Demand for liquid alternatives is increasing across all distribution channels, especially wealth managers and family offices, neither of whom has enjoyed access to the same strategies utilized by large asset management companies.
“They had access to some strategies, but the world of alternative investments has been centered mostly around liquid alts and mostly alternative mutual funds,” said Jeff Sica, chairman and chief investment officer at Circle Squared Alternative Investments, which provides consulting to wealth management professionals.
“Some of the strategies we're bringing are not really scalable to the large institutions,” he said. “They're not the type of offerings that you necessarily see at JP Morgan. They're the type of offerings that have a lot of merit, have very high level management attached to them, but they're just not scalable to the large institutional market.”
Circle Squared offers a platform which gives access to its individual strategies. It also has a turnkey asset management platform that allows investors to create a portfolio giving them access to alternative investments. The suite of investment products includes real estate, private equity, private credit, natural resources, private placement offerings, entertainment and media.
Alternative investments and other non-traditional asset classes are slowly becoming a larger part of the investment landscape, according to Pamela DeBolt, associate director at Cerulli Research.
"This acceptance is playing out in several areas: through increased allocations in institutional channels such as defined benefit pension plans and endowments, expectations for greater use among financial advisors, interest within defined contribution plans, product development agendas, and greater importance for asset managers,” DeBolt said in a release.
The percentage of managers that rate revenue potential as a driver of interest in alternative assets dropped to 83% in 2014 from 93% in 2013. This decline can partially be attributed to heightened regulation in increasing barriers to entry.
Regulatory requirements have increased the cost of running alternative funds, with additional resources needed for operations, compliance, reporting, and risk management.
"Further regulation is one reason for slowing in the process of adoption," DeBolt said. "The time required for institutions to perform due diligence and make an allocation is lengthy. Manager selection is a crucial component of alternative investments, and the due diligence process is time-consuming."
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