Wealth managers are making alternative investments more of a priority to meet the expectations of their clients and help grow total assets under management.
According to a study from McKinsey & Company, which examined alternative investments including hedge funds, real estate investments, private equity, commodities and infrastructure, volatile financial markets and retirement savings gaps are prompting individuals to seek more investment options while minimizing risk.
Among these options are regulated mutual funds and ETFs which are then sold through traditional retail distribution channels.
By the end of last year, alternative investments had reached $6.5 trillion in global assets under management and, according to McKinsey, that number will only increase in the years ahead.
U.S. alternative investment allocation is projected to increase to 28% of total portfolio assets by end of 2013, accounting for 25% of total retail fund revenue in 2015. The study also shows 100% of U.S. investors and 70% of European investors expect alternative investments to outperform traditional asset management products.
With the new alternative investment boom, some alternative managers specializing in alternatives are experiencing growing pains.
“Specialist players are finding they need to add more customer centric capabilities to their strength in generating alpha,” the study said. “But alternative specialists aren’t the only ones facing challenges – traditional wealth managers are faced with compensation and incentive differences as well as cultural and talent management issues.”
Kylie Hennagin writes for Financial Planning.