Alternative Investment

Alt Asset Managers Offer More Flexibility On Liquidity, Cerulli Says

Alternative assets managers admit they continue to be challenged in their retail distribution efforts, but their intermittent liquidity products might at last be positioned to make inroads, recent research from Cerulli Associates found.

More than two-thirds of alternative asset managers (68%) still rate distribution as a major or moderate challenge despite there being more channels for distribution now than in the past and with more to come, according to the Cerulli report “U.S. Alternative Investments 2022: Delivering Alternative Capabilities to Retail Investors.”

Part of the issue is flip-flopping demand: While advisors claim they look to alternative investment for income and downside protection when equity and fixed-income markets are volatile, 40% of advisors won’t use them at all, the survey said. And when they do, they report allocating only 6.2% of total assets to alternatives and commodities combined for moderate risk clients.

To reach financial advisors, these fund management primarily have been relying on their own wholesalers (67%) and their own distribution platforms (61%). Just 22% have partnered with a tech platform like iCapital or CAIS, and only another 17% have considered it and passed.

For an industry that likes to be able to compare product options on a granular level, this siloed data may be part of the disconnect.

“These are complex products, and it can be difficult to compare exposures. This is still an industry that needs a little more transparency,” said Daniil Shapiro, director of product development at Cerulli with a focus on ETFs and alternative investments.

At the same time, some asset managers have been extremely successful, and there is industry expectation that more will be successful in the future, he said, in particular with intermittent liquidity products, which allow redemption either quarterly or monthly.

“Now we have a wave of products that are neither daily liquidity nor a private equity exposure where you’re locked up for 10 years,” Shapiro said. “We’re now seeing a variety of venerable asset managers offering them, and advisors are getting more comfortable with that structure.”

This is good news for financial advisors, as 59% said they would invest more in alternatives if they were more liquid, the survey said. And for a portion of a client portfolio, advisors will find that intermittent liquidity exposures as a category have logged a compound annual growth rate of 17.6% from 2016 through 2021.  

“If you are a typical advisor outside of the ultra-high-net-worth space, you’re likely going to be using an intermittent liquidity product element,” Shapiro said. “It’s a new tool in the toolkit. It’s not necessarily a better product, and you have to understand the risks. Yes, they can offer greater income, some have really good performance. But they also have high fees.”

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