A new Cogent Syndicated report from Escalent shows 70% of advisors are using alternative investments in their clients’ portfolios. Advisors are currently allocating an average of 7% of their assets to alternatives and anticipate increasing this allocation to 10% over the next two years—revealing a growing interest in the category.
Among accredited investors (a regulatory requirement by the SEC to limit investments in alternatives), millennials lead in familiarity with—and ownership of—alternative investments. Eight in ten millennials are interested in learning more about alternative investments and more than six in ten have actively taken steps to learn more about alternatives.
“Many asset classes experienced double-digit losses in 2022 and, as a result, advisors and investors are turning to alternative investments in hopes of decreasing volatility and increasing returns,” said Kristin Hall, product manager in the Financial Services research division of Escalent and author of the report. “Alternatives can serve as both a workhorse and a racehorse—earning slow and steady but also fast. Their low correlation to public markets can drive performance and support capital preservation in the form of dividends and other income streams.”
These are the key findings from Escalent’s Cogent Syndicated Trends in Alternative Investments™ report, which measures advisor and accredited investor interest in alternatives. The report examines the rate of adoption of alternative investments, which alternatives are being favored and accessed, barriers to use, as well as opinions toward cryptocurrency and the digital asset marketplace.
One barrier to expansion of alternatives is for investors to meet the qualifications to be an accredited investor or qualified purchaser in the category. The SEC requires investors have $1 million in investable assets to participate, and once they are admitted there are steep high-investment minimums that make engaging all the more challenging. The study also found the top barrier to entry in the category is the lack of liquidity, as many investments limit investors’ ability to quickly sell without a substantial loss in value.
REITs continue to be the most popular alternatives asset class, with almost eight in ten advisors recommending REITs to their clients. MLPs (Master Limited Partnerships) and/or commodities and real assets rank second and third in terms of popularity among advisors. Similarly, investors are most interested in learning more about REITs, followed by liquid alternatives, private equity and venture capital.
While advisor use and interest in cryptocurrencies have declined in 2022, investor ownership has increased significantly in the past year—from 10% in 2021 to 16% in 2022. Millennials are leading the asset class with half owning crypto and another 15% planning to purchase.
“While eight in ten affluent investors do not own crypto and have no interest in doing so, others crave the opportunity to invest in something outside of the government’s control,” said William Trout, director of wealth management at Javelin Strategy & Research, part of the Escalent family. “Many vehicles fueled by blockchain technology have not come to fruition as hoped over the past seven years. Some investors remain hopeful about the potential for improving efficiencies in other industries but aren’t willing to invest their hard-earned dollars in crypto amid such great uncertainty.”
Cogent Syndicated, a division of Escalent, conducted an online survey of a representative cross section of 512 financial advisors and 3,321 affluent investors from October 10 through October 24, 2022. Financial advisors participating in the survey were required to have an active book of business of at least $5 million and be providing financial advice to individual clients on a fee or commission basis. Affluent investors participating in the survey were required to be 18 years or older, have at least $100,000 in investable assets and be an active participant in financial decisions for their household. Strict quotas were set during the data collection period, and post-fielding statistical weighting (where necessary) was applied. The financial advisor data have a margin of error of ±4.33% at the 95% confidence level. The affluent investor data have a margin of error of ±1.7% at the 95% confidence level. Escalent will supply the exact wording of any survey question upon request.
To learn more about the report, click below.