Smaller Asset Managers Attracting Advisers with Specializations in Alternatives

Advisers’ interest in alternative investments is on the rise, and smaller, boutique asset managers may meet the criteria advisers want more than larger, “brand name” firms.

Cogent Research wrote in its latest report that advisers are embracing a “go anywhere” approach to achieving portfolio goals and have expressed a greater interest in Multi-Strategy and Managed Futures strategies than in Long/Short or Market Neutral ones.   

Seventy-eight percent of all advisers surveyed use alternative investment (AI) strategies in their clients’ portfolios.  Nearly one-third of them predict that Multi-Strategy and Managed Futures strategies have the greatest potential over the next 12 months. By contrast, providers offering Long/Short Interest or Market Neutral solutions are likely to experience lower interest in the coming year as advisers look to shift their AI holdings and categories.

“I think advisers want to bring institutional ideas to the retail marketplace,” said Tony Ferreira, Cogent Research Managing Director and co-author of the report to PLANADVISER. “Advisers are looking for investments that are going to zig when everything else zags. Alternatives offer downside protection to volatility” (see “Advisers Using Alternatives to Increase Diversification”).   

However, unlike in the case of traditional asset categories, AI users are turning to a wide variety of firms, including traditional mutual fund, ETF, hedge fund managers and other AI specialists to address their needs. “While we expected to see a range of providers, we were surprised to uncover that nearly 300 unique firms and managers were being considered by AI users,” he said. Although brands like PIMCO, BlackRock and Natixis were mentioned in their AI consideration set, smaller and emerging providers like Altegris, Hussman and Virtus are also top-of-mind among AI sellers.

 “These results demonstrate that advisers are performing extensive due diligence in their quest to find the best alternative investment solution in every AI strategy,” said Ferreira. “This would include ensuring that the firm has a sustainable long term record, that they’ve been doing this (retail or institutional), for three to four years at least.” Performances also matters, as well as fees and the stability of the people on the team, he said.  “And with these smaller boutiques, this is all they do and they’re really good at it,” he added.    

These findings and others are available in Cogent’s report, “2011 Alternative Investment Trends.”