Retail investors becoming more relevant in the alternative asset space
Historically, investors in alternative assets have been large institutions with significant long-term capital, and return objectives that are difficult to achieve in other asset classes.
Retail investors, for their part, have not participated in alternative assets as they faced many barriers to entry. For example, the long-term nature of fund investment structures made it difficult to quickly access the expected investment gains. The typical, minimum investment amount (up to $5 million) often created significant concentration risk in a portfolio.
The retail investor also needed sufficient liquidity to fund lumpy capital calls (especially during downturns) and withdrawals from the retail account. Combine these hurdles with no way to effectively and efficiently market positions, and a lack of transparency in information and reporting, and it’s no wonder the alternative asset class has been dominated by large and sophisticated institutions.
The traditional landscape, however, is changing. There are now some unique structures providing retail investors with liquidity and a broader set of products from multi-strategy managers in alternative assets. This has opened the doors for achieving some of the same returns as large institutional investors, albeit with a higher level of fees required for access.
If done correctly, some of the potential benefits of investing in the alternative asset class include:
- Achieving investment returns above public equities and fixed income investments contained in a typical retail investors’ portfolio;
- Ability to put capital to work with active managers that can generate outsized returns in cyclical downturns rather than investing with passive managers that are more beholden to market swings; and
- Ability to invest into private assets that are otherwise not historically accessible to “public” investors.
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