Wealth managers planning increased PE, RE allocations in wake of Covid markets volatility, hedge funds set to suffer


Wealth advisors are eyeing an increase of their allocation to alternative assets in the coming year following the huge market volatility of 2020, new research suggests.

A total of 98% of wealth managers responding to a survey by PPB Capital Partners said they plan to boost or maintain their alternatives allocation over the next 12 months.

About 85% of those planning to increase their allocations said they would likely raise them by between 5% and 10%, the report added.

Private equity, real estate and private credit are all likely to benefit from the increased allocations, PPB said, adding that advisors planning to decrease alternatives exposure indicated the reduction would likely come from hedge fund strategies.

Of the 130 wealth advisors responding to the survey, 83% were RIAs or bank wealth groups, 9% were family offices, and the remaining respondents were a combination of institutions, consultants or high net worth investors.

About two-thirds of respondents manage over $1bn in assets, it added.

PBB founder and CEO Brendan Lake said, “These results are significant. Almost 50% of wealth advisors said over half of their clients own alternative investments.

“For 24% of wealth advisors, the increased volatility seen in the markets during the Covid-19 pandemic has changed their view on the need for alternatives.

“But, implementing alternative investments can present operational challenges for wealth advisors and their clients.”

The majority of wealth advisors said that they use alternative strategies for diversification, risk management, and/or to enhance returns, according to PBB.

Only 36% said they use alternatives for income, and less than 15% said they use alternatives to fulfill a client or firm-driven initiative.

The largest hurdle wealth advisors face in increasing their alternative allocations over the next 12-months is dedicating the team resources needed for proper manager due diligence, the survey found.

Once a manager and strategy have been selected, firms are often overwhelmed by gathering the required client documentation and completing the lengthy subscription process.

That remains true across the industry, despite 62% of wealth advisors stating they use electronic subscription platforms.

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