That way of thinking about alternatives, Sweeny says, is rooted in the history of institutional asset management, with greater focus on creating highly differentiates sources of return than simply maximizing return in any given year. He argues that this approach produces better long-term outcomes. It’s an approach which is being bought into by the HNW segment and through new, more liquid, vehicles is even growing in the mass affluent retail segment.
Just as HNW and retail investors claim greater interest in alternatives, Sweeney says that there is greater sophistication in the products they’re demanding. That sophistication has grown to the point where using alternatives as a broad term has almost become obsolete. Financial advisors and their clients, Sweeney says, are having direct conversations about real estate, real estate debt, private credit, private equity, secondaries, venture, hedge funds, and just about every other conceivable flavour of private asset. It’s a growing sophistication which Sweeney says also mirrors the earlier entry of institutional investors into various alternatives subcategories.
Where retail and institutional demand has diverged, notably, is on income-generating real estate assets. While both market segments have allocated there, Sweeney says that retail investors and advisors have shown considerable appetite for income generating investments. That began with REITs but has since spread out to private credit. There is even a growing appetite among HNW investors for access to infrastructure.
Sweeney notes that there hasn’t been much appetite for infrastructure among wealth management clients historically. This new uptick, though, stems more from that institutional mindset. These HNW investors are looking to add infrastructure exposure because of the ballast it provides to their portfolios, rather than its possible upside. They’re doing so, too, during a historic bull run with public equities offering gargantuan returns. The mindset, Sweeney says, is less about FOMO on the equities run, and more a seeking of protection against the data-sensitivity, geopolitical uncertainty, and challenging circumstances that seem to drive an elevated level of market volatility. 