How Advisors Are Putting Private Markets to Use

Core Insights - The integration of alternative investments into client portfolios is evolving from an opportunistic add-on to a calculated component of portfolio construction, reflecting a structural shift in advisor strategies [2][3][5] Group 1: Portfolio Construction and Strategy - Alternative investments can be categorized into three types: income and low-volatility growth, growth alternatives, and real assets for inflation hedging, depending on client risk and return profiles [1] - Private credit is utilized for income and downside support, while private equity and venture capital are sought for long-term growth, emphasizing pacing and vintage diversification [2] - Advisors are increasingly using alternatives as a core part of portfolio construction, with 50% allocating at least 10% of client assets to alternatives and 75% allocating at least 5% [3][5] Group 2: Client Demand and Market Trends - Higher-net-worth clients often inquire about alternative investments after reaching significant financial milestones, typically around $1 million in investable assets [8] - The demand for alternatives is driven by a desire for diversification and risk management rather than solely for market-beating returns [8][9] - The trend towards alternative investments is supported by an extended bull market in equities, which has become concentrated and expensive [5] Group 3: Technology and Accessibility - Technology and AI are streamlining access to alternative investments, making it easier for financial advisors to introduce these strategies to clients [6] - 77% of advisors utilize model portfolios for alternative investing, with 55% valuing analysis tools as essential technology features [7] Group 4: Risk Management and Client Concerns - Clients are increasingly focused on ensuring their portfolios are not overly reliant on a single market environment, with alternatives providing a means to manage concentration risk [10][11] - Alternatives can reduce volatility drag during withdrawal phases, but they also come with trade-offs such as less liquidity, complexity, and higher fees [9]