Consultants Well Versed in Alternatives Are Best Positioned to Gain Share Among Institutional Investors
October 19, 2020 — Boston
Institutional asset owners such as insurance general accounts, health and hospital systems, and endowments and foundations may find greater value in the services of a consultant given the challenges of the current market environment
The ongoing shift to more opaque alternative asset classes, an area of limited in-house expertise for many institutions, may boost the business development efforts of institutional consultants, according the latest issue of The Cerulli Edge—U.S. Institutional Edition.
The investing challenges created by the persistence of ultra-low interest rates and heightened equity valuations have caused institutional investors to seek higher allocations to alternative investments and private markets. This trend is challenging consultants to build or acquire the subject-matter expertise needed to evaluate new asset classes and make informed recommendations to clients. A shifting focus toward more esoteric and opaque asset classes provides an opportunity for consultants, as private equity and debt, infrastructure, and real estate are beyond the comfort zone of many asset owners.
“This lack of familiarity increases the likelihood that asset owners will seek assistance in adding allocations in any of these areas,” says Robert Nelson, associate director at Cerulli. “While there is a cost to build first-rate expertise and networks in alternative asset classes and private markets, consultants that demonstrate deep knowledge of the space and offer valuable guidance to clients will be optimally positioned to defend and gain share among institutional investors,” he adds.
Across institutional channels, there is no better growth opportunity than that which exists among endowments and foundations, according to recent Cerulli research indicating that 47% of consultants see great potential for new growth within this channel. Like so many other institutional channels, they are increasingly focused on private investments and alternative asset classes. “Investment consultants are uniquely positioned to identify best-in-class private investment opportunities that clients are pursuing for return-seeking purposes,” according to Nelson. “Additionally, investment consultants can highlight to endowments and foundations the advantage of having more time to focus on spending policy rather than investment policy,” he adds.
Ultimately, a consultant that can offer unbiased analysis and insight on how best to configure asset allocation models in consideration of alternatives exposures makes a compelling case for its services. A consultant that can do this and also offer access to alts managers with strong performance and limited capacity only helps bolster its standing with institutions now seeking allocations in more opaque private markets.