Alternative investing is gaining momentum among high-net-worth (HNW) investors (those with $5 million or more in total investable assets). Up from 7.7% of client portfolios in 2020, HNW clientele now have an average of 9.1% of their assets allocated to alternative investing options, and advisors expect this to increase to 9.6% by 2024, according to The Cerulli Report—U.S. High-Net-Worth and Ultra-High-Net-Worth Markets 2022: Shifts in Alternative Allocations.
There are numerous reasons advisors are adding alternative investments to client allocations. Portfolio diversification (50%) to help reduce volatility, along with new growth opportunities (50%), are among the top cited.
“Advisors—disappointed in public equity and fixed-income returns—are allocating more to private capital exposures,” says Chayce Horton, research analyst. “By expanding opportunities into private asset and credit markets, affluent and HNW investors are better equipped to properly diversify their portfolios.”
Moving forward, HNW practices report strong intentions to increase alternative investments in almost all strategies over the next two years. Private equity leads the way, with 50% of advisors and executives planning to increase their allocations, followed by private real estate (45%) and direct investments/co-investing (32%). A vast majority (94% or more) of surveyed HNW practices expect to maintain or grow their positions in all types of alternative investment opportunities, outside of hedge funds.
HNW practices are also increasing offerings such as alternative manager search and selection as a primary service, growing from 50% in 2016 to 67% in 2022. Cerulli expects this trend among HNW practices to persist as private markets continue to mature and prospects for additional tailwinds in the space proliferate. “Practices competing in the HNW advisory space should consider making these types of alternative investment consulting and implementation services a core part of their offering,” says Horton. “Access to alternative opportunities is a beneficial aspect of advisors’ service offerings that has proven to both attract and retain HNW clients over time.”
