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Big asset managers are battling to hire personnel to sell new, more complex investment products as they move away from mutual funds and into alternative products aimed at a rich clientele.
Developing products in “alternatives” — asset classes such as credit, private equity and real estate — have received intense focus for asset managers that have otherwise suffered fund outflows in the past few years.
Harder to trade and less liquid than traditional equities, alternatives have historically been the domain of large institutional investors such as pension funds and endowments. But, inspired by the success of retail-focused products such as real estate and credit funds offered by Blackstone, asset managers are turning to affluent investors as a new source of capital. The so-called wealth channel could bring between $500bn and $1.3tn into alternatives by 2025, McKinsey estimated in a 2022 study.
But firms are struggling to find salespeople who both understand these complex products and have experience bringing them to market, making it difficult to compete with established players and slowing the very growth the groups are depending on.
“Where I’m seeing the biggest resource constraints in the market is really along the marketing and sales function,” said Paul Kelly, the global head of alternatives at DWS and former chief operating officer of Blackstone’s credit business. “Getting the right level of talent that understands the product and also the client base is harder.”
Managers predominantly reach affluent individuals through wealth management, a business that combines asset management with financial planning and advice and is expected to swell from $137tn in assets in 2021 to almost $230tn by 2030, according to Bain, the consultancy.
The size of the opportunity is huge for alternative investment products targeting the wealthy: while individual investors hold roughly half of the more than $275tn in global assets under management, they are estimated to hold just 16 per cent of alternative investment capital, Bain found.
Selling into the wealth channel has proved challenging for alternatives providers used to selling to institutional clients. Wealth managers are often less experienced with alternatives.
“In the wealth channel, [sales] is a blocking and tackling game,” said Jenny Johnson, the chief executive of Franklin Templeton. “You have to get the right product in the right vehicle, then convince each gatekeeper to put it on their platform while educating your own salesforce.”
She added: “Then it is hand-to-hand combat as you educate each financial adviser on how to handle it in their portfolio.”
More established firms have sales staff with experience educating wealth managers, helping sell the products. “To Blackstone’s credit, they’ve been doing it for years,” Johnson said.
The opportunity is potentially large: 85 per cent of financial advisers want to increase allocations to alternatives in the coming year, according to a survey by alternatives marketplace CAIS.
“You need strong salespeople who understand the products and to do a lot of education,” said Alexander Blostein, an analyst at Goldman Sachs. “The traditional managers and mutual fund salesforce have not done enough to be equipped to do the job the way someone who has been selling this product for a long time can.”
Skilled salespeople exist in alternatives, executives say, but often they are at larger managers with popular products such as Blackstone. Because salaries in sales are also based on commissions, experienced staff with top selling products have little incentive to leave. More than $2.5bn has flowed into Blackstone’s $61bn Private Credit Fund since the start of 2023. The fund has posted positive net flows every quarter since it launched at the start of 2021.
Kelly at DWS said: “They’re not a dime a dozen, and the talent that exists today is already gainfully employed at the larger alternatives shops.”
Nicholas Saglimbene, an investment management recruiter with headhunter Selby Jennings, said that is driving up pay for alternatives specialists. “Compensation has jumped exponentially across the board within investor relations and sales”, especially in “hot” products such as private credit and real estate, he said.
Even if managers are willing to pay up, traditional asset managers are struggling to recruit top candidates because of their longer, “arcane” interview processes, Saglimbene said, and are losing out to more nimble, specialist firms.
“When we have a [top] candidate . . . We are expecting them to have at least five offers by the time we get them to the offer stage. But some firms don’t even have the chance to get the offer stage because of how many steps their process is.”