940 Act) to ensure suitability and safety for private wealth clients. This trend towards institutionalizing also reduces fee compression in alternatives compared to traditional products, as alternative vehicles often come with premium fees, reflecting their unique asset management demands and illiquidity.
- Challenges and Future Outlook
- Challenges in adopting alternatives into retail and sub-institutional markets include the complexity of products, educating advisors, and ensuring these products meet the needs and constraints of retail investors. Simplifying access for non-institutional clients is essential, as traditional alternative products were designed for institutions with large capital reserves and long investment horizons.
- Experts predict continued growth in alts, with advisors increasingly seeking diversified strategies and higher-income solutions. However, the success of alts will rely on the industry's ability to maintain operational efficiency, reduce product complexity, and ensure advisor and client readiness to handle the unique aspects of these investments.
Conclusion
The "Alternative Investment Boom" session underscored the transformative impact of alternative investments in the wealth management sector. By simplifying access, investing in education, and partnering with technology platforms, wealth managers are increasingly able to incorporate alternatives into client portfolios. As the industry continues to mature, the institutionalization of alts promises to make these investments a standard part of wealth management strategies, allowing more investors to benefit from the unique returns and diversification they offer.
Nicsa remains at the forefront of fostering innovation and collaboration among professionals in the industry. We invite you to join us at our next event, where you'll have the opportunity to engage with industry leaders, explore cutting-edge technologies, and gain valuable knowledge to drive your business forward. Don’t miss the chance to be part of our dynamic community shaping the future of asset and wealth management: SLF2025
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