Distribution challenges

Alternative investment distribution will remain a critical priority for asset managers that perceive a revenue-generating opportunity (81% report this as a strong driver of offering alternative investments).

But Cerulli urges firms not to underestimate the challenges they will face in distributing this wave of offerings. Polling indicates that the learning curve for some will be significant. The challenges associated with educating advisors on the topic are well covered, with 69% of managers rating internal education and training as a major or moderate internal challenge, second only to the related challenges of distribution, including access to platforms and gatekeepers (77%). These challenges are being reported as firms are pushing wholesalers (and many have acquired distribution for such product) to sell—with some finding staff less prepared than expected—and with wholesalers finding a long road to a payout.

Managers also recognize that alternative investment demand from advisors is lukewarm. From their end-clients, it may well be cold. Less than one-quarter (23%) report demand from financial advisors’ clients as a reason for offering alternatives, underscoring that financial advisors will need tremendous education on discussing these exposures with their clients.

Platforms for high net worth

Despite the tremendous discussion of “democratization,” managers are heavily focused on distribution to the wealthiest clients, clearly prioritizing high-net-worth (HNW) initiatives above initiatives focused on the mass affluent. This is certainly sensible given the wealth that exists in these segments, but this is also not entirely revolutionary—HNW clients have long been able to access quality illiquid product—with the benefits of intermittent liquidity structures (versus being completely illiquid) being mixed at best given the tradeoffs of what can be packaged into them (less pure-play exposures that need to offer liquidity).

The most significant improvement for HNW clients is likely to be ease of access via platforms such as iCapital and CAIS that are continuing to improve their service offering to advisors. In June 2023, iCapital announced the launch of iCapital Marketplace, which centralizes offerings to registered investment advisors (RIAs) so that these advisors can now view and access a greater breadth of offerings. As these platforms focus not only on product access (and increasingly so on a wider shelf of product including structured notes and intermittent liquidity) but also education and due diligence, they certainly play a critical role in continued advisor uptake. While firms will generally still need their own distribution resources, the importance of such platforms is difficult to understate.