A survey of RIAs with assets under management of USD500 million or more by alternative investment solutions provider PPB Capital Partners has found that holdings of alternative investments in client portfolios are likely to increase over the next 12 months.
The firm conducted the survey to gain clarity on the direction of alternatives among RIAs, and to provide insights to RIAs for whom alternative investments are an emerging part of their business.
Some 45 per cent of survey respondents said they expect the alternative investment asset allocation in clients’ portfolios to increase, while 47 per cent said they expect the allocation to stay the same, with just 7 per cent reporting alternative assets in client portfolios would decrease.
“These are significant numbers,” says PPB founder Brendan Lake (pictured). “That 45 per cent of clients have an appetite to place more of their assets in alternative investments, is notable. But with another 47 per cent expecting the allocation to remain the same – not decrease – means that 92 per cent of clients remain comfortable with their alternative assets allocations. This despite limited liquidity in many cases and a surging stock market.”
He adds that investor satisfaction was also boosted by investment selections. Specifically, the top three investments; private equity, real estate and private credit at 37 per cent, 22 per cent and 22 per cent respectively, have performed well. Lake says: “Private company valuations, which have a strong correlation to public company valuations, have, over the past year, risen in lock step with the stock market at large. And as a result, private equity allocations have done quite well.”
“The expected increases in alternative asset allocations appear to be material rather than incremental,” says Lake. Specifically, 72.5 per cent of respondents said they expected their alternative asset allocations to increase by up to 25 per cent. Another 19.9 per cent said they expect their allocations to increase by more than 50 per cent. As for contraction, 17.6 per cent of RIAs said they expect the percentage change in alternative investments in client portfolios to contract.
The growth in alternative assets will, to some degree, cannibalsze other parts of the portfolio, according to respondents. Specifically, 50 per cent of respondents said alternative asset allocations are deliberate rebalancing of traditional assets or liquidation of other assets in the portfolio.
“This also means,” says Lake, “that half the time alternative allocations are funded with new AUM, and this is significant.”
“When we asked RIAs what their primary objective was in offering alternative investments, not even one selected the option ‘To fulfil practice goals’, which demonstrates a strong commitment to fiduciary duty. Nonetheless, these figures demonstrate that alternative investments are one of the surest ways to increase AUM, which is in fact, and understandably, a goal for almost any RIA.”
In a 10 per cent correction, 41.7 per cent of respondents said they would expect their alternative investments to be down, but not as much as the market at large. Another 40 per cent of respondents said their allocations would be neutral with a flexion of just 1 per cent to 2 per cent. Finally, 18.3 per cent thought their alternative allocation would be positive.
