As UHNW investors continue their quest for more diverse sources of alpha and stability of returns, UHNW RIAs are increasing allocations to alternative investments. In some cases, UHNW portfolios may have upwards of 40-50% allocations to alternatives, including private equity, hedge strategies, real estate and other real assets. In fact, many of these UHNW RIAs position their exclusive access to unique and under-the-radar alternative asset managers as a key competitive differentiator. Clearly, the endowment model pioneered by Yale’s David Swenson is taking hold with UHNW investors and there seems to be no sign of abatement.
The democratization of alternatives
With the proliferation of alternative investment platforms such as iCapital, Artivest, CAIS and a host of others, RIAs and asset managers can now access a range of unique private managers through a single platform – thereby “democratizing” access to alternatives for individual and institutional investors. Many of these platforms tout themselves as turnkey alternative investment platforms, providing additional benefits such as lower investment minimums, streamlined processes and comprehensive performance reporting. Many appear to be gaining traction with leading wealth manager aggregators including Focus Financial, United Capital, Hightower, Mercer and others.
Rethinking RIA brand positioning
Leading RIAs who utilize these platforms appear to have discovered that an outsourced approach to accessing alternatives can help them streamline and scale their offer to a broader set of clients, while allowing them to focus on other high-value activities such as business development and client service. For those wealth managers who rely on their manager access and due diligence as key differentiators, these platforms may pose more of a threat. As “unique access” to managers becomes increasingly commoditized, RIAs will need to find other ways to differentiate themselves.