Amid challenging market conditions in recent years, including high inflation, rising interest rates and increased geopolitical uncertainty, interest in alternative investments has grown exponentially.1 Investors are seeking access to alternatives as a potential means of insulating their portfolios from market swings while enhancing returns.2
Alternatives have long been a key portfolio allocation for institutions and ultra-high-net-worth individuals. However, many individual investors have had limited access due to strict qualification criteria and high minimums. In many cases, a lack of relationships and an inability to conduct due diligence have kept all but the wealthiest investors away.3
Demand has, however, intensified as individuals seek diversification and new asset classes to offset the shrinking number of public investment opportunities, notably on the equities side. Currently, 87 per cent of US companies with $US100+ million in revenue are privately owned.4 Additionally, the number of US public companies has declined by about a third over the last 25 years, according to Bain & Company.5
Individual investors control over half of global wealth, but only allocated 5 per cent of their wealth to alternatives as of 2023.6 Preqin Global Alternatives predicts, however, that global assets under management (AUM) for alternative investments will rise to $US23.3 trillion in 2027, a compound annual growth rate of 9.3 per cent from 2021 levels of $US13.7 trillion.7
Given increased demand in the current macroeconomic landscape, policymakers and asset managers are working to broaden access to the asset class for a wider range of investors.8 This presents a clear but complicated opportunity for financial advisors looking to offer them to their clients.