A New Array of Alts
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When it comes to advisor access to alternative investments, liquid alternative mutual funds are no longer the name of the game. More asset managers are rolling out non-traded products meant to help advisors tap into asset classes such as real estate, private equity, private credit and infrastructure while providing some degree of liquidity for clients.
An ever-expanding universe of real estate investment trusts, interval funds, tender offer funds, business development companies and other vehicles gives advisors more choices to offer clients seeking diversification. But the offerings also require more work to vet, and some advisors might decide that's more of a drag than it's worth (more on that below)."What the innovation has done is expand the menu," Rajib Chanda, a partner in the registered funds law practice at Simpson Thacher & Bartlett, told FA-IQ sister publication FundFire. "What we're seeing for the foreseeable future is less of a cookie-cutter approach."
Advisors Weigh In The profusion of available alts products hasn't swayed every advisor.
In the independent registered investment advisor space, firms managing bigger pools of client money are more likely than smaller shops to offer alts to their clients, research indicates.
A little more than half - 52% - of RIAs with less than $1 billion under management said they don't offer liquid alternatives, compared to just 30% of those with $1 billion or more, according to a study from Fidelity.
Alts add another layer of complexity to explain to clients, said Jamie Lima, founder and president at Woodson Wealth Management, a San Diego-based RIA with roughly $15 million under management. And he doesn't see enough demand for alts from his clients to be worth the hassle.
"I think in this day and age, the simpler, the better," he said.
Other advisors see dipping their toes into these asset classes as a chance to differentiate their services and provide more diversification to clients.
Despite some initial misgivings from the alts "horror stories" he'd heard, Malik Lee, managing principal and founder of Felton & Peel Wealth Management, said that offering alts - including private REITs and a cryptocurrency ETF - have helped him cater to a younger client base.
"I had to tell myself, 'Listen, I know that I'm a smaller firm,'" said Lee, whose shop has offices in Atlanta and New York and roughly $17 million under management. "'[B]ut I need to figure out how I can add this safely to client portfolios and not risk some of the other things that come with alternative investments.'"
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Meanwhile, some advisors are using access to alternative investments to win over high-net-worth investors. Click here or on the image below to watch the video clip.
Bypassing the Advisor Robo-advisor SoFi is offering some alts strategies straight to investors, bypassing the role of the advisor.
The offerings, which include non-traded interval funds and a tender offer fund, span asset classes including private credit, real estate and equity stakes in pre-initial public offering companies, FundFire reported.
The move could represent a "sea change" in the way alts managers get their products in front of clients. That could cause some concern for advisors who have used alts to differentiate their practices, said Daniil Shapiro, director of product development at Cerulli Associates.
Dave Donahoo, the head of U.S. wealth management for alternatives at Franklin Templeton, told FundFire that the SoFi offering is the first instance of his firm making its interval funds available to self-directed investors. He also offered a quick reassurance that advisors remain at the "heart of our business" and that adoption by the DIY crowd is up in the air.
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