Advisers Eye Alternatives with Growing Interest

Alternative assets skyrocketed over six years, from $83 billion at the end of 2008, to $304 billion in mid-2014, according to Strategic Insight.

In the “Alternatives Industry Analysis 2014,” Strategic Insight, an Asset International company, reports that registered alternative assets surpassed 2% of all mutual fund and exchange-traded product assets last year. Strategic Insight projects continued growth for the next five years, at an average annual clip of almost 20%. The report contends that the biggest single driver of demand for alternatives is volatility management and, therefore, capital protection for retirees.

Advisers are helping to drive interest in liquid alternatives, according to the report. One-quarter of investors (25%) point to the advice of a financial adviser as spurring them to begin investing in liquid alternatives, well ahead of any other single factor. Advisers and investors turn to alts for different reasons: About half of advisers (52%) cite portfolio diversification as the primary reason they use liquid alts. Conversely, the top reason for investors to use alternatives was income (41%).

Registered independent advisers (RIAs) are the channel with the largest assets as of the second quarter of 2014, but recent activity suggests that wirehouse home offices and gatekeepers are increasing their support of alts.

A section on the growth of the alternatives universe reviews the evolution and expansion of the liquid alternatives industry, defines Strategic Insight’s 12 categories of products, and breaks down the historic growth of alts by category and product type.

Nearly half of consumers (49%) say they still don’t understand this investment class, and one-third say that alternatives seem risky. However, fewer investors (32%) expressed low confidence in the product, a considerable improvement from 50% in 2013. Slightly more than a third (37%) of all investors say growth of capital is their main investment priority, but 33% of high-end investors say they are concerned primarily about capital preservation. Among less-affluent general investors, 30% indicate their top priority is income production.

The report also explores:

Attitudes and expectations: Discusses the role of ’40 Act alternatives in portfolios and how investors and advisers view and use these products, based on Strategic Insight’s surveys.

Alternative Industry Projections: Provides Strategic Insight’s five-year projections for growth of liquid alts—overall and by category—including the trends, challenges, and opportunities that should influence the industry through 2019.

Strategic Insight’s “Alternatives Industry Analysis 2014” is based on proprietary surveys and interviews of more than 1,100 investors, advisers and industry executives. For information on ordering the study, contact Austin Ulep at 617-399-5629 or email